Roth IRA - Kid's summer job

[dyuan]

What is the name of your state? California.

Hello,

My two kids made about $1250 this summer (over 3 months) mowing lawn in our housing tract area. Since they earned their money, I told them about Roth IRA and they are interested.

Will IRS demand to see this proof that their income is earned, since they get paid in cash by our neighbors. They don't have W2s to show.

David

 

[ecmst12]

I thought you can't put money into a Roth IRA unless taxes were taken out of it when it was paid? Since they were paid cash, I bet the neighbors weren't paying payroll taxes. What about an ordinary savings account or CD?

 

[tranquility]

The problem is a little more complex than the question. As to your question, your children do not need a w-2 to prove income.


There are other problems though. They would need to file a schedule C for their business income and pay Self Employment tax on amounts. (Over $400) They may have deductions against the income which will bring the income down. In addition, many cities in California get a listing from the FTB of all the schedule C's filed and send out notices requesting proof of a business license for those with addresses in their cities. Each city has its own rules and the lawnmowing by kids may not apply, but in many cities it might.

We've had clients try this with their own kids, and the problem comes up regarding a work permit from the child's school district. But then, it is usually the parent's business where the kid is working and a w-2 would result. It's not the same problem here, but I'm not sure how the rules impact a self-employed child.

There are clearly other problems as well. Doing it in the Officially Correct Way (reg us pat off) is hard in California. But, as to taxes, you can do what you propose.

 

[Beth3]

You probably should be asking your question on the Tax Board. This is not an employment law question.

 

[dyuan]

Roth IRA - Kids summer job

Hello all,

Thanks for you info. Sounds like it is a bit more complex than I thought earlier.
I'll try the Tax board also.