Child Wages Pd by Single Mem LLC, Taxed as S-Corp

[Outlook]

We have a client that was originally set-up as a single member LLC. For 2006, the client elected (filed form 2553 and was accepted) to be taxed as an S-Corporation. The client has paid wages to his 15 year old daughter. Work performed by a child under the age of 18 for a parent is exempt from FICA, under 21 is exempt from FUTA. However, these exemptions do not apply when the child's services are performed for a corporation. With the client having elected to be taxes as an S-Corp, do the child's wages fall under the payroll law associated with a single member LLC being taxed as a sole proprietorship (wages not subject to FICA/FUTA) or under payroll law associated with a Corporation (wages are subject to FICA/FUTA)? In other words, is the client treated as a sole proprietorship or corporation with regard to the child's wages?

A related question would be: If a client elects to be taxed as an S-Corp, does that mean that ALL aspects of the business must follow corporate taxation rules and regulations - including those associated with payroll?

[BOB W]

Yes

Yes...........................................

[OldJack]

A related question would be: If a client elects to be taxed as an S-Corp, does that mean that ALL aspects of the business must follow corporate taxation rules and regulations - including those associated with payroll?

Yes. For federal tax purposes an S-corp is an S-corp regardless of how the election came about (the LLC is disregarded). Therefore, the child worked for an S-corp and the S-corp must withhold all payroll taxes and issue an appropriate W2 to the child.

[ChEAr$]

forgetting the corporation

for a moment though. A child working for an LLC, even though a single
member LLC, is not working for his parent.

[Joe Btfsplk]

for a moment though. A child working for an LLC, even though a single
member LLC, is not working for his parent.

If he had not elected to be taxed as an S Corp and was filing a schedule C for a single-member LLC, would this not make it the same as if he paid the wages as an individual sole proprietor? Possibly if he used the LLC FEI, that would muddy the water. Without further research, I'm inclined to think that sincethe single-member LLC would be treated as a disregarded entity, the employer would be the parent, not a separate legal entity..

[cpadan]

for a moment though. A child working for an LLC, even though a single
member LLC, is not working for his parent.

Joe is right, the wages are not subject in that situation. This would also be true if it was a partnership and the only partners were the parents.

[ChEAr$]

well

sometimes we think that tax law controls everything.

Just because an LLC is taxed AS a proprietor WOULD be doesn't mean
the LLC structure can be disregarded.

The LLC is a separate entity created by the state, like a corporation,
thus same rules apply. But I will change my mind if the new circular E
yet to be received addesses the issue specifically.