Exempting student summer income from SE tax

[FEDUKE404]

While I perhaps might see the need to consider moving the $400 floor from where it has been stuck for many, many years I do not quite follow the overall logic of "why" these youth working at various summer jobs should be exempted from the SE tax in the first place. The most frequent road out expressed on these boards is that such work is not "permanent" and perhaps "short-time" in nature, so Sch SE and its taxes should simply not apply??

**IF** you feel they should be so exempted (insert your own reason here) then to be fair you should also come up with a comparable idea for those students who work summer jobs as employees and pay FICA taxes et al on that income.

Otherwise you put the youth who work at a summer job at the grocer, or at the local mall, or at the car wash at a "disadvantage" tax-wise over comparable youth who just work on a neighbor's farm for the entire summer. Work all summer at the movie theater - pay FICA - but work all summer on the farm and pay no SE ???

And I will just avoid any comments re the student employees putting income credits/quarters into their Soc Sec retirement base versus the "farm folks" not doing so if your logic is applied.

These comments are not here to choose sides at all, but since this is a tax discussion board I would like to see how the majority of the TTB folks come down on applying SE taxes to summertime employment, reported on a Form 1099-MISC, for youth.

My guess is that most professionals here see it for what it truly is, namely employment income subject to the self-employment tax....no asterisks need be applied.

FE

[Koss]

Exempt?

By what authority do some assert that summer employment for youth is exempt from self-employment tax?

Or is there no concrete authority for such exemption?

Are you just talking about some tax pros that put income on Line 21 instead of Schedule C?

BMK

[AJsTax]

You are talking about two

different situations.
If the youth works all summer for the farm they should be on a W-2 just as at any other job. Any farm that does not put their regular employees on a W-2 are cheating , plain and simple.
The truth is that most of the time the kids that help mow hay work only a few days for a few hours and are only there when there is hay to be put up. I am well versed in this subject as I have been involved in both ends making hay my entire life.
Each preparer has to make a decision on how the income should be reported.
The tax court case that most like to refer to involved an individual that worked nearly every day for 2 months to do a job for someone else. If working for 2 solid months on a project without being in the business is not considered SE income, how can working a few days in the hay mow be considered a trade or business?
To fix the problem make all the employers that cheat the system by putting Employees on 1099-misc. I know the IRS is looking into this problem more this coming year and I hope sincerely they get very, very aggressive on it.
Just my two cents worth and not worth much more than that!!

[dyne]

IRS ruled a year or two ago that if a person worked at a one-time situation which will not
likely occur again, he or she is NOT subject to SE tax. I have not seen this often but I have
seen it a few times and I do NOT calculate SE tax upon it. This does NOT only apply to
young people but does apply to EVERYONE!
See another thread regarding this issue about 13 items down which discusses this issue
in detail. It is labeled Kids under 16 and SE Tax.

[tilt53]

AJ, how is that any different from an employer (BK or McD's) who only needs an employee when they are busy? The farmer only wants someone during those times also?

[AJsTax]

AJ, how is that any different from an employer (BK or McD's) who only needs an employee when they are busy? The farmer only wants someone during those times also?

The only similarity is that young people are doing the jobs. At McD's or the gorcery store, etc. they have a JOB and are expected to work 20 hours or so each and every week. The hay may take a day or two this week and maybe not again for a couple weeks with no regularity or usually only a couple hours notice with no expectation of continued involvement.
As I have always stated, if the engagement is for more than a few days a summer than they need to be on a W-2 like any other employee. And one other thing, most of the time these are 12 to 15 years kids, once they reach 16 they get a regular job, although that alone does not determine whether it is a job or not.

[taxea]

I agree with Dyne and that is how I do it...one time thing or not with consistancy or regularity not subject to SE. All others are either temp W-2 or 1099 Sch C.
Who are we to deny this person accurate SS benefits in the future because we did not follow the rules.
It is also a good life lesson for the budding adult. Most of these kids only work during the summer because they don't want to work while in school,. That does not make them any less an employee or IE.

[checkingthebasics]

not exempt summer income/

Income subject to SE tax will help the future of the taxpayer.
Tax preparers can let the income earner know that they could open a Roth. Five year period starts from time the Roth is opened.

[JON]

It confused me,

but a few years ago in a tax case an unemployed, laid off person installed windows while he was trying to get another job. I believe he was paid about $3,000 did not call it SE income and won.

Do you have to prove it was a short job, how short? Do you have to find another job to show the previous one was "short"? In this case it was installation of windows at more than one place, but still was exempt.

I guess it better not be a recurring source of income..???

Is that why we make the BIG bucks??

[FEDUKE404]

Rules vs freak exceptions to same

but a few years ago in a tax case an unemployed, laid off person installed windows while he was trying to get another job. I believe he was paid about $3,000 did not call it SE income and won.

Do you have to prove it was a short job, how short? Do you have to find another job to show the previous one was "short"? In this case it was installation of windows at more than one place, but still was exempt.

I guess it better not be a recurring source of income..???

Is that why we make the BIG bucks??

Let's see:

"....but a few years ago in a tax case an unemployed, laid off accountant helped a sole proprietor in the preparation of tax returns while he was trying to get another job. I believe he was paid about $3,000 did not call it SE income and won."

Think that would fly very well for no Sch SE tax???

I would vote a definite "NO!" for both examples, regardless of whether anyone pays me big bucks or not.

Quite frankly, if I went that route for a client with these underlying facts I would be fearful of the IRS "reclaiming" some of my own hard-earned fees!

FE

[Gretel]

I think the major issue is if the "temporary job" is in the line of business the taxpayer does anyway. If it is any little job is subject to SE. If an accountant helps install windows because not enough clients came back after he increased his fees by 100%, than it is not subject to SE. If he repeats doing this, the picture changes.

So the real problem is that so many taxpayers nowadays do so many different things just to make ends meet. Then there is not much wiggle room for income not subject to SE and especially for these taxpayers it might not be in there best interest either. Depending on if the client believes the SS still will be around some years or decades down the road and depending on how desperate he needs every single dollar.

All the suggestions about Roth IRA's are nice and dandy but I don't know many taxpayers who could afford to do this.