Do we need to file income taxes for Kids. My kid got $200 as a referee to soccer game. Wondering if we need to report it to IRS. Thinking of opening a Roth IRA for him and put this money in this account. Trying to understand the process.
I’m assuming this was your child’s only income, that no taxes were withheld, that it would be considered self-employment income, and that the income didn’t come from a church-controlled organization. In that case, you don’t need to file. Once they earn $400 in a year, though, they’d have to file and pay FICA taxes. You can see IRS Publication 929 for all the details.
Roth IRA is a good idea. They don’t need to file a return in order to contribute, but keep the checkstub or other proof of income in the extremely unlikely event the IRS questions the income.
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Hi Doveroftke,
Thanks for the information. He is working as Soccer referee for non profit organization in a city. I should be able to open Roth IRA with me as guardian. He can manage it right? I also need to study about FICA. Is SCHWAB good place to open account?
I’m buying a house in California and I’m married with children. They are asking how to hold the title. What is fragiledeal’s recommendation on that?
Yes, I’m a fan of Schwab. There’s a sign up bonus if you get a referral from a friend and deposit at least $1000 (if your son is planning to earn more or if you were considering opening other accounts).
FICA includes Medicare and Medicaid contributions, which employers would normally withhold for you. If he earns over $400, report that as self-employment income on his tax return and use Schedule SE to figure the applicable self-employment tax. I don’t think it’s very complicated, but I’ll admit it’s been several years since I’ve had to worry about it.
Don’t know about everyone else’s, but my research (in CA) landed me on HUSBAND AND WIFE AS COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP. This assumes that you and your wife completely trust each other and want the other to get the house if one passes. And if you want to put it in a trust, then holding title this way makes it easier, because some other ways of holding title may require you to change it before you can transfer.
Do not add your children to the title – multiple negatives and no positives. Ideally you’d transfer the title to a trust and have the children be listed as secondary beneficiaries of the trust (you and wife being primary).
IANAL, I only play one on the internet sometimes.
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Great thanks scripta. My research also concluded the same thing.
No prob. Do consider getting a trust lawyer to set up a trust if you don’t have one already (costs $1600-$4500, depending on where you are and how hard you search, or free if you have a group legal plan through employer). If you and wife upload (to the cloud 
) without a trust and the property market value (not your equity) is > $150K, then the property will go through probate, which is costly and time-consuming. A will is not enough to avoid this.
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Wow OK, thanks good to know. Another thing on the list for a new house ugh.
Hi Doveroftke,
We opened custodian Roth IRA with Schwab. He is planning to move $480 of his savings to this account (using my account as intermediary). Can i also match another $480 into his custodian Roth IRA account. He is going to make another $100 to $150 in next 3 weeks. We are planning to move this amount also into his Roth IRA account and add our match. This should be fine right?
Thanks
Strictly speaking, no. The maximum he’s allowed to contribute is the amount of money he earned this calendar year and there are no provisions for matching contributions. That being said, here are two potential courses of action you might consider:
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Gift him some money. He’ll still only be able to contribute the amount he’s earned, but he won’t be deprived of actually having that money to spend or keep in a regular savings account. For example, he earns $350, contributes $350 to his IRA, and gets $350 (or whatever amount you decide) in his savings account. There are no tax implications if your gift is under $15,000.
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Hire him to complete chores around the house. The money he earns counts as income he can contribute to the IRA and isn’t even subject to FICA taxes. Here’s the low-down on how you make that work: Fund Your Child’s Roth with Chore Income – Marotta On Money
Don’t forget, once he has $400 in earned income he’ll need to file a tax return even if no taxes are due. It would be a red flag to the IRS if Schwab sends a form 5498 for over $400 of contributions and he hasn’t filed a return to declare that income.
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Sounds like a huge PITA to hire one’s kid – the parent would have to either do 1099 or payroll, with payroll taxes and everything, then file all the right tax forms for themselves and the kid. Any potential tax savings are eaten by tax return preparation costs (including time).
Not for your own child you employee at home.
For the amounts we’re talking, the child would be exempt from income tax withholding. You may have to create a W4 showing that? Not sure.
No payroll taxes, per IRS Pub 15 Sec 3: “If these payments are for work other than in a trade or business, such as domestic work in the parent’s private home, they’re not subject to social security and Medicare taxes until the child reaches age 21”.
Since no taxes are being withheld, the parent wouldn’t need to create a W-2 or report the payments on their tax return, per IRS Pub 926 (scroll down to “Form W-2” and “Schedule H”).
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Federal OASDI (SS+Medicare) is not the only payroll tax. There’s also FUTA, state-specific SDI and UI, and others like ETT in CA. Don’t know if there’s a similar exception for all of those. If not, the parent may be required to file state-specific forms and make payments to the state. And potentially register as an employer with the state.
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Good point, I overlooked state tax implications.
This may be a dumb question.
I want to get a jump on taxes. I usually wait for W2 from employer but that is a few weeks away. I am planning to use my last pay stub to populate W2 section in the tax software. I will adjust it as needed when I receive my W2.
Any gotchas or suggestions from folks who do this?
Thanks in advance!
The final pay stub should match the W-2, although I’ve had a few cases over the years where some numbers were not an exact match, but not enough to pursue against a small business that apparently does some of their accounting by hand.
It’s good enough for an estimate, but I always wait for the actual W-2 before filing.
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Penfed credit card question
When I logged in today to Penfed, a pop-up was presented that they changed their credit card payment function. It has moved from transfers to a new ‘make a payment’ button. Does anyone know if existing monthly transfers were carried over? I cannot find them in the new section (make a payment) or in the transfers section.
Thanks for any insight!
Logged in again and noticed the pop-up messages mentioned ‘make a payment’ and ‘manage payments’. I found my monthly transfers/payments in manage payments.
Hope this helps someone else similarly confused!!
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