IRS Denies Tax Benefit - Frotton CPA
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IRS Denies Tax Benefit

IRS Denies Tax Benefit

(2009)

IRS Denies Tax Benefit

The general IRS rule is if a business owner of a sole proprietorship (not a corporation) hires his/her child under 18 years of age to work in his/her business, the child is not subject to social security, medicare, and FUTA payroll taxes.  This is a huge benefit since these taxes could add up to 16% of the child’s pay.  The pre-2009 practice, which made logical sense, was that since a single member LLC is treated as a sole proprietorship for income tax purposes, then the LLC could take advantage of this tax break.

 

Not any more, the IRS after 2009, has deemed the single member LLC as a proprietorship for federal income tax purposes and a corporation for federal employment taxes.  A corporation is not entitled to this same benefit even if the sole owner is the parent of the employed child.  Therefore this tax break does not apply to single owner LLC’s