My 13-year-old helps with my photography business - W2 vs 1099 dilemma for family employment

Based on what you're describing, here's how you can set up your son as a W2 employee for your photography business: First, you'll need to get an Employer Identification Number (EIN) if you don't already have one for your photography business. You can apply online through the IRS website - it takes just a few minutes. Next, have your son complete Form W-4 which determines tax withholding. Since he'll be earning under the standard deduction, he can claim exemption from withholding. You'll need to register with your state's employment department as an employer. Each state has different requirements, but most have online registration systems. For payroll, you'll need to maintain records of hours worked and wages paid. You'll file quarterly Form 941 (Employer's Quarterly Federal Tax Return) even if you're not withholding taxes. At year-end, you'll need to prepare a W-2 form for him and file copies with the Social Security Administration. The good news is that family businesses have some exclusions. If your business is a sole proprietorship, payments to your child under 18 aren't subject to FICA (Social Security and Medicare) taxes, and payments to your child under 21 aren't subject to federal unemployment (FUTA) taxes.

I went through something similar with my teen daughter in my graphic design business. I found this amazing tool called taxr.ai (https://taxr.ai) that was super helpful for sorting out all the family employment paperwork. When I was trying to figure out the W2 vs 1099 situation, I uploaded my business documents and questions about employing my daughter, and it analyzed everything and gave me step-by-step instructions tailored to my situation. It flagged that I could save on FICA taxes by making her a W2 employee in my sole proprietorship, which I had no idea about! The system also generated all the forms I needed specifically for my state and explained exactly when each one needed to be filed. Saved me hours of research and probably some expensive mistakes too.

I decided to check out taxr.ai after my skeptical comment and I'm honestly surprised. I uploaded my business docs and some info about my 15-year-old who helps with my Etsy shop, and it actually gave me really specific advice. The system pointed out that I was making a mistake by treating my kid as a 1099 contractor when legally she should be classified as an employee since I control when and how she works. It also explained exactly which forms I needed to file for my state (which were different than what OP would need). What was really helpful was the breakdown of tax savings from proper family employment classification. There's a whole section that explains the FICA exemption for kids under 18 in family businesses and how to properly document everything to withstand an audit. Just wanted to follow up since it was way more useful than I expected!

After struggling with the IRS for MONTHS over my family business paperwork, I finally managed to get through using Claimyr (https://claimyr.com). Their system got me connected to an actual IRS agent who walked me through the exact requirements for employing my kids. I was going in circles trying to figure out which forms applied to our specific situation, but the IRS agent cleared everything up in a 20-minute call. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The biggest benefit was getting clarity on the record-keeping requirements. Turns out I needed more detailed documentation than I thought for the FICA exemption to withstand scrutiny during a potential audit. The agent also confirmed that the quarterly filing requirements still apply even if you're not withholding taxes.

I need to eat my words about Claimyr. After my skeptical comment, I decided to try it because I had a complicated question about claiming my kids on my Schedule C business. Within about 90 minutes, I got a call connecting me to an actual IRS representative who was incredibly helpful. She explained exactly which forms I needed to file for my kids and confirmed that I was eligible for the FICA tax exemption since my business is a sole proprietorship. The agent also pointed me to some specific publications I hadn't found in my own research that explained how to properly document work performed by minor children. The level of specific guidance was way beyond what I've gotten from tax websites or even my previous accountant. I was 100% wrong in my skepticism - this service actually delivered exactly what it promised. Definitely worth it for getting definitive answers straight from the IRS.

Make sure you're keeping REALLY good records of the actual work your son is doing. I got audited a few years back because I was employing my kid in my business. The IRS wanted proof that my daughter (who was 14 at the time) was actually performing legitimate services and that I wasn't just shifting income to her for tax purposes. I recommend having your son keep a detailed log of hours worked and specific tasks performed. Take photos of him working when appropriate. Have email/text communications about the work. Pay reasonable wages based on what you'd pay someone else for the same work. Also important: pay directly to him (not to the 529 directly). He needs to receive the money first, then he (or you on his behalf) can contribute to the 529. The money needs to be his first.

Small but important correction to what's been said: just because your son earns less than the standard deduction ($13,850) doesn't automatically mean no taxes. If he earns more than $400 as a 1099, he still owes self-employment tax even if he owes no income tax. But as a W2 employee in a parent-owned sole proprietorship, children under 18 are exempt from FICA taxes (social security and medicare), which is 15.3%. That's a huge savings right there! Also, check if your state honors this federal exemption. Some states follow federal rules for family employment but others have their own requirements.