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URL:  https://boards.fool.com/i-understand-that-a-w-2-or-1099-isnt-required-29982262.aspx

Subject:  Re: roth ira for your young kids/grandkids Date:  4/17/2012  1:08 PM
Author:  TMFPMarti Number:  116051 of 128937

I understand that a W-2 or 1099 isn't required. What I don't understand is if they are earning more than $400, why self-employment taxes aren't a concern.

It's our old friend Facts and Circumstances. Household employees under 18 are exempt from FICA/Medicare/FUTA. So, on the easy front, babysitting in the child's home will fall into this category. I haven't looked into Pub 926 to see what, if any, requirement there is for the employer to file a W-2, but with or without a W-2 this is line 7 earned income on the 1040.

As a side note to Fuskie's (I think) comment regarding the child's need to file a return to justify, if you will, the IRA contribution, a return is not required if the child doesn't have enough income to require a return. I wouldn't bother unless the IRS challenges the IRA contribution for lack of earned income, in which case I'd file going forward. Others like to head them off in the first place by filing.

Now back to FICA/Medicare. Anyone of any age who "runs a business" is subject to Self-Employment Tax. Facts and circumstances dictate whether the law mower is a household employee of his customers or she is a budding entrepreneur running a business. The common law questions which feed this determination are in Form SS-8.

Phil
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