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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121565  
Subject: Re: Self employment tax when working for parents Date: 7/16/2001 3:52 PM
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In an April 10, 2000 article by TMF AnnC concering Roth IRA's for kids, she stated that children who work for their parents' business are exempt from self employment tax. I looked thru Publication 4: Students guide to Federal Income Tax and Publication 533 on Self Employment Tax and could not find a reference. Does anyone know is this can be substantiated? Thanks for any help anyone may provide.

The following is excerpted from Pub 15, Circular E, Employer's Tax Guide, pg. 7:

Child employed by parents. Payments for the services
of a child under age 18 who works for his or her
parent in a trade or business are not subject to social
security and Medicare taxes if the trade or business is
a sole proprietorship or a partnership in which each
partner is a parent of the child. If these services are for
work other than in a trade or business, such as domestic
work in the parent's private home, they are not
subject to social security and Medicare taxes until the
child reaches age 21. However, see Covered services
of a child or spouse below. Payments for the services
of a child under age 21 who works for his or her parent
whether or not in a trade or business are not subject to
Federal unemployment (FUTA) tax. Although not subject
to FUTA tax, the wages of a child may be subject
to income tax withholding.

<snip>

Covered services of a child or spouse. The wages
for the services of a child or spouse are subject to income
tax withholding as well as social security, Medicare,
and FUTA taxes if he or she works for:

1) A corporation, even if it is controlled by the child's
parent or the individual's spouse,

2) A partnership, even if the child's parent is a partner,
unless each partner is a parent of the child,

3) A partnership, even if the individual's spouse is a
partner, or

4) An estate, even if it is the estate of a deceased
parent.

<end excerpt>

Hope this helps.

Ira
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