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Family Employee Under 15 [Ask The Experts Q & A]

Nov 07, 2011
Q: I have following questions regarding a family employee (child who is under 15 yrs):
  1. What's the best method of payment, direct deposit payroll or checks or cash?
  2. Can we claim him as DEPENDENT for tax purposes, if the annual income paid is under the limit $4,750 applicable for year 2011?
  3. For our LLC we have been filing tax returns as a sole-proprietor, along with individual tax returns. Do we have to file additional form for child income?

A: The new employee, your child, should be treated basically the same as any other non-related employee even though there are certainly some differences in how the wages are taxed. Whether the employee wishes to be compensated via a direct deposit, via a paper payroll check, or via cash will not change the overall tax implications nor any of the withholding requirements. So that decision is really one of convenience and one of choice between the employee and the employer. From the company standpoint, paying cash as payroll would be somewhat unusual, and I would prefer having all payroll run through the company's bank account via a check or a direct deposit debit to the account. But that is a record-keeping parameter and does not change any tax implication.  You can pay them any way you like, but I would recommend against having any payroll transactions complete with cash. 

The wages that you pay to any employee are required to be reported on periodic payroll tax returns.  Even if the only employee you have is your child, you will still be required to file payroll tax returns. The quarterly payroll information is reported via a Form 941 or if you qualify you may be eligible to file only an annual payroll tax return using IRS Form 944. In addition, at the end of the year you will be required to provide each employee, including your child, with a form W-2 and also a copy of the W-2 and a W-3 Transmittal to the Social Security Administration. All of these forms can be reviewed at the IRS website at www.irs.gov for more detail.

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