Kid With Paper Route

Today TaxMama® hears from Don in the TaxQuips Forum with a little confusion. “My daughter is a widow with 3 children. The kids receive Social Security income from their deceased father’s account. My daughter’s 13-year-old son earned $700 with a paper route & received a 1099-MISC with the amount in box 7 – Nonemployee compensation. I do my daughter’s taxes and would like to know how her son’s income affects her taxes. Do I have to file my grandson’s taxes separately? The fact that he’s a dependent on her return has me confused.”

Ask TaxMama

 

Hi Don,

Sounds as if you all have a solid family relationship. And everyone is trying to help out. That’s wonderful.

Your grandson needs a tax return to report the income from the paper route. The 1099-MISC of $700 belongs on his Schedule C. Deduct any out of the pocket expenses the boy has – for the bike, supplies, etc. If the profit is over $400, he will be paying Self-Employment (SE) taxes, which will be under $100. You pick up his Social Security income on his on personal tax return. He will not have enough income to pay income taxes – just the SE taxes.

Do not claim the boy’s own personal exemption on his tax return. His mother is claiming him. (If you can’t figure out how to tell the software about this, call their tech support)

The children’s SS income will not affect your daughter’s tax return. Kiddie taxes are also not an issue, since they don’t have investment income. So you’re off the hook, there.

And remember, you can find answers to all kinds of questions about children’s earned income and other tax issues, free. Where? Where else? At www.TaxMama.com.

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13 thoughts on “Kid With Paper Route

  1. TaxMama says:

    Hi Pat

    Excellent point about computing support.
    However, we’ve already pretty well resolved the fact that the child’s SS payments are not taken into account for the support computations. That is spelled out in the pubs (and code) where it talks about the support test.

  2. TaxMama says:

    Hi Carol,
    Yes, that IS badly written by IRS.
    But I still can’t say for certain that the child is exempt from SE tax.
    I’d like IRS to confirm that for me.

    Because that first sentence tells me:
    You are a direct seller and are considered by statute as a non-employee and treated as self-employed regardless of age for all federal tax purposes, including income and employment taxes, if you meet the following conditions…

  3. Carol Topp says:

    The opening paragraph specifically addresses newspaper carriers working as non employees. And one of the conditions mentions a written contract stating the teenager is not an employee.

    I think this entire paragraph applies to independent contractor newspaper carriers. My conclusion is the when the IRS says Social Security & Medicare tax it means those taxes for self-employed workers (= SE tax).

    I think it was poor writing on the part of the IRS.

  4. pat grier says:

    and a peripheral question comes to mind for th carrier’s mom — is she still providing more than half the kids’ support given the social security payments to the kids? i’m pretty sure mortgage / property taxes does NOT count as support. could maybe weasel around that by saying the rental value of the home would be support. it’s really silly otherwise to say providing the roof over everyone’s head doesn’t constitute support. but since when has common sense prevailed in tax law 🙂

  5. Gary Mace says:

    I think it was specifically designed to exempt kids with a paper route from the burden of SE taxes on what typically was a small amount of income
    Probably some senator’s kid got burned with SE taxes and they wrote that in

  6. Kenneth Schrock says:

    I think Gary is correct. The TaxBook takes this position:
    Paper route. A child under age 18 delivering newspapers to customers is exempt from SE tax, FICA, and FUTA. [IRC §1402(c)(2)(A) and §3121(b)(14)]

    Why newspaper carriers get this benefit and other self-employed minors don’t is not clear to me.

  7. Gary Mace says:

    No – I don’t think you can use that as a “blanket rule” for self employed minors – the exception is specifically for “news carriers”
    My take is that SE taxes are “social security and medicare”
    There are a few caveats – generally if the kid is just delivering the papers and doesn’t “sell” subscriptions or “collect” the monies – and is under the age of 18 – it works as I read it

  8. TaxMama says:

    Dear Gary and Jim,
    Look at this and tell me what you think:

    Newspaper Carriers and Distributors
    Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and are considered by statute as a non-employee and treated as self-employed regardless of age for all federal tax purposes, including income and employment taxes, if you meet the following conditions:

    You are in the business of delivering/distributing newspapers or shopping news, including directly related services such as soliciting customers and collecting receipts.
    Substantially all your pay for these services directly relates to sales or other output rather than to the number of hours worked.
    You perform the delivery services under a written contract between you and the service recipient that states that you will not be treated as an employee for federal tax purposes.
    However, if you do not meet all of the above stated requirements, if you are 18 years of age or older, your pay generally is subject to Social Security and Medicare tax withholding. If you are under age 18, then you are generally exempt from Social Security and Medicare tax.

    See – it says: If you are under age 18, then you are generally exempt from Social Security and Medicare tax.

    It doesn’t say, If you are under age 18, then you are generally exempt from Self-Employment tax.
    They are talking about paper carriers on payroll.

    Do you think this applies to self-emploued minors as well?

    Hugs
    Eva

  9. Jim Karstens says:

    I thought if the child is under age 18 they are exempt from SE tax. Informative article – thanks!

  10. Gary Mace says:

    I think there’s an exception to the SE tax specifically for newscarrier kids under either 17 or 18 – can’t remember which

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