<p>If a high school student has an opportunity to work at a relative's business part time during the summer but wouldn't work enough hours or make nearly enough money to be required to pay income tax, would it matter if they are just paid in cash? </p>
<p>Will not having a tax return/pay stubs be an issue if the student wants to list the job as an EC when applying to colleges?</p>
<p>Payroll taxes (FICA, Medicare) have no minimum threshold and would still have to be deducted and paid.</p>
<p>The crux of all of this is that it is illegal whatt the relative/business owner is doing, and you are letting your kid get involved in this tax fraud. It’s so much the kid is doing wrong since he owes no taxes, but he’s abetting a fraud. How you as a parent feel about this is your business. I can tell you it is a rampant happening. </p>
<p>No, college apps and even employers do not check that way. They might ask for a name, phone number of a manager/owner of a place for a reference check but i’ve never heard of pay stub/tax return request.</p>
<p>I think it’s a perfect opportunity to show the student that there is a right way and a wrong way to do things and getting paid “under the table” is the wrong way. As Bob Wallace pointed out: social security and medicare tax should be paid on any wage. Should something happen to the employee while on duty, the fact that they are not a legal employee would affect whether they can collect worker’s compensation.</p>
<p>Happykid has cash income every year because of the nature of her work (Theatre Tech/Design). The record-keeping is a nightmare, and filing the forms C and SE to account for this self-employment income is a pain in the you-know-what. It also means that in her entire working life she has never had the pleasure of completing a 1040A or 1040EZ. From the very get-go, all of her tax returns have been 1040s with attachments. As the person in the family who files everyone’s paperwork I can tell you that I just hate this.</p>
<p>So, if the relative doesn’t want to have to payroll the kid because of the hassle at his/her end, fine. Get the relative to treat the kid as a formal contractor and do everyone the favor of reporting the salary at the end of the year on a 1099. You will not be looking at a stack of bank statements and a calendar next February and trying to sort out which deposits were cash jobs, and which were birthday presents from grandma as I did before Happykid and I had set up a formal bookkeeping system for her.</p>
<p>
How is it different from babysitting? Seriously, you pay payroll and FICA taxes on your babysitting money?</p>
<p>Re: Babysitting</p>
<p>In-home domestic pay is exempted up to $1,800/year.</p>
<p>
If we’re talking about compliance with the law, this is not an option. There are very specific criteria that must be met to characterize someone as an independent contractor. Waving a magic wand over the kid isn’t one of them. If he’s working at a location and during hours as specified by the employer, he won’t qualify.</p>
<p>There are two separate issues here. Certain types of employment, like babysitters, are except from FICA withholding, unemployment insurance, and a whole host of other employment laws. You are not breaking the law by paying your baby sitter in cash. </p>
<p>From the babysitters perspective, though, its income. If that exceeds certain thresholds they need to file. If their return says they owe tax, they need to pay it. If they do not have enough of that tax prepaid, they owe penalty for not prepaying. All that is tax law but it doesn’t apply to very many babysitters (or lawn mowers, etc).</p>
<p>Also, when I hire a babysitter I do not deduct the wages from my business income. An employer should be. Also, an employer is required by law to follow certain employment laws like hours a minor can work, wages that must be paid, and workers compensation insurance that must be paid on those wages. Again, should something happen at the business to a person who is illegally employed there, really bad things can happen. </p>
<p>The OP’s question was if the student is being paid cash, can they claim the work as an EC when applying to college. IMHO, I think that is the least of their problems.</p>
<p>Another thing to consider: if the kid is being paid illegally under the counter and gets injured at work, there will be no workman’s comp or other insurance to cover medical expenses. Asking your health insurer to pay expenses would be insurance fraud, since he would have what should be considered a work-related health problem.</p>
<p>If the student is a 1099 worker, please have the student put aside enough money to pay his self employment tax when tax filing is done (this is his social security plus any owed income taxes). </p>
<p>To be honest, it would be easier for the kiddo if the employer treated this kid as a regular employee. Plus, it’s the legal and right thing to do.</p>
<p>Thank you all for the input. I really didn’t think of some of the issues mentioned. When I tried to look up info about this online, the first thing I came up with was the minimum income that requires that taxes be paid, which most students wouldn’t make in part-time summer job which made it seem that there would be no need to withhold the taxes.
Further reading got a bit confusing (as tax law tends to do). I do see, on further reading, that getting the payment in cash seems to be fine, as long as the correct taxes are withheld and the payment is properly reported.</p>
<p>
Please note that this question is about a possible opportunity, not something that is currently happening. I would not want my kid to be involved in anything inappropriate. That is why I posed the question, to try to learn more about what would, or would not be appropriate.</p>
<p>Just remember…that minimum income for paying taxes does not apply to FICA withholding…as noted above!</p>
<p>Here’s the official word: [Reporting</a> Miscellaneous Income](<a href=“http://www.irs.gov/uac/Reporting-Miscellaneous-Income]Reporting”>http://www.irs.gov/uac/Reporting-Miscellaneous-Income)</p>
<p>And an example: Fees received for babysitting, housecleaning and lawn cutting are all examples of taxable income, even if each client paid less than $600 for the year.</p>
<p>They are taxable income, but for a student who makes less than $6000/year they would not in fact be taxed. This is why the discussion has centered on payroll taxes rather than income tax. In-home domestic employees such as babysitters are exempt from payroll tax if the amount is under $1,800/year. Otherwise payroll taxes must be collected from the very first dollar earned, as in the case of the student in the OPs question. So even though no income tax would need to be paid due to the low amount of earnings, payroll taxes would still have to be collected and the employer would have to make his contribution to Social Security.</p>
<p>Because of what this is, an internet message board, and many of us are adults giving advice to children, telling anyone to do anything that is outright illegal is not the way we should be operating.</p>