Can a 12 years old employee be a participant & make deferrals?

[Guest Tammy2006]

Husband and wife own the company and they have 4 children , the youngest is 12, the oldet is 16. If the plan has no age limit, can the children contribute to the plan? They were paid $5000 each and they want (the parents actually want) to put $2500 in deferral for each.The children did not receive W-2 ( I don't know how exactly got paid) ...what would actually be the best answer, I tried to explain they suppose to have W-2, otherwise, how you defer??? Can you have W-2 for a 12 year old?? And if so, can they defer???

[WDIK]

http://benefitslink.com/boards/index.php?showtopic=31153

[GBurns]

Yes, a 12 year old can get a W-2, but employees get W-2s, so the child first has to be an employee. See IRS Publications 15 (Section 3 page 8) and 15-A for further info. See also your state labor and payroll laws.

If they were employees they would have had to be paid periodically. Each pay period would have had tax treatment, possibly also for the state and municipality, and subject to periodic reporting such as 940, UC etc.

Even if W-2s are now created, there is no way to recreate what should have taken place during the year and which requires reporting that balances with the W-2s. W-2s do not stand alone, they are the end result of what happened during the year.

Without proof of payroll payment there is no proof of compensation. No compensation means no deferral.

Payment to employees cannot just magically appear at or after the end of the year without consequences.

How does the plan define compensation and eligibility?