I received the following questions regarding paying family members to help farm. I thought you might be interested in the questions and responses.
Larry, I'd like to pay my Dad to help me in the field? He doesn't have to file a tax return and I'd like to know how much I could pay him without making it so he has to file. And what about this 1099 business? Thanks in advance for the info.
Mike
Mike, if you pay your Dad under $600 you are not required to give him a 1099. That’s the good news. The bad news is that if your father's net income is over $400 he is required to file a tax return. He may not have any federal income tax but he would have social security tax on the $600 less the expenses.
If you think about it, assuming you paid him $1,000 and it saved you $333 but at the same time it cost him $150, as a family you’d be saving $183. Maybe what you should do is go ahead and pay him the $1,000 and then make a gift to him for his taxes. You will still be ahead of the game.
I hope this is helpful. Let me know if you need anything else.
Larry Kopsa, CPA
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Larry, I'm thinking about hiring my Father to help with harvest this year. He doesn't have a job right now but does receive a social security check. I'd like to pay him $1,500 for the year. My question is - would this be deductible?
Paul
Paul, I hope this finds you well. I have some good news and bad news. First the good news: yes, you are able to deduct the $1,500 as a business deduction. Depending on your level of income, this would save you not only federal and state income but also social security tax. I normally estimate this to be at a 33% tax rate so the $1,500 you are paying him would save you $500 in taxes.
The second piece of good news is that you most likely could treat this individual as an independent contractor. As such, you would not need to give him a W-2 Form. Since you are paying him over $600, you would have to give him a 1099 Form.
Now for the bad news: this $1,500 would be considered income to your Father. Since this is his only source of income besides probably social security, he would not have to pay federal or state income tax but he would be required to file a tax return and pay social security tax. If he had no expenses to offset this $1,500, most likely this would cost him 15% or $225. I hope this helps. Please let me know if you have any other questions.
Larry Kopsa, CPA
