When does an employer not need to file a W-2 for a family employee? A straightforward look at wage reporting.

Here’s a payroll brain-teaser that actually makes sense in real life: when would an employer not file a Form W-2 for an employee? The short answer, listed in one of those little multiple-choice quizzes you come across in tax courses, is: when the employee is related to the employer.

Let me walk you through what that means, and why the other choices aren’t as simple as they sound. It’s the kind of nuance that sticks once you see the pattern, and it helps you read those IRS rules more clearly than you might expect.

What a W-2 does and when it usually appears

First, a quick refresher. Form W-2 is the official report that an employer uses to tell the IRS how much wages they paid an employee during the year and how much taxes were withheld. It’s the backbone of your personal income tax return, the document you rely on when you’re filling in your Form 1040. For most workers, this form shows up every January or February, and yes, it has to be accurate down to the last cent because the IRS uses it to verify income and withholdings.

In the vast majority of situations, employees get a W-2. The employer files a copy with the Social Security Administration and gives one to the employee. It doesn’t matter if the work was done at the office, online, or in a hybrid setup; the W-2 is still the standard vehicle for wages and withholding.

The family twist: when relatives might change the rule

Here’s the twist that often trips people up. If the employee is a relative of the employer, there are rare contexts where a W-2 isn’t required in the same way as for unrelated employees. Specifically, in some small-business setups—think a sole proprietor or certain partnerships—wages paid to close family members (like a spouse or a child) may not trigger the same W-2 reporting in the same way as ordinary employees.

That doesn’t mean “no payroll reporting at all.” It means the situation is more nuanced. For example, even if a relative isn’t issued a W-2, there could be other payroll tax considerations, and you’ll want to verify how the payments are treated for tax and Social Security purposes. The rules aren’t universal, and they depend on the business structure, how the work is classified, and what taxes apply in your state and at the federal level.

Why the other options aren’t the rule

Let’s unpack the other choices to see why they don’t commonly excuse an employer from file reporting:

• B) When the employee earns less than $600

A lot of folks assume a small amount means no W-2. Not true. There isn’t a blanket “under $600 equals no W-2” rule for employees. If someone earns wages as an employee, the employer generally issues a W-2. The $600 figure is more closely associated with independent contractor reporting on Form 1099-NEC, not regular wages reported on a W-2. In short, earning under $600 doesn’t automatically wipe away the W-2, because the wage-earning status (employee vs. contractor) determines the reporting form.

• C) When the employee is compensated with stock options

Stock options add complexity, but they don’t automatically exempt an employer from W-2 reporting. If the option grant or exercise creates taxable wages, those amounts may appear on a W-2 as compensation, or they may be reported in other ways depending on the type of option and the timing of the grant and vesting. The point is: stock options can affect how compensation is reported, but they don’t automatically eliminate the need for a W-2 when there’s actual wages paid as employee compensation.

• D) When the employee works from home

Working from home changes logistics, not the basic reporting rule. If the person is an employee, the employer still files a W-2. Remote work doesn’t remove the obligation; it just means the payroll process might be set up differently (telework payroll systems, remote payroll compliance, and so on). The W-2 stays the standard form for wages, regardless of where the work happens.

So yes, the “relatives” exception is the special case here. It’s a reminder that tax rules aren’t one-size-fits-all—and that the way a business is structured can tilt the reporting rules just a bit.

Putting the nuance into everyday understanding

If you’re sorting through this with a real-world mindset, here are a few practical takeaways:

• Know the business structure. A sole proprietor, a partnership, or a family-owned enterprise might look different on tax night than a large corporation. Those differences can influence whether a W-2 is issued for a relative—and under what conditions.

• Always check the details. Just because someone is a family member doesn’t automatically grant an exemption from W-2 reporting. There are specific contexts where the exception applies, and those contexts depend on the exact setup and governing tax rules.

• Distinguish employee vs. contractor. The line between a W-2 employee and a 1099 contractor is crucial. If the person is truly an employee, a W-2 is typically the right form—regardless of family ties. If they’re an independent contractor, you’d be looking at 1099-NEC instead, but with different withholding and reporting rules.

• Consider the broader payroll picture. Even when a W-2 isn’t issued for a relative in a narrow scenario, you might still have to handle payroll taxes, Social Security, Medicare, and state withholdings in some fashion. It’s not a free pass to skip payroll compliance.

A little context that helps with the bigger picture

Think of W-2s as one piece of a larger payroll puzzle. Most of the time, the form is the standard report that shows wages and withholdings for employees. But payroll isn’t a black-and-white system. There are special cases, like household employment and family-run businesses, where the usual rules loosen a bit or shift gears.

If you’ve spent time reading about Form W-2 in learning modules or tax guides, you’ve probably seen references to Schedule H (for household employers) and to the overall structure of Form 1040 as the individual return. Those cross-references help you keep everything in perspective. The key idea is that W-2s serve as the official bridge between what an employee earned and what the IRS collects in taxes, with a few exceptions tucked in for specific situations.

A quick mental model to keep with you

• If you pay someone as an employee, you’ll typically issue a W-2.

• If the worker is a family member in a narrowly defined setup (sole proprietor or certain partnerships), an exception might apply, but this is not the norm and requires careful rule-checking.

• If you’re unsure whether someone is a contractor or an employee, start by asking: who controls how the work is done? Who provides the tools? Is the person dependent on your business for ongoing work? Those questions help you decide between W-2 and 1099-NEC.

• Remote work doesn’t change the form; it changes the process and the logistics of payroll administration, not the fundamental reporting obligation.

Bringing it back to what matters for learners

If you’re exploring tax concepts in materials like Intuit Academy’s Level 1 content, this nuance is the kind of detail that helps you connect the dots. It’s not just about memorizing a single rule; it’s about understanding when rules shift based on the relationship between the worker and the business. The family exception, while specific, highlights a broader truth: tax code is built to accommodate real-world business structures. And in the real world, that means staying curious and double-checking the facts before you stamp something “typical” or “unusual.”

A few concluding reflections

• The correct answer to the scenario you’re studying is that a W-2 might not be required when the employee is related to the employer, under particular business structures.

• The other options—under a $600 threshold, stock options, or remote work—don’t reliably remove the W-2 obligation in the general rules, though each can lead to different tax reporting realities.

• For learners, the takeaway is to keep the big picture in view: W-2s are the standard for wages, with a few narrow exceptions that hinge on business form and the nature of the working relationship.

If you ever find yourself dissecting a payroll question and feel a bit tangled, remember this: start with “Is the worker an employee or a contractor?” then add, “What’s the business structure, and does family involvement change the normal rule?” That’s the rhythm of tax literacy—clear steps, careful checks, and a dash of real-world nuance to keep things interesting.

And as you continue exploring topics under Intuit Academy’s Level 1 framework, you’ll pick up more of these patterns. The points may seem tiny, but they’re the building blocks that help you navigate payroll, taxes, and the occasional curveball with confidence.