"Paying" a minor for otherwise uncompensated work

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anonymousboglehead
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"Paying" a minor for otherwise uncompensated work

Post by anonymousboglehead » Tue Jun 06, 2017 10:24 pm

Hello all!
I’ve been a member and religious reader of Bogleheads for just over a year, and have requested permission from moderator LadyGeek to use a separate account for this post as I will be disclosing my age.

I am a 17-year-old recent high school graduate (just two days ago, actually) who is interested in pursuing research, and I’m attempting to work this summer in my dad’s genetics lab. Because he is a scientist at the Department of Veterans' Affairs (VA), the vetting process for official employees takes many months, and I unfortunately don’t have enough time for that process. So, I am trying to become a WOC employee (without compensation) which requires less paperwork and time.

One goal of mine, however, was to begin contributing to a Roth IRA this summer, so I am looking to have earned income and a W-2. Recently, my dad and I agreed that this summer he would pay me out-of-pocket for the work done in his lab (thus allowing me to stay on as a WOC employee) and I would put 100% of my paycheck into a Roth. From what I’ve been reading, it’s possible for a parent to provide their child with a W-2 so long as the child is able to document the work that they’ve done for the parent and present it to the IRS if/when requested. Assuming I’m able to provide said documentation, would it be possible for my father to pay me out-of-pocket with a W-2 and have me still remain an officially uncompensated employee at the VA? My instincts tell me I can't have my cake and eat it too, but I'm curious what you all say. Thanks in advance!

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Re: "Paying" a minor for otherwise uncompensated work

Post by LadyGeek » Wed Jun 07, 2017 3:56 pm

anonymousboglehead wrote:I’ve been a member and religious reader of Bogleheads for just over a year, and have requested permission from moderator LadyGeek to use a separate account for this post as I will be disclosing my age.
I confirm that anonymousboglehead requested permission for a second account. See: Usernames (accounts), second paragraph. If there are any questions, please PM me.
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Re: "Paying" a minor for otherwise uncompensated work

Post by neilpilot » Wed Jun 07, 2017 4:25 pm

If he pays you and issues a W-2, since your income will be low you will likely not need to deduct, or even file, Federal income tax. However, will he need to deduct for Social Security tax? Will he also be required the employer portion of the SS tax?

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Re: "Paying" a minor for otherwise uncompensated work

Post by sport » Wed Jun 07, 2017 4:29 pm

There may also be state requirements such as workers compensation insurance, and possibly state income tax withholding.

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gasdoc
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Re: "Paying" a minor for otherwise uncompensated work

Post by gasdoc » Wed Jun 07, 2017 4:46 pm

I am showing my ignorance of the subject, but I want to throw this out.... Couldn't he pay you as a 1099 independent contractor instead of as a W2 employee, in order to not have to deal with all of that stuff? Could you still use that amount to deposit money into a Roth IRA? Just a thought, and maybe someone can run with it to help you more.

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Re: "Paying" a minor for otherwise uncompensated work

Post by downshiftme » Wed Jun 07, 2017 4:53 pm

I'm not an expert here, but doesn't he have to be paying you for work that you perform FOR HIM? I cannot just pay my kid for going to summer camp, and then the kid uses that money to fund a Roth IRA. People with family business can pay their kids a reasonable (defensible) wage for working around the place, janitorial work, copying and clerical work, running a cash register (except in certain businesses) but it has to be meaningful work for the business and the amount paid has to be reasonable. I don't know if paying you to work at another business for free will qualify.

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Re: "Paying" a minor for otherwise uncompensated work

Post by Nate79 » Wed Jun 07, 2017 5:00 pm

In the long run the amount of money you would put in the Roth is peanuts during this time. Just have him pay you, save in taxable and move on. Barely worth the effort.

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Re: "Paying" a minor for otherwise uncompensated work

Post by myford.m.lseven » Wed Jun 07, 2017 5:12 pm

I have to say you are a particularly sophisticated 17 year old.

If you wait one more year until you are 18 you can open a ROTH yourself (this year your father will have to open it for you). I would suggest you take the pay, put it in the bank and open the ROTH when you are 18.

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anonymousboglehead
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Re: "Paying" a minor for otherwise uncompensated work

Post by anonymousboglehead » Wed Jun 07, 2017 5:40 pm

Thanks to everyone for the feedback! I'll try to answer every comment in order here.
sport wrote:There may also be state requirements such as workers compensation insurance, and possibly state income tax withholding.
neilpilot wrote:If he pays you and issues a W-2, since your income will be low you will likely not need to deduct, or even file, Federal income tax. However, will he need to deduct for Social Security tax? Will he also be required the employer portion of the SS tax?
I'm not concerned about the numerical tax implications so much as I'm concerned about being paid by a VA employee for VA work while being listed as an uncompensated VA worker (i.e. volunteer). That was what I was trying to get at with my initial question.
gasdoc wrote:I am showing my ignorance of the subject, but I want to throw this out.... Couldn't he pay you as a 1099 independent contractor instead of as a W2 employee, in order to not have to deal with all of that stuff? Could you still use that amount to deposit money into a Roth IRA? Just a thought, and maybe someone can run with it to help you more.
That's certainly an interesting idea. Would 1099 payment as opposed to W-2 payment result in more paperwork (either initial or after-the-fact) on my or his end?
downshiftme wrote:I'm not an expert here, but doesn't he have to be paying you for work that you perform FOR HIM? I cannot just pay my kid for going to summer camp, and then the kid uses that money to fund a Roth IRA. People with family business can pay their kids a reasonable (defensible) wage for working around the place, janitorial work, copying and clerical work, running a cash register (except in certain businesses) but it has to be meaningful work for the business and the amount paid has to be reasonable. I don't know if paying you to work at another business for free will qualify.
The key fact is that my dad runs a lab at the facility, and I would be doing work for him in his lab, so it would (at least superficially) qualify. It's not a "family business," per se, but it's close.
Nate79 wrote:In the long run the amount of money you would put in the Roth is peanuts during this time. Just have him pay you, save in taxable and move on. Barely worth the effort.
I understand. I guess my point about Roth contributions overshadowed my initial question, which had to do with the permissibility of receiving payment from a "third party" (my dad, a VA employee) for work done as a volunteer at the VA.
myford.m.lseven wrote:I have to say you are a particularly sophisticated 17 year old.

If you wait one more year until you are 18 you can open a ROTH yourself (this year your father will have to open it for you). I would suggest you take the pay, put it in the bank and open the ROTH when you are 18.
Thank you! Similar to above, however, my question stemmed more from whether or not I could actually get paid, not necessarily how I should invest my (comparatively very small) income.

To clarify, I'm asking about the permissibility (legality?) of being listed as an official VA volunteer but receiving a W-2/1099 from my dad for the work I've performed. Thanks!

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Re: "Paying" a minor for otherwise uncompensated work

Post by jebmke » Wed Jun 07, 2017 5:44 pm

anonymousboglehead wrote:It's not a "family business," per se, but it's close.
It is the US government, correct? I'm surprised he is legally allowed to hire employees or contractors in this manner.
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Re: "Paying" a minor for otherwise uncompensated work

Post by Swansea » Wed Jun 07, 2017 5:48 pm

jebmke wrote:
anonymousboglehead wrote:It's not a "family business," per se, but it's close.
It is the US government, correct? I'm surprised he is legally allowed to hire employees or contractors in this manner.
That is not uncommon at NIH or at least to be until I left years ago.

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Re: "Paying" a minor for otherwise uncompensated work

Post by KlingKlang » Wed Jun 07, 2017 6:21 pm

Anyone issuing you a W-2 will need to include their federal Employer ID Number (EIN) and probably state EIN. The W-2 has to be filed with the IRS and SSA. If your father has his own company this should be doable, but he just can't use the VA EINs from his W-2.

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Re: "Paying" a minor for otherwise uncompensated work

Post by Spirit Rider » Wed Jun 07, 2017 6:37 pm

I don't see any way your father as an individual can pay you on a W-2 for work performed for a third party, especially a government agency.

Except for household help, W-2 employment requires a legitimate business/employer to pay Fair Market Wages (FMV) wages for work performed for that business/employer. When you describe a parent paying a child on a W-2, that is when they work at the parent's business.

What you are describing is your father gifting you an amount of money. Any way you look at this it is not compensation eligible for IRA compensation.

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Re: "Paying" a minor for otherwise uncompensated work

Post by LadyGeek » Wed Jun 07, 2017 6:40 pm

myford.m.lseven wrote:I have to say you are a particularly sophisticated 17 year old.

If you wait one more year until you are 18 you can open a ROTH yourself (this year your father will have to open it for you). I would suggest you take the pay, put it in the bank and open the ROTH when you are 18.
I agree with this suggestion. Remember that you don't start investing until you are ready. See: Financial planning (Step 5: Implement the plan)

Nothing happens until you have an Emergency fund. What's an emergency fund at 17? How about saving for a car or college? Once money goes into a Roth IRA, it can't come out for quite some time.

To be clear, you can't use the money from the savings account to invest in a Roth next year. It has to be earned income for that year.
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Re: "Paying" a minor for otherwise uncompensated work

Post by ianferrel » Wed Jun 07, 2017 6:57 pm

LadyGeek wrote:Once money goes into a Roth IRA, it can't come out for quite some time.
You can withdraw contributions from a Roth IRA at any time with no tax or penalty. You just can't withdraw earnings without issue.

I agree with the general consensus that I don't think the OP's dad can pay him for work done for a third party. The fact that his dad runs the lab doesn't make it at all like a family business. He has some administrative control as head of the lab, but if he actually ran it, the way one runs a business one owns, he could just hire you.

I'd also be fairly surprised if the WOC paperwork you have to fill out doesn't include some sort of sworn statement that you are actually working without compensation. Which would mean that this plan would involve lying on your hiring paperwork (generally a bad idea).

I admire your pluck, but another thing to consider is that trying to do this, even if you're not actually violating any tax or VA or other ethical rules might open up your dad to accusations of nepotism or embezzlement in the future, which would be really bad. Even if his actions are pure as driven snow, all someone has to do is find a confusing budget line item that maybe looks like it matches up with your income and put that up next to your WOC employment paperwork, and he could have a very bad day indeed.

The benefits of getting one more year of IRA compounding in are nice, but probably not worth that risk.

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Re: "Paying" a minor for otherwise uncompensated work

Post by Gill » Wed Jun 07, 2017 7:06 pm

myford.m.lseven wrote:I have to say you are a particularly sophisticated 17 year old.

If you wait one more year until you are 18 you can open a ROTH yourself (this year your father will have to open it for you). I would suggest you take the pay, put it in the bank and open the ROTH when you are 18.
Is this correct? Why can't a minor open a Roth?
Gill
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Re: "Paying" a minor for otherwise uncompensated work

Post by LadyGeek » Wed Jun 07, 2017 7:22 pm

ianferrel wrote:
LadyGeek wrote:Once money goes into a Roth IRA, it can't come out for quite some time.
You can withdraw contributions from a Roth IRA at any time with no tax or penalty. You just can't withdraw earnings without issue.
I stand corrected, thanks: Roth IRA as an emergency fund

Also note the first paragraph which states that a Roth IRA should be considered a temporary emergency fund. Get yourself on solid footing with a plain old savings account. You can find some online banks which pay a decent interest rate.
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Re: "Paying" a minor for otherwise uncompensated work

Post by rkhusky » Wed Jun 07, 2017 7:38 pm

Spirit Rider wrote:I don't see any way your father as an individual can pay you on a W-2 for work performed for a third party, especially a government agency.

Except for household help, W-2 employment requires a legitimate business/employer to pay Fair Market Wages (FMV) wages for work performed for that business/employer. When you describe a parent paying a child on a W-2, that is when they work at the parent's business.

What you are describing is your father gifting you an amount of money. Any way you look at this it is not compensation eligible for IRA compensation.
+1
This would be like your dad paying you to mow the grass or take out the garbage, which is not eligible income for contributing to an IRA and for which you don't have to pay income tax and you and he don't have to pay SS taxes.

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Re: "Paying" a minor for otherwise uncompensated work

Post by Ethelred » Wed Jun 07, 2017 7:41 pm

Spirit Rider wrote:I don't see any way your father as an individual can pay you on a W-2 for work performed for a third party, especially a government agency.

Except for household help, W-2 employment requires a legitimate business/employer to pay Fair Market Wages (FMV) wages for work performed for that business/employer. When you describe a parent paying a child on a W-2, that is when they work at the parent's business.

What you are describing is your father gifting you an amount of money. Any way you look at this it is not compensation eligible for IRA compensation.
This last paragraph was exactly what I was going to say. The idea fails at the first hurdle.

To the OP: I saw your reply earlier:
The key fact is that my dad runs a lab at the facility, and I would be doing work for him in his lab, so it would (at least superficially) qualify. It's not a "family business," per se, but it's close.
No, the key fact is that while your father might be the manager, he is an employee of the lab business, not the employer. This is an either/or, there is no "close" involved.

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Re: "Paying" a minor for otherwise uncompensated work

Post by jebmke » Wed Jun 07, 2017 8:21 pm

Swansea wrote:
jebmke wrote:
anonymousboglehead wrote:It's not a "family business," per se, but it's close.
It is the US government, correct? I'm surprised he is legally allowed to hire employees or contractors in this manner.
That is not uncommon at NIH or at least to be until I left years ago.
Paid out of their own pocket? Not on the payroll or paid through a government account?
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Re: "Paying" a minor for otherwise uncompensated work

Post by WL2034 » Wed Jun 07, 2017 9:12 pm

Agree that this just isn't going to work legally with your father paying you out of his pocket for work done for his employer (he is not the employer). It's not worth the headache and possible audit in the future. Just take the money as a gift and invest in taxable if you'd like. You are starting early enough that this really isn't going to make a substantial difference to you in the long term, anyways. Great job getting such an early start!

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Re: "Paying" a minor for otherwise uncompensated work

Post by billfromct » Wed Jun 07, 2017 9:15 pm

A minor can open a Roth IRA in their name.

My 2 kids opened a Roth IRA (with my help) when they were 16 from compensation from their first after school job, working in the kitchen of a nursing home & at CVS. They maxed out their Roth IRA (higher amount of their earnings or maximum contribution allowed) through high school, college & their early work years.

50 years of Federal & state tax free compounding and tax free withdrawls at retirement will do wonders for your standard of living in your 60s & 70s.

Starting a Roth IRA in your late teens/early 20s is the next best thing!

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Re: "Paying" a minor for otherwise uncompensated work

Post by anonymousboglehead » Wed Jun 07, 2017 9:59 pm

Thanks for the responses, everyone! While they weren't the answers I was hoping for, they were the ones I expected. I'll keep reading and see if I can find a workaround, but if not, I guess my Roth contributions will have to wait a few months.

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Re: "Paying" a minor for otherwise uncompensated work

Post by Bfwolf » Wed Jun 07, 2017 11:10 pm

anonymousboglehead wrote:Thanks for the responses, everyone! While they weren't the answers I was hoping for, they were the ones I expected. I'll keep reading and see if I can find a workaround, but if not, I guess my Roth contributions will have to wait a few months.
The good news here is that he can still pay you. It will just be as a gift, rather than as an employee. He can give you up to $14,000 per year without eating into his lifetime gift exemption. Your mom could give you another $14,000.

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Re: "Paying" a minor for otherwise uncompensated work

Post by Swansea » Thu Jun 08, 2017 5:10 am

jebmke wrote:
Swansea wrote:
jebmke wrote:
anonymousboglehead wrote:It's not a "family business," per se, but it's close.
It is the US government, correct? I'm surprised he is legally allowed to hire employees or contractors in this manner.
That is not uncommon at NIH or at least to be until I left years ago.
Paid out of their own pocket? Not on the payroll or paid through a government account?
Not on payroll, unpaid internship.

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Re: "Paying" a minor for otherwise uncompensated work

Post by bottlecap » Thu Jun 08, 2017 6:40 am

I don't really think it can be done in this situation. However, even if it could be done, its quite expensive and a headache. Your Dad would need to get an EIN, pay and withhold social security taxes, Medicare taxes, federal unemployment taxes, and state unemployment taxes (and pay them quarterly). Then he'd have to issue paystubs and a W2.

All this to invest in a tax deferred vehicle? Probably not worth the headache, expense, and risk of audit.

JT

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Re: "Paying" a minor for otherwise uncompensated work

Post by IowaFarmBoy » Thu Jun 08, 2017 7:10 am

Maybe 15 years ago our 17 year old daughter opened a Roth at Vanguard with some of the earnings from a summer job. We matched what she put in. I had to be listed on the account as guardian since she was a minor. She was listed as the owner but as a minor. It was titled something like "JANE Doe, a minor"

The rules may have changed...

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Re: "Paying" a minor for otherwise uncompensated work

Post by guitarguy » Thu Jun 08, 2017 11:34 am

myford.m.lseven wrote:I have to say you are a particularly sophisticated 17 year old.
I was reading these posts and thinking the same. When I was 17 I was playing PlayStation and pretty much every cent I made from my crappy manual labor job I spent on paying for car parts and other junk I didn't need.

Good for you OP. You will do well in life. :beer

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Re: "Paying" a minor for otherwise uncompensated work

Post by anonymousboglehead » Fri Jun 09, 2017 1:06 pm

Bfwolf wrote:
anonymousboglehead wrote:Thanks for the responses, everyone! While they weren't the answers I was hoping for, they were the ones I expected. I'll keep reading and see if I can find a workaround, but if not, I guess my Roth contributions will have to wait a few months.
The good news here is that he can still pay you. It will just be as a gift, rather than as an employee. He can give you up to $14,000 per year without eating into his lifetime gift exemption. Your mom could give you another $14,000.
Thank you! I'm aware of the annual gift tax exemption, and I'm glad to confirm it will apply here.
bottlecap wrote:I don't really think it can be done in this situation. However, even if it could be done, its quite expensive and a headache. Your Dad would need to get an EIN, pay and withhold social security taxes, Medicare taxes, federal unemployment taxes, and state unemployment taxes (and pay them quarterly). Then he'd have to issue paystubs and a W2.

All this to invest in a tax deferred vehicle? Probably not worth the headache, expense, and risk of audit.

JT
You're probably right. Thanks for the input!
guitarguy wrote:
myford.m.lseven wrote:I have to say you are a particularly sophisticated 17 year old.
I was reading these posts and thinking the same. When I was 17 I was playing PlayStation and pretty much every cent I made from my crappy manual labor job I spent on paying for car parts and other junk I didn't need.

Good for you OP. You will do well in life. :beer
Thank you. I'm just fortunate to have grown up around people who emphasize financial literacy! :D

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Re: "Paying" a minor for otherwise uncompensated work

Post by JGoneRiding » Fri Jun 09, 2017 10:20 pm

If your dad had a business he could pay you and it is actually fairly easy (several on here make it much more complicated than it is for parent to pay child in business--he could have even started when you were little! no child work permit required) But I don't think there is any loophole to pay you to work at his place of employment. Consider it really great resume building!

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Re: "Paying" a minor for otherwise uncompensated work

Post by agnielson » Sat Jun 10, 2017 8:16 am

I am going to cut against the grain and suggest that you can have your cake and eat it too. Others have well articulated the issues and pitfalls that may materialize, so I'll attempt to lay out your facts in a way that could get you what you want.

What if your father looks around the lab, decides they need help and begs his boss to hire somebody to lighten the load. The boss knows the process and challenges, and suggests that as long as that person isn't on payroll and passes some security clearances, he would be fine with that person showing up - under your father's supervision. So, your father solicits candidates, selects one, negotiates pay and terms of employment, files the appropriate documentation, and so forth. Afterwards, that employee would get a legit W-2 and compensation.

To implement this right, there's several pieces to this puzzle that I believe need to be thought of or dealt with carefully. First, I don't know that I would call somebody working without pay an employee. To me, that's a volunteer and doesn't really enter into the equation. In my workplace, management would not care if I hired an assistant at my own expense, as long as they didn't have access to sensitive information or systems. Next, your father is hiring an employee and should create some typical documentation of that relationship (e.g. job decription, wage research, timecard template, etc.). Finally, once your work is finished, have your father give you a filled out copy of Form W-2 and retain it for your records.

I disagree with the notion that your father has to have a legitamate business to make this work. That might be true if he was trying to deduct your wages, but it sounds like that isn't a consideration. I also haven't double-checked to see if your wages would still be subject to Social Security or Medicare taxes, so that may be a consideration.

Yeah, the more I think about this, the more comfortable I am that it's possible. Start working and getting paid, and use some of your off-time to read a few IRS publications on employment. Best of luck and congratulations on getting an early start on your savings - I'm jealous. :D

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Re: "Paying" a minor for otherwise uncompensated work

Post by Spirit Rider » Sat Jun 10, 2017 9:53 am

^ Huh???

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Re: "Paying" a minor for otherwise uncompensated work

Post by Ethelred » Sat Jun 10, 2017 12:36 pm

Spirit Rider wrote:^ Huh???
Indeed. It doesn't even fit the original facts, since getting a W2 requires him to be a paid by the employer as an actual employee, and the OP said in the first post that even if it was possible, it would take too long to arrange.

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Re: "Paying" a minor for otherwise uncompensated work

Post by bayview » Sat Jun 10, 2017 12:45 pm

Also, for those of us who work for the federal gummint, the idea of a supervisor being (a) willing and (b) able to do this is pretty amusing.

It's a yearly scramble to get our high-school-age summer volunteers through all their clearances etc before school resumes in August. :oops:
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Re: "Paying" a minor for otherwise uncompensated work

Post by dodecahedron » Sat Jun 10, 2017 1:23 pm

Spirit Rider wrote:W-2 employment requires a legitimate business/employer to pay Fair Market Wages (FMV) wages for work performed for that business/employer.
Historically, especially in the humanities, many academic researchers employed by universities have hired non-family members as assistants for clerical tasks including typing, proofreading, editing, data entry, foreign language translation, indexing, etc. on their research projects paying them directly by using their personal funds when grant funds were insufficient. Unless those workers qualified as independent contractors, it seems to me that the paying party (i.e., the individual researcher) had an obligation to issue a W-2. If a researcher had chosen to hire a family member as their research assistant along similar lines, it seems to me that it would also be appropriate to issue a W-2.

So I do not see why the dad needs to be a "legitimate business" in order to pay wage compensation to someone who is assisting his research project under his supervision.

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Re: "Paying" a minor for otherwise uncompensated work

Post by BolderBoy » Sat Jun 10, 2017 1:28 pm

anonymousboglehead wrote:...I’m attempting to work this summer in my dad’s genetics lab. Because he is a scientist at the Department of Veterans' Affairs (VA)...
Is it your dad's lab? I mean in the sense that he makes grant applications and gets grant money that he has wide latitude to spend as he deems fit, such as in hiring ancillary, non-employee help if he wants to?

Otherwise I can't think of a clean way to do this.
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Re: "Paying" a minor for otherwise uncompensated work

Post by dodecahedron » Sat Jun 10, 2017 1:38 pm

ianferrel wrote: I'd also be fairly surprised if the WOC paperwork you have to fill out doesn't include some sort of sworn statement that you are actually working without compensation. Which would mean that this plan would involve lying on your hiring paperwork (generally a bad idea.
It looks like WOC status just requires a declaration that no compensation is coming from the VA. The paperwork appears to allow for the possibility of "visiting scholars" who would often have some kind of outside grant funding or be professors drawing sabbatical pay.

https://www.annarbor.research.va.gov/AN ... CH/woc.asp

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Re: "Paying" a minor for otherwise uncompensated work

Post by dodecahedron » Sat Jun 10, 2017 1:49 pm

BolderBoy wrote:
anonymousboglehead wrote:...I’m attempting to work this summer in my dad’s genetics lab. Because he is a scientist at the Department of Veterans' Affairs (VA)...
Is it your dad's lab? I mean in the sense that he makes grant applications and gets grant money that he has wide latitude to spend as he deems fit, such as in hiring ancillary, non-employee help if he wants to?

Otherwise I can't think of a clean way to do this.
My dad used to do editorial work for professors (researchers) who paid him out of their personal funds because they wanted the work done and did not have available grant funds. He exercised sufficient autonomy that he qualified for independent contractor status, but I could imagine somewhat similar situations where employee status would be appropriate.

As long as the VA does not object, it seems cleaner if dad uses personal funds than outside grant funds under his discretionary control.

That said, labs can be dangerous places. If I were dad, I might be worried about workers comp liability if I paid my child to assist in my lab. Check state laws. Your dad might be required to carry workers comp coverage if he pays you as an employee or possibly also as an independent contractor.

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