<p>Let’s say calmom puts extra into a tax-advantaged account, so her income is lower, so that she gets a subsidy to buy insurance. Perfectly, 100% legal, even though by doing it she gets thousands of dollars in subsidies that she wouldn’t have gotten if she didn’t do it.</p>
<p>Tax avoidance is legal. Getting the subsidy (a tax credit) by accepting income for working is legal, I say.</p>
<p>If the parents pay the kid to do a job, and the kid does the job he is paid for – their motive doesn’t matter. No one is being “defrauded” because there is a job and a wage being paid. Maybe another family has an adult kid who is merely lazy, and they badger their lazy kid into getting a job flipping burgers, which the kid hates and does only because his parents insist. </p>
<p>There is no difference financially between those two situations. The parents have every right to pay anyone they want who is legally in this country to render services to them, and place whatever value they want on those services. Because those parents opt to hire their kid, every dollar they give to the kid is generating 15 cents in tax revenue to the federal government – how is that fraud? </p>
<p>Apparently only because you don’t like the idea of some kid working and buying insurance that he pays for? You think it’s better that the kid sit around at home doing nothing because he has a disability that isn’t severe enough to qualify him for SSI but makes it extremely hard for him to find and sustain employment in a competitive marketplace?</p>
<p>If the kid resides in a state that has turned down federal dollars to expand Medicaid, then there is plenty of leftover unexpended federal dollars to pay his subsidy when he has a job.</p>
<p>Texas, if you report a transaction on your tax return which results in a free benefit from the govt (qualifying for welfare or SSI), the IRS should be looking very hard to see whether this transaction is legitimate or if there is any economic reason for it. If you pay your kid $12,000 on an after tax basis and you get no benefit from it, then that’s one thing, but that is not what we are talking about here.</p>
<p>Come on, we all know what is going on here. The kid in all likelihood is not performing any work in exchange for the $12,000 or whatever it is to qualify for the subsidies. I could pay my kids a salary to lower my taxable income, but I wouldn’t expect the IRS to accept this type of transaction at face value without examining the intent of the transaction.</p>
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Another thing I can do, perfectly legal, is to hire part-time employees to pay them just whatever I need to in order to bring my net income from self-employment down to subsidy levels. And if I want to hire my relatives as opposed to strangers, I could do that as well.</p>
<p>GP, I see that you think you disapprove of this plan, and you think the IRS should disapprove of this plan. But that wasn’t my question. I wanted to know whether it was legal. </p>
<p>And from what calmom is saying, and from what I know myself, I now think it’s perfectly legal. That is, I think if I called up the IRS and asked if it was legal, they would say it was, just as it’s legal for calmom to manipulate her retirement income so she gets an insurance subsidy.</p>
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<p>This only works if you have a business, though, correct? Because if I tried to hire someone to bring down my income, I couldn’t; I would be paying them in post-tax dollars.</p>
<p>GP - Just because it does not feel right to you does not mean it makes it illegal.</p>
<p>You need to prove IRS goes after people for reporting an income to gain a benefit elsewhere before you can keep arguing this point.</p>
<p>Otherwise, it does not impact anyone here and we should close the loop on the discussion.</p>
<p>“This only works if you have a business, though, correct?”</p>
<p>This is how most nepotism works. 
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<p>People own businesses and pay someone they want to through their business. I have heard of doctors’ partnerships breaking up because one was paying an employee way more than normal because that person was also a mistress.</p>
<p>If it was principally done to avoid taxes or to qualify for govt benefits (there is no substantive economic effect) then it is illegal.</p>
<p>The IRS should be looking to see if the work has been performed and the salary is commensurate for this type of work. The onus will be on the taxpayer to prove it.</p>
<p>Please quote a statute that tells you so.</p>
<p>"should be looking "</p>
<p>There is no such thing. It has never been IRS’ job to find out how much a job is worth. They are only ensuring taxes are paid.</p>
<p>Okay, the IRS can look at anything to see if it is a legitimate transaction.</p>
<p>Texas, businesses get audited all the time for improper business expenses.</p>
<p>CF - yes, I can do that because I’m self employed. But my point is that the intent is the same in either case. If I think that my business income will result in my having a MAGI of $48,000 and I want to bring it down by $3000, I can simply farm out some of my work and pay my subcontractors some fraction of what I bill my clients. I think that’s actually the easiest way for a self-employed person to manipulate income, because just about every small business or sole proprietor I know could use help in some way. So not too hard to find some tasks that need doing, nor to find someone willing to take money for doing them.</p>
<p>You don’t think the IRS will be looking at the tax returns of people who qualify for subsidies to see if income has been improperly manipulated to qualify for subsidies?</p>
<p>I have owned a business for the past 13 years and have filed federal returns. They audit improper deductions, never wages paid to someone. They don’t give a rodent’s behind about people’s incomes on which taxes have been paid, only whether they have reported such income.</p>
<p>As a business owner, you should not be providing misinformation here.</p>
<p>On a different note, you are also arguing a wrong point. The discussion has been about paying someone without owning a business. So NO ONE is taking a deduction but someone is paying taxes that would not have existed to start with.</p>
<p>“You don’t think the IRS will be looking at the tax returns of people who qualify for subsidies to see if income has been improperly manipulated to qualify for subsidies?”</p>
<p>Definitely not.</p>
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Maybe they can start on Wall Street. </p>
<p>The President of the United States earns $400K a year for being the leader of the free world. So guess that would pretty much be the upper limit for a salary, right?</p>
<p>For instance, if you’re paying higher salaries than in the past and, as a result, you now qualify for a substantial subsidy for the first time, you don’t think the IRS may want to take a look at this?</p>
<p>Calmom, I guess you don’t like Wall Street.</p>
<p>Someone looking to bring down their income could also legally shelter it in a tax-deferred account like a retirement account. And even if they did that entirely in order to get thousands of dollars in premium subsidies that they wouldn’t have otherwise gotten, it would be legal.</p>