My 17 year old who will be attending college in the fall was offered a job. She is not getting any need based FA. Will she be paying taxes at her rate or at parents rate? Also is she considered an adult while in college or we still need to sign her work contract since she is under 18?
Unless she has substantial unearned income (stocks, dividends, or other investment income) she will pay taxes at her rate, not yours. The amount of unearned income in 2015 that triggered the “kiddie tax” was the amount exceeding $2100. Earned income is not subject to the “kiddie tax”.
I assume you will be claiming her as a dependent, so she will file her own tax return but as a single person being claimed as a dependent by another taxpayer. She will probably owe no taxes, but should file to get any taxes withheld back.
Thank you @Yomama12 Yes, we will be claiming her as a dependent since we will be paying for her tuition. She will not be an employee. She will be a contractor. As part of her contract she will receive % in ownership (this is a startup company). What would be the taxation on proceeds from the sale? The company owner told her they plan to sell in an year.
You may need to sign any contracts as her custodian. Ask your lawyer.
And an accountant on the tax implications because that is different than simple earned income. So she’ll get a 1099 for income as contractor plus stock in the company? What is the corporate structure, Sub S Corporation, C Corporation, LLC, etc.?
I don’t know. Let me find out.
1099 income has a lot of tax implications. She needs to keep careful records of her business expenses and if her net income is greater than $400, she is expected to make quarterly estimated payments of the projected amounts owed, including income tax, social security and Medicare. As a sole proprietor (by definition this would be your daughters business entity) she will have to pay the employers portion of social security and Medicare herself.
My concern is why she is being treated as a contractor and not an employee. Many companies try to get out of paying the employer portion of social security, Medicare, FUTA, unemployment taxes, etc., by incorrectly classifying employees as outside contractors.
Red flags abound here…why is she an independent contractor? Make sure she really qualifies.
Why isn’t she being hired as an employee? Why as a contractor?
Seems to me that this benefits the “employer” but not her.
@Madison85 wouldn’t she be considered self employed? If so, she will have to pay self employment tax.
She will be working part time couple of hours per day remotely while in college. Maybe that is why she is not an employee?
That alone wouldn’t make her an independent contractor. I’ve worked part time remotely and was an employee.
What makes one an independent contractor? I know she worked for another company as a freelancer and got a 1099 from them. She worked for them for almost two years.
In theory, the IRS has a list of factors that are considered.
In practice, it’s how desperate the worker is for income and how unethical the company is willing to be, assuming the typical situation where the question arises.
IRS 20 point checklist: http://art.mt.gov/artists/IRS_20pt_Checklist_%20Independent_Contractor.pdf
I believe the current guidelines are the three categories, rather than the 20 factors. But it’s pretty much the same stuff. https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee