ACG - Agency Consulting Group

The PIPELINE

A national monthly newsletter for agency principals dedicated to agency management topic

Taxing Ideas: When Are Advance Commissions Taxable?

During the summer when many of our employees want to have a vacation, we hire temporary help. There are some special rules and allowances available for these people that are often forgotten. Here are some reminders.

Tax Forms:

Form W-4. The official name of this form is the Employee's Withholding Allowance Certificate. It is required for every employee -- including your own children (who often provide several advantages as employees!)

Form I-9. This is the Employment Eligibility Verification form. It is also required for each employee.

Other forms. These employees will be reported on your quarterly and end-of-the-year forms (W-2, W-3, 941 and the equivalent state forms). Please be aware that in the normal circumstance, these are employees subject to normal employee rules and not independent contractors paid on form 1099. The issue of employee vs. independent contractor has become a hot topic in IRS.

Hiring the Family:

Your family members are employees and all withholding rules apply the same as for any other non-relative employee with the following exceptions. If you are a sole proprietor or part of a partnership where the only partners are the child's parents, you are not required to withhold FICA on your children under the age of 18. Similarly, you do not have to pay FUTA on your children under the age of 21. The children are still subject to regular payroll withholding! They are not tax exempt and will file a tax return claiming their earnings, investment income, gains and losses, etc. at the end of the year.

Jobs Credit:

You can help yourself as well as your community by taking advantage of this credit. The credit is 40% of the first $3000 of wages for those youths who qualify. The youngsters must be 16-17 years old, come from a disadvantaged family and be employed for a minimum of 14 days or 20 hours. In order to qualify, the student and his/her family must be certified by a designated local agency no later than the employee's first day at work. Your own children do not qualify you for this benefit.

If you have any questions regarding summer help or any other tax topic, feel free to call our Tax Hotline at 856-779-2430.