I’m asked many tax planning questions, but this one caught my attention from one of my clients:
The father wants to hire his 15-year-old daughter to work in his single-member LLC business and expects to pay her about $12,000 this year. Should he pay through payroll checks and file a W-2?
ANSWER: Yes, he should.
A paycheck that results in a W2 is essential; otherwise, she will pay self-employment taxes if he pays her as a contractor or on 1099.
You don’t have to pay Social Security or Medicare taxes when hiring your daughter on a W-2. You also avoid paying unemployment benefits, which are very expensive for employers in some regions of the country!