Crazy technicalities: how the IRS defines your age. Spoiler: it depends.

[Michael Plaks]

Specific technical issue that triggered this post. When parents employ their minor child, the child is exempt from Social Security and Medicare (aka FICA) - if under 18. But what exactly happens in the year the child turns 18? If my boy turned 18 on April 1st - does he escape FICA for the first 3 months of the year and starts paying it from April forward? 

I will return to this situation in the end of this post, but first let me show you why the age of a person can be tricky when it comes to the IRS. And we will leave all non-IRS implications out of this, of course.

Example 1. IRS definition of a dependent.

To claim a child as a dependent, the child must be under 19 or under 24 if a student. If mine turned 19 on April 1st, does he count for the year? Or at least for a part of the year? The answer is NO, based on the language of Section 152(c)(3)(A):

...an individual meets the requirements of this paragraph if...
(i) has not attained the age of 19 as of the close of the calendar year in which the taxable year of the taxpayer begins, or
(ii) is a student who has not attained the age of 24 as of the close of such calendar year.

Here, in black and white, the law specifies that the determination is made as of December 31st and applies to the entire year. We are SOL.

Example 2. Required distributions from qualified retirement plans.

This is controlled by Section 401. The section references age in many places, consistently mentioning the end of the year. For instance, in Sec. 401(a)(9)(C) it says:

...The term “required beginning date” means April 1 of the calendar year following the later of—
(I) the calendar year in which the employee attains the applicable age...

Example 3. Credit for childcare expenses.

The credit is allowed for kids 12 and under. And what happens in the year the kid turns 13? Let's look at Section 21(b)(1)(A):

The term “qualifying individual” means—
(A) a dependent of the taxpayer... who has not attained age 13...

What does it mean "attained"? No definition offered in this Section. So far, the age has always been determined on December 31st. To support this guess, in the very same (!) section, a little further, in Sec. 21(e)(6)(B), it - again! - explicitly mentions the end of the year next to the word "attained": 

...who is a child of the taxpayer (within the meaning of section 152(f)(1)) who has not attained the age of 19 at the close of the taxable year...

Sounds like a reliable pattern, right? Wrong!

Let's check the Regulations 1.21-1 which clarify Section 21. From Regs. 1.21-1(a)(5):

Example 2. The facts are the same as in Example 1, except that B's child turns 13 on February 1, 2008, and B pays for the care provided in January 2008 on February 3, 2008... ...the amount B pays will be an employment-related expense under section 21, because B's child is a qualifying individual when the services are performed, even though the child is not a qualifying individual when B pays the expenses.

So we CAN, after all, claim expense up to the birthday day! AT least in this case. Nice, but confusing.

Our situation: FICA for kids turning 18 while working for us.

So, the only thing we can conclude so far is that the age definitions in the tax law are wildly inconsistent and unclear. Shocking, isn't it?

What about paying FICA on our hard-working kids? Yay or nay? Publication 15, Employer's Tax Guide, says only this much:

...Payments for the services of a child under age 18 who works for their parent in a trade or business aren't subject to social security and
Medicare taxes...

No definition, and IRS publications are not really law anyway. The law would be Section 3121(b)(3)(A) which is no more helpful than the publication:

...service performed by a child under the age of 18 in the employ of his father or mother...

Great. We're on our own. Regulations are no help, either, as far as I can tell. We have to interpret the phrase to the best of our abilities, aka guess. My interpretation is based on the pattern of Section 21 and the fact the "close of the calendar year" was not specifically mentioned. But there is no black and white guidance that I could find.

And, in conclusion...

1st conclusion: no FICA until the child's 18th birthday.

2nd conclusion: tax law is muddy (I would add two capital letters, but it's a family-friendly forum)

3rd conclusion: pay your CPA, we have to deal with it daily, and it takes skill