This week’s question comes from Debbie, a sole proprietor. I read that children under age 18 are not subject to federal employment taxes. My children are now in college and work part-time year-round. I know they are now subject to FICA taxes. Do FUTA taxes apply to children of sole proprietor who are age 18 or older? Answer: Sole proprietors who hire their own children under age 21 are not required to pay Federal Unemployment Tax Act (FUTA) tax on those children’s wages. Once the children reach age 21, the exemption no longer applies. Contact Vision Payroll if you have any questions on payroll taxes on children.
This week’s question comes from Brad, a sole proprietor. My 16-year-old daughter will be out of school soon and I’d like to hire her for the summer in my sole proprietorship. Does a sole proprietor have to pay payroll taxes on children’s wages? Answer: Sole proprietors who hire their own children under age 18 do not have to pay federal employment taxes on the children’s wages. The children are exempt from having to pay social security and Medicare taxes on their wages. These taxes are sometimes known as FICA (Federal Insurance Contributions Act) or OASDI (Old-Age, Survivors, and Disability Insurance). The employer is also exempt from paying the matching portion of these taxes. Additionally, the employer is not required to pay FUTA (Federal Unemployment Tax Act) tax on these wages. Most states also exempt such wages from state unemployment tax (SUTA). Depending on their expected income, children of sole proprietors may be subject to federal and state income tax withholding. Contact Vision Payroll if you have any questions on payroll taxes on children.
The US District Court for the Southern District of New York has upheld payroll tax penalties on a company owned by actor Joe Pesci even though the taxes were timely paid. The IRS assessed the penalties because the company did not pay the taxes electronically as required by law. In Fallu Productions, Inc. v. United States et al., No. 1:06-cv-13248 (USDC SD NY), the court ruled that the “increased efficiency of the EFTPS [Electronic Federal Tax Payment System] provides reasonable justification for requiring…the system.” Furthermore, “the imposition of FTD [federal tax deposit] penalties when taxes are not deposited electronically as required does not violate taxpayers’ due process rights.”
Comments Off on Court Upholds Penalties on Joe Pesci’s Company for Timely Paid Payroll Taxes