Wife Consulting on 1099 - Can she pay my daughter on 1099 also?

[retire2020]

My wife is a Speech Pathologist and started consulting this year. She'll earn about 25K of income paid to her by consulting company on 1099 this year. My daughter is in 2nd year of college and has been helping my wife with billing and scheduling patients. We've been paying her $150/month in cash for her help.

My question is can we issue my daughter 1099 at year end? If yes, then we can deposit this money in her Roth IRA. She also works part time at other places and will also have about 2.5K of W2 income for this year.

I spoke with my CPA but he advised me against it and said I'll need to buy worker's compensation insurance if I pay my daughter on 1099. Is that true? My wife is solo and I read at many places that you can employ your minor children without any additional cost(like worker's compensation) but could not find any reference for adult children(daughter is 19 years old).

Please let me know your views and if possible, best way to accomplish this task.

 

[MBAustin]

Well, I paid my adult daughter on a 1099 for some graphic design work she did for my consulting business where I got paid on a 1099 basis. My accountant said it was fine. She lived in a different state and did the work remotely so I didn't even think about worker's comp.

 

[Sue J]

When your wife fills out her Schedule C she needs to show the $150/mo that she paid to your daughter as an expense deducted from her consulting income and issue your daughter a 1099.

Then your daughter needs to claim that income, along with her W2 income, on her own taxes. A Roth contribution can be made based on the combined earned income (1099+W2).

It doesn't matter that it was paid in cash. You can make the Roth contribution (gift) for your daughter so that she gets to keep the money.

I don't know about the workers comp issue.

 

[Ian S]

It may depend on the state you're in as to something like workers comp. Here's info for New York state Who Is An Employee Under the Workers' Compensation Law?

 

[Senator]

yes, she can have business expenses, one of which is paying someone else. She (and your daughter) can also do a Roth IRA with that money, after self employment taxes are paid.

I believe there is a kid exemption for Self Employment taxes (15.3%), you may want to pay the kid as much as you can to avoid the SE taxes.

As far as WC goes, as long as it is family, I do not believe it is required. Mine has a page where this family information is requested. I buy a policy every year, but only pay the minimum premium as I do not have any subs without certs.

Please include Officer, Member, Partner, and/or Owner information, regardless of whether or not the person has elected coverage. Also include information for Spouse, Parents, and/or Children of Owners in this section. Do not include this pay in the Employee section.

 

[RE2Boys]

I believe there is a kid exemption for Self Employment taxes (15.3%), you may want to pay the kid as much as you can to avoid the SE taxes.

This exemption only applies to children under 18 employed by a parent. See:
https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Businesses-with-Employees

and

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Family-Help

and it only applies to the child as an EMPLOYEE. If you report it on a 1099, she is considered by you as an independent contractor, and the above doesn't apply.

I your daughter is 19, the work is done remotely, you do not directly supervise how and when the work is done....decent case for independent contractor. You do know that your daughter would report this income on a Schedule C as a sole proprietor contractor and may need to pay self-employment taxes.

If you chose to treat what you give her as a gift, then she need not report it on her tax return, but could not use this gift for determining how much she can contribute to an IRA or Roth IRA (she can use her other W2 income to determine IRA contributions). However, your wife could not treat this "gift" as an expense of your wife's business.

Can't help with the workmen's comp question.


If you treat your daughter as an employee, then you get into the SS and Medicare and income tax and state income tax withholding rules and reporting

 

[Ian S]

I believe there is a kid exemption for Self Employment taxes (15.3%), you may want to pay the kid as much as you can to avoid the SE taxes.

I think that's only if the child is under 18. See https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Family-Help

 

[daylatedollarshort]

I think for us, at least in our state over age 18 kids on a W2 we would have needed worker's comp. I'm not an expert, but I think with other employers during the same period she would qualify as a contractor with a 1099 and you would not need to provide workers comp unless maybe you have some state laws requiring it.

Here is an article on the topic -

"Employers are not required to provide workers' compensation insurance to contractors who receive 1099 forms at the end of the year. It is important, however, to be sure those who receive 1099s are actually independent contractors under IRS rules. Contractors are sometimes confused with common-law and statutory employees."

http://smallbusiness.chron.com/carry-workmans-comp-insurance-1099-contractors-59962.html

 

[RonBoyd]

A plethora of data can be found here: Home › June Walker › Simple Tax Solutions for Indies

 

[retire2020]

Thanks for the replies. I live in NJ. For a mere 1.8K/yr, I do not want to go through a hassel of buyinh worker's comp. My daughter filed her own tax returns last year and she'll do the same this year. Last year my wife did not have consulting business going but my daugthter had earned about 4K from part time work. My daughter stays home and commutes to college.

 

[Del Q]

I can't speak for NJ, but in MN you're not required to carry Workers Comp on your children. I wouldn't dare go without WC if you have any other independent contractors.

 

[target2019]

I have been SE in NJ for a very long time. Occasionally I issued 1099s to others. Didn't want to pay their taxes, of course.

I avoided paying my kids to work, on the advice of tax accountant. Used to be you could pay a small amount to them without 1099. All has changed.

I would not do this for a small amount of money. You're creating additional tax audit trigger points.

 

[RE2Boys]

Not required to complete a 1099 unless the total exceeds $600 to an individual person.

 

[target2019]

Not required to complete a 1099 unless the total exceeds $600 to an individual person.

Not required, but a good idea to CYA.

OP mentioned $1800. Definitely issue a 1099 in that case.

 

[retire2020]

Thanks. As you mentioned that not worth to trigger audit points for a mere 1.8K. I'll deposit other 2.5K she'll earn in W2 from other workplace.

 

[gauss]

...If you chose to treat what you give her as a gift, then she need not report it on her tax return, but could not use this gift for determining how much she can contribute to an IRA or Roth IRA (she can use her other W2 income to determine IRA contributions). However, your wife could not treat this "gift" as an expense of your wife's business.

Technically speaking isn't the wife required to take the deduction and not treat this as a gift? [ref: https://www.eitc.irs.gov/Tax-Preparer-Toolkit/faqs/income]

I know that this a huge issue with the Earned Income Tax Credit (EITC), but I believe that it applies in general too.

Yes. A self-employed individual is required to report all income and deduct all expenses. Revenue Ruling 56-407, 1956-2 C.B. 564, deals with the issue of taxpayers not taking all allowable deductions in computing net earnings from self-employment for self-employment tax purposes. Rev. Rul. 56-407 held that under §1402(a), every taxpayer (with the exception of certain farm operators) must claim all allowable deductions in computing net earnings from self-employment for self-employment tax purposes.

-gauss

 

[dallas27]

My wife is a Speech Pathologist and started consulting this year. She'll earn about 25K of income paid to her by consulting company on 1099 this year. My daughter is in 2nd year of college and has been helping my wife with billing and scheduling patients. We've been paying her $150/month in cash for her help.

My question is can we issue my daughter 1099 at year end? If yes, then we can deposit this money in her Roth IRA. She also works part time at other places and will also have about 2.5K of W2 income for this year.

I spoke with my CPA but he advised me against it and said I'll need to buy worker's compensation insurance if I pay my daughter on 1099. Is that true? My wife is solo and I read at many places that you can employ your minor children without any additional cost(like worker's compensation) but could not find any reference for adult children(daughter is 19 years old).

Please let me know your views and if possible, best way to accomplish this task.

Fire your accountant


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