trade or business

Child employed by parents

Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. 

1. My question is, is rental a trade or business filed in schedule C, or a passive income filed as schedule E. 

2. Even if assuming it is a trade and business, it definitely requries W-2 employee instead of 1099.  

Because if the child takes 1099, it means he/she is having her own trade or business instead of working for his parents's business.