As a small business owner or manager, you know the challenge of balancing workloads during the bustling summer months. Hiring summer interns can be a great way to get the extra help you need while providing valuable experience to those entering the workforce. However, alongside the benefits, there are also important payroll tax responsibilities to keep in mind.
Payroll Taxes Apply to Paid Interns
When your interns are compensated, either through hourly wages or stipends, they must be treated like any other employee. This means withholding Social Security, Medicare, and applicable federal and state income taxes from their pay. As an employer, you're also required to match Social Security and Medicare contributions. Failing to do so can lead to unexpected penalties, so ensure you're reporting and paying these taxes properly.
Tax Filing and Reporting Requirements
Paid interns require a W-2 form, just like regular employees. Keep in mind state income tax rules and additional federal requirements, especially if you're hiring international students or non-U.S. citizens. It's crucial to stay on top of specific state laws and seek guidance if unsure. This proactive step can save you from encountering hiccups in your tax filings later.
Unpaid Interns and DOL Criteria
It's worth noting that unpaid interns are free from payroll tax obligations, but there's a hitch. To lawfully classify an intern as unpaid, they must meet the Department of Labor’s Primary Beneficiary Test. Unpaid interns should not substitute for paid employees, or you might face penalties. Documentation and compliance are key components here to avoid potential setbacks.
Independent Contractors
If your intern qualifies as an independent contractor, you're in luck because payroll taxes do not apply. However, you'll need to file a 1099-NEC if their earnings reach the required threshold. Be wary of misclassification, as it can lead to hefty fines. Define the intern's role clearly before hiring them to ensure they don't inadvertently fall under employee status.
Hiring summer interns can be a fantastic resource for your business, offering fresh perspectives and increased productivity. But remember, staying informed on legal and tax matters is key. By reviewing your intern hiring process or consulting a payroll expert, you can avoid costly mistakes and support a smooth, compliant operation this summer.
