Understanding the Value of Summer Interns
As a small business owner or manager, you might find summers to be the perfect time to bring on some additional help. Interns can bring fresh perspectives, lighten the workload, and help test potential long-term hires, offering great value to both your business and the students seeking real-world experience. Payroll Taxes Apply to Paid Interns
If you're paying your intern — whether it's hourly or via a stipend — remember that they must be treated like any other employee. This means you must withhold Social Security, Medicare, and applicable federal and state income taxes. As an employer, you are responsible for matching Social Security and Medicare contributions and reporting and paying taxes accordingly. Tax Filing and Reporting Requirements
For paid interns, a W-2 form is mandatory. You also need to ensure compliance with state income tax rules and be aware of additional federal requirements if your intern is an international student or a non-U.S. citizen. Checking your specific state's laws and seeking guidance if any confusion arises is crucial. Unpaid Interns and DOL Criteria
Unpaid interns are exempt from payroll tax obligations, but it's essential to meet the Department of Labor’s Primary Beneficiary Test. Unpaid interns must not replace paid employees, and non-compliance with these regulations can lead to penalties. Independent Contractors
If your intern qualifies as an independent contractor, you can avoid payroll taxes. However, it’s important to issue a 1099-NEC if payments exceed the established threshold. Be mindful of the risks of misclassification and clearly define the role before hiring to avoid any potential penalties.
Small business owners need to remember that while summer interns can be a fantastic resource, following legal and tax compliance is crucial. Take this opportunity to review your intern hiring process or consult a payroll expert to avoid costly mistakes. Embrace the season with the confidence that your business is set for success.
