Summer Intern Payroll Taxes: What Small Businesses Need to Know
Unlocking Potential: Interns as a Smart Business Move
Summer is the perfect season to inject fresh talent into your business. As a small business owner, you might be considering hiring an intern to help handle the uptick in work. Interns can bring valuable skills, new perspectives, and energy to your projects. However, amidst the excitement of onboarding summer help, there are certain financial responsibilities, particularly payroll taxes, that should not be overlooked.
Payroll Taxes Apply to Paid Interns
If you plan to compensate your intern, you need to treat them like any other employee in terms of payroll taxes. This means withholding Social Security, Medicare, and applicable federal and state income taxes from their pay. As an employer, you're required to match Social Security and Medicare contributions. Proper reporting and payments on these taxes are essential to remain compliant.
Unpaid Interns and DOL Criteria
Considering an unpaid internship? You’re in luck regarding payroll taxes, as unpaid interns are exempt. Nevertheless, it's crucial to adhere to the Department of Labor’s Primary Beneficiary Test, which ensures the internship primarily benefits the intern. Remember, unpaid interns should not replace paid employees – failing compliance here can lead to significant penalties.
Tax Filing and Reporting Requirements
Your bookkeeping doesn’t end at payroll. For paid interns, you’ll need to issue a W-2, similar to any other employee. Additional compliance is needed if you're hiring international students or non-U.S. citizens; federal requirements and state income tax rules apply. It's wise to verify your state's specific laws and seek expert guidance when necessary.
Independent Contractors
In some situations, an intern may be classified as an independent contractor, exempting them from payroll taxes. In such cases, if they earn $600 or more, they must receive a 1099-NEC. Be wary of misclassifying employees as independent contractors—a mistake here could be costly. Clear role definition before hiring is key to avoid penalties.
Bringing summer interns aboard can indeed be a strategic advantage for your business. However, legal and tax compliance should be at the forefront of your hiring strategy. Reviewing your intern hiring process or consulting with a payroll expert is a proactive step to ensure compliance and prevent potential pitfalls. By understanding your payroll tax obligations, you safeguard your business while tapping into the benefits that interns offer. Who knows, your summer intern today might become your star employee of tomorrow!
