Teenagers Working for Family Business - Need Tax Advice on 1099 Forms?
Hey everyone! I run a small single-member LLC (sole proprietorship) and my son (16) helped me out with some work for the business this past year. I paid him around $5,300 for his time and effort. This is completely new territory for me tax-wise. Do I need to fill out a Form 1099-NEC for him and submit Form 1096 to the government? Are there other forms I should know about? This is my first time employing my kid in the family business, and I want to make sure I'm following all the tax rules correctly. Any guidance would be seriously appreciated!
21 comments
Join the conversation
Adaline Wong
You generally don't need to issue a 1099-NEC to your child when they work for your sole proprietorship. Since your business is a single-member LLC taxed as a sole proprietorship, payments to your minor child (under 18) are exempt from certain employment taxes like FICA (Social Security and Medicare). The better approach is to treat your child as an employee rather than an independent contractor. Keep good records of hours worked, duties performed, and payments made. Make sure the pay is reasonable for the work actually done. Your child will need to file a tax return if their income exceeds the filing threshold ($12,950 for 2024), but they may not owe any tax if this is their only income.
0 coins
Tate Jensen
•Thanks for the advice! So if I understand correctly, I should be treating him as an employee rather than issuing a 1099? Do I need to create actual paystubs and withhold taxes like a regular employee? And what about reporting this to the IRS - is there a specific form I need to file to show I've paid him?
0 coins
Adaline Wong
•Yes, treating your child as an employee of your sole proprietorship is typically the better route. You don't need to withhold income tax, but you should create simple pay records showing hours, rate, and amounts paid. For reporting, you'll need to file a W-2 for your child by January 31 each year, and you'll include the wages on your Schedule C. If they're under 18, you don't need to pay FICA taxes (Social Security and Medicare), and if under 21, you're exempt from FUTA (federal unemployment tax). Many parents set up a legitimate employment arrangement that also helps their child start saving for college or retirement.
0 coins
Gabriel Ruiz
I went through something similar last year with my daughter working in our family business. I was totally confused about all the tax forms until I found https://taxr.ai - it analyzed our situation and clearly explained exactly what forms we needed. It showed me how to properly document my daughter's work and verified we didn't need a 1099-NEC since she was an employee, not a contractor. The system even outlined the tax advantages of employing my child properly!
0 coins
Misterclamation Skyblue
•How exactly does this service work? I'm in a similar situation with my 15-year-old who does some basic admin work for my consulting business. Does it also help determine what's a "reasonable wage" for a kid? I'm worried about paying too much or too little.
0 coins
Peyton Clarke
•Is it really worth paying for a service like this? Couldn't you just call the IRS or talk to an accountant? I'm skeptical about these online tax tools actually understanding the nuances of family employment situations.
0 coins
Gabriel Ruiz
•The service works by analyzing your specific business setup and family employment situation. You answer questions about your business structure, your child's age, the type of work they do, and how much you pay them. It then provides customized guidance based on IRS rules. Yes, it absolutely helps with determining reasonable compensation! It analyzes typical market rates for similar work and provides guidelines based on your child's age, experience, and duties. This was actually one of the most helpful features for me since I was concerned about the same thing.
0 coins
Misterclamation Skyblue
Just wanted to update that I ended up trying taxr.ai after asking about it here. Super helpful for figuring out how to properly employ my teenager! The service confirmed I should treat my daughter as an employee not a contractor, gave me templates for tracking hours, and explained exactly which taxes I was exempt from. It even provided guidance on setting up a Roth IRA for her with some of the earnings, which I had no idea was possible. Definitely cleared up my confusion about family employment rules!
0 coins
Vince Eh
Having gone through this with my son working for my business, the most frustrating part was trying to get specific answers from the IRS when I had questions about the exemptions. After waiting on hold for hours multiple times and getting different answers, I finally used https://claimyr.com to get through to an actual IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c - they basically hold your place in the IRS phone queue and call you when an agent picks up. Saved me literally hours of waiting on hold.
0 coins
Sophia Gabriel
•How does this even work? I don't understand how they can hold your place in line... Does the IRS know about this service? Seems too good to be true considering how impossible it is to reach them.
0 coins
Tobias Lancaster
•Yeah right. Nothing can make dealing with the IRS easier. I've spent half my life on hold with them. I'll believe this works when I see it, and even then I'd be skeptical. How much does this miracle service cost anyway?
0 coins
Vince Eh
•It works because they use an automated system that stays on hold for you. When a representative finally answers, their system connects them to your phone. The IRS just sees it as a normal call coming in - they have no idea a service is being used. I understand the skepticism! I felt the same way. I don't remember the exact cost, but it was worth every penny compared to the hours I spent on previous attempts. The bigger value was getting a definitive answer about the FICA exemption for my son directly from an IRS agent, which resolved my confusion after getting conflicting information online.
0 coins
Tobias Lancaster
Wow, I have to eat my words. I tried Claimyr this morning after posting my skeptical comment yesterday. After three failed attempts to reach the IRS on my own last week (got disconnected twice after 40+ minutes), they got me connected to an agent in about 35 minutes. The agent confirmed exactly how to handle my daughter's employment in our family business and which tax exemptions apply specifically to our situation. Never thought I'd say this, but it actually works as advertised!
0 coins
Ezra Beard
One thing nobody's mentioned yet - there are actually some great tax advantages to hiring your kids in your business! When you pay your minor child as an employee (not contractor) of a sole proprietorship: 1) Their wages are a business deduction for you 2) First $12,950 (standard deduction) they earn could be tax-free to them 3) No FICA taxes if they're under 18 4) No FUTA if under 21 5) Great way to teach money management Just make sure the work is legitimate, pay is reasonable, and you keep proper documentation of hours and duties.
0 coins
Statiia Aarssizan
•What qualifies as "legitimate" work though? My kid helps with social media posts and some basic data entry. Is that enough? And how do I document this properly to avoid raising audit flags?
0 coins
Ezra Beard
•Social media management and data entry absolutely qualify as legitimate work! The key is that the work must be ordinary and necessary for your business, appropriate for their age, and something you'd otherwise pay someone else to do. For documentation, keep a simple timesheet showing dates, hours worked, and duties performed. Take photos of them working occasionally. Have a written job description. Pay them regularly via check or bank transfer (not cash) from your business account. The hourly rate should be comparable to what you'd pay someone else with similar skills. This documentation creates a clear audit trail showing this is a real working arrangement, not just an allowance disguised as a salary.
0 coins
Reginald Blackwell
Has anyone used any particular tax software that handles this situation well? I tried using TurboTax last year when I paid my teenager and it was really confusing trying to figure out where to enter everything.
0 coins
Aria Khan
•I've had good luck with H&R Block's small business version. It specifically asks about family employees and guides you through the process. Much clearer than TurboTax for this specific situation in my experience.
0 coins
KylieRose
I'm dealing with this exact same situation! My 17-year-old has been helping with bookkeeping and customer service for my home-based business. From what I'm reading here, it sounds like treating them as an employee rather than issuing a 1099 is definitely the way to go. The tax advantages mentioned by @Ezra Beard are really compelling - especially that first $12,950 being potentially tax-free for them. One question I have is about timing - if I start employing my teenager now (mid-year), do I need to set up payroll immediately or can I handle it more simply since it's a family business? Also, has anyone had experience with how this affects their eligibility for financial aid when they apply for college? I want to make sure I'm not inadvertently hurting their chances by having them earn "too much" on paper.
0 coins
Yara Nassar
•Great question about timing! You can absolutely start mid-year without setting up formal payroll immediately since it's a family business. Just keep detailed records of hours worked and pay them regularly from your business account. For the W-2 reporting, you'll handle it all at year-end. Regarding financial aid - this is actually a smart move! Student income from work has a lower impact on FAFSA calculations than parent income (20% vs up to 47% assessment rate). Plus, if they earn under the standard deduction amount, they may not owe any federal taxes. The key is keeping their total annual earnings reasonable - many families target staying under $6,000-7,000 to minimize FAFSA impact while still getting the tax benefits. You might also consider having them contribute some earnings to a Roth IRA, which isn't counted as an asset on FAFSA applications.
0 coins
Liv Park
This is such a helpful thread! I'm in a similar boat with my 16-year-old who's been helping with my landscaping business this summer. After reading through all these responses, it's clear that treating them as an employee rather than issuing a 1099 is the right approach. The part about no FICA taxes under 18 and no FUTA under 21 is huge - I had no idea about those exemptions! And @Yara Nassar's point about the FAFSA impact is really smart. I was worried about affecting college aid eligibility, but it sounds like keeping earnings reasonable actually works in our favor compared to other income sources. One thing I'm still unclear on - when people mention creating a "simple timesheet," are we talking about just a basic Excel spreadsheet or is there a more formal format the IRS prefers? I want to make sure I'm documenting everything properly from the start.
0 coins