Wages on a Trust

[LJ1229]

My client has been claiming W2 wages from a trust for a few years.  This year I am taking over the trust return and I noticed that there is no prior deduction on the trust for the wages being paid.  I don't see a place to enter wages (this are no Sch H wages) so would I just put them on the Fiduciary Fee line along with payroll taxes that were paid by the trust?  I can't seem to find anything in the instructions.

thanks

[Skylane]

what are the wages for? 

[Just-Lisa-Now-]

I had a 1041 estate return that had a Sch C with wages included as a deduction on the Sch C. 

What are they being paid wages for?

[taxes96786]

Why W2 income?  I would think this would be Sch C income.

[qbteachmt]

What sort of trust is this? Is your client the Trustee?

"It is a general rule that a fiduciary, whether receiver, trustee in bankruptcy, administrator of an estate or liquidator of a bank, is not an employee as to the services performed in his fiduciary capacity (Rev. Rul. 69-656 )."

https://answerconnect.cch.com/document/arp283c81acf07b6f1000881c001b7840a5b20147/federal/irc/explana...

"Unlike a company, a trust is not a legal entity in its own right and therefore cannot directly employ apprentices or trainees. In circumstances where a trust arrangement is indicated, there will be a trustee authorized to conduct the trust’s business. The trustee, whether an individual, a partnership or a proprietary company, contracts on behalf of the trust and accordingly would be the legal employer of the apprentices/trainees employed by the trust. The trust deed under which the trustee is appointed may be requested if there is any doubt as to the correct legal employer. Note that where a unit trust arrangement is indicated, the terms of unit trusts divide the ownership of the trust into a number of equal units issued to investors, companies or other joint ventures. In the case of unit trusts, as with other trusts, the unit trust trustee should be indicated on the application as the legal employer of the employee."

https://answerconnect.cch.com/document/arp283c81acf07b6f1000881c001b7840a5b20147/federal/irc/explana...

And it would be more than W2 amount. There are employer taxes, for one thing. And payroll form filings.

[LJ1229]

Yeah, I thought this was weird when I realized the W2 is from the trust EIN.

Trust is a complex exemption trust.  Until May of last year the beneficiary was the wife and my client (the son) was the trustee.  The w2 was issued to the daughter in law.  DIL was helping mom at and handling the finances for the household.

[qbteachmt]

"Until May of last year the beneficiary was the wife and my client (the son) was the trustee. The w2 was issued to the daughter in law. DIL was helping mom at and handling the finances for the household."

Isn't that Household help, then? Employed by the mom, and if the trust paid the costs, that would be an indirect distribution to the mom.

[LJ1229]

that's what I was thinking too.  so much fun taking over returns that have been prepared by someone else.

[qbteachmt]

So, the payroll is from the mom's SSN and the trust paid, and the trust filing won't have wages, but will have that amount included in distributions to the mom. And whoever is doing the mom's tax return will have household employment to report.

[taxes96786]

handling finances for household is not household help. Household help is cleaning etc, not bookkeeping

[qbteachmt]

"handling finances for household is not household help. Household help is cleaning etc, not bookkeeping"

No one here has stated the actual tasks.

The point here is that the trustee has done this wrong. The Trust isn't the employer of the DIL. The trustee can be paid a fee. The DIL is helping at the home of the beneficiary, so that is not trust-related. It is personal services in the home. The mom is not running a business, so there is nothing other than personal, whether that is help paying bills, scheduling, keeping track, whatever.

It answers the question as to why the Trust has no payroll, but not why they put the Trust EIN on the payroll. There is a mix of things here that would be examined and corrected. And now it's been clarified and answers:

"I don't see a place to enter wages (this are no Sch H wages) so would I just put them on the Fiduciary Fee line along with payroll taxes that were paid by the trust? I can't seem to find anything in the instructions."

Nope. That doesn't seem to be what's going on here.

[LJ1229]

This is why I like this community, all great points and kind of re-infornces that this didn't look right.  My client is out of town until next week but I'll find out what the intent behind the earnings was and why the did it thru payroll.

Thank you everyone for your responses.

[taxes96786]

you did

[sjrcpa]

Alternate view point here.

a. We don't have all the facts, of course.

If the trust was set up to provide care for the mother, the trust can hire people to provide that care.

I have a trust that does just that. They issue 1099s instead of W-2s. (Another issue I can't win with them, though) And I do not treat the payments as deductible trust expenses.