As schools let out across the country many students are looking for summer work.  As their potential employer there are six things the IRS would like you to know to stay compliant with payroll tax laws.

1.  You need to have ALL new employees complete a Form W-4.  Don’t assume that because they are a minor or a student that they are exempt from Federal Income Tax.  If you live in a state with income tax, you will also need to have them complete the state equivalent of t he W-4.  For Alabama that is Form A-4.

2.  Tips are reportable income and all tips are taxable.  Your employees need to report cash tips to you and they need to be included in payroll tax calculations.

3.  Odd jobs like baby-sitting and lawn mowing are still income tax generating jobs.  If you employ a student to do these items, you are not responsible for withholding the taxes but they will have to pay the taxes as Self-Employment Tax with their income tax return.

4.  Even if the student doesn’t earn enough to pay income taxes they will likely owe Social Security and Medicare taxes.  Make sure you are withholding them if you are an employer.  If they are an independent contractor (baby-sitter, lawn work, general clean up work, dog sitting) you aren’t required to withhold the taxes but they will need to pay them with their income tax return.

5.  If your child/student is in ROTC their active duty pay is taxable.  Food and lodging allowances received in advanced training are not taxable.

6.  If your child/student is a newspaper carrier or distributor special rules apply to their income.  You are treated as self-employed for federal tax purposes if:

  • You are in the business of delivering newspapers
  • Substantially all your pay for these services is directly related to sales rather than to the number of hours worked
  • You work under a written contract that states the employer will not treat you as an employee for federal tax purposes

Please note that as an employer you are required to meet additional Federal and State requirements such as completing Form I-9, New Hire Reporting for your state and possibly E-Verify reporting for your state.

Please contact our Client Service Department or your Trusted Business Advisor at JamisonMoneyFarmer PC to ensure you are handling student and summer employees correctly!