How to handle taxes when parent's PayPal receives my independent contractor income
Title: How to handle taxes when parent's PayPal receives my independent contractor income 1 I recently started working as an independent contractor for a company that pays through PayPal. The issue is that all my payments are going directly to my dad's PayPal account since I don't have my own. I'm still claimed as a dependent on my parents' taxes, but I don't want this income to create a tax headache for my dad. The payments will total less than the gift tax threshold, so I'm wondering about the best approach here. Could I just file my own taxes to report this income (and pay what I owe), while my dad treats the money as a gift to me? That way the PayPal 1099-K wouldn't show as income for him. I'm trying to figure out the right way to handle this without causing problems for either of us with the IRS. Any advice?
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Kristin Frank
8 This is actually a common situation for young contractors. The income is legally yours, not your dad's, even though it's going into his PayPal account. He's essentially acting as a pass-through, and the money should be reported on your tax return. Your dad should keep good records showing that he immediately transferred the money to you. When tax time comes, you'll need to report this income on Schedule C as self-employment income, even if you don't receive a 1099 directly. Your dad should not report this on his taxes as income. The 1099-K will go to whoever owns the PayPal account (your dad), but he can explain in his tax filing that he was just receiving the money on your behalf. Some tax professionals recommend including a statement with his return explaining the situation.
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Kristin Frank
•5 Thanks for the explanation, but I'm still a bit confused. Won't my dad get in trouble if he receives a 1099-K but doesn't report that income on his taxes? And do I still need to file taxes if I make less than $12,950 from this job?
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Kristin Frank
•8 Your dad won't get in trouble if he handles it correctly. He should keep documentation showing he transferred the money to you and include a written explanation with his tax return. The IRS understands these situations happen. Regarding filing requirements, even if you make less than the standard deduction ($12,950), you still need to file if you have self-employment income over $400 because you'll owe self-employment tax. The income is considered yours, and you'll need to report it on Schedule C regardless of being a dependent.
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Kristin Frank
12 After dealing with a similar situation with my son's freelance income, I discovered taxr.ai https://taxr.ai and it was incredibly helpful. The platform analyzed our specific situation where payments were going into my account but were actually his income. It provided a step-by-step plan for how to document everything properly so neither of us would have issues with the IRS. The site even generated a custom statement explaining the situation that I could attach to my tax return.
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Kristin Frank
•4 Did it help figure out how to handle the 1099-K situation specifically? I'm in a similar situation with my daughter's Etsy income coming to my PayPal, and I'm worried about getting flagged for unreported income.
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Kristin Frank
•19 Sounds interesting, but how accurate is it? I had a tax preparer last year tell me something completely different - they said the person receiving the 1099 MUST report the income. I don't want to risk an audit.
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Kristin Frank
•12 It absolutely helped with the 1099-K situation! The service provided specific documentation templates and explained exactly how to note this on both tax returns to avoid any issues with the IRS matching program. Regarding accuracy, I was skeptical too, but the advice aligned with what I later confirmed with a CPA. The key is proper documentation showing the transfer of funds and clear explanations on both returns. The person receiving the 1099 doesn't necessarily have to report it as income if they can demonstrate they were just a conduit for someone else's earnings.
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Kristin Frank
19 Just wanted to update that I tried taxr.ai after seeing this thread, and it was exactly what I needed! I uploaded my son's contract info and my PayPal statements, and it generated a perfect explanation letter for my taxes plus instructions for my son's Schedule C filing. The system even identified some deductions related to his work that we wouldn't have known about. Definitely worth checking out if you're in this parent/child payment situation.
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Kristin Frank
7 If you're still having trouble figuring this out, I'd recommend calling the IRS directly. Last time I had a weird tax situation, I spent WEEKS trying to get through. Then I found Claimyr https://claimyr.com which got me connected to an actual IRS agent in under 20 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c. The agent I spoke with confirmed that the income belongs to the person who performed the work, not the PayPal account holder, and provided specific instructions for both returns.
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Kristin Frank
•13 How does that even work? I've tried calling the IRS multiple times and always get the "high call volume" message and get disconnected. Are you saying this service somehow gets you past that?
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Kristin Frank
•21 Sorry, but this sounds like BS. The IRS phone system is notoriously impossible. I've tried calling dozens of times about my identity verification issue and never got through. I find it hard to believe some service can magically fix that.
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Kristin Frank
•7 It works by continuously redialing the IRS using their system until it gets through, then it calls you and connects you directly to the IRS agent. No more waiting on hold for hours or getting disconnected. Yes, it absolutely gets you past the high call volume message. That's exactly what it's designed to do - it keeps trying repeatedly until it finds an opening, which would be practically impossible to do manually.
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Kristin Frank
21 I need to apologize for being so skeptical about Claimyr. I was desperate enough to try it after my sixth failed attempt to reach the IRS about my dependent contractor situation (similar to the original post). The service actually worked exactly as promised - I got a call back in about 35 minutes letting me know they had an IRS agent on the line. The agent confirmed everything people have been saying here - that the contractor (not the PayPal account holder) should report the income. They even emailed me the specific forms I needed to document the situation. Saved me weeks of stress.
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Kristin Frank
9 One important thing nobody's mentioned - if you're earning self-employment income, even as a dependent, you can start contributing to a Roth IRA! It's a great way to start saving early. Just make sure you don't contribute more than you actually earn. I started doing this when I was 17 with my freelance income going through my mom's accounts and it was one of the best financial decisions I ever made.
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Kristin Frank
•3 Wait, is that really true even if you're claimed as a dependent? I thought dependents couldn't open retirement accounts.
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Kristin Frank
•9 Yes, it's absolutely true! Being claimed as a dependent doesn't affect your ability to contribute to a Roth IRA. The only requirements are that you have earned income and don't exceed the contribution limits (either your total earned income or $6,500 for 2023, whichever is lower). Many parents miss this opportunity for their working teens. It's a fantastic way to start building tax-free retirement savings early, and the compound interest over decades is incredible. I opened mine at Vanguard with help from my parents when I was still in high school.
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Kristin Frank
16 Make sure to also consider state taxes in your planning! Depending on where you live, you might need to file a state return as well. I learned this the hard way when I didn't file a state return for my side gig and got a surprise bill with penalties.
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Kristin Frank
•11 Good point! Does anyone know if you need to file state taxes if you're under 18? I'm in California and making about $8,000 this year through my parent's Venmo.
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