Six tips for managing summer employment

ii | Six tips for managing summer employment 1June 2019 |

ContentsTip 1:Minorsrequireagecertificates,and

theirworkhoursmayberestricted ................1

Tip 2:Nonresident-aliensummerintern employeesneedtoapplyfora Social Security Number .................................2

Tip 3:Wagespaidtotemporarysummer employees are generally subject to unemployment insurance tax .....................3

Tip 4: Exceptionstoemploymentand withholdingtaxmayapplywhen hiring family members ..................................4

Tip 5:Whetheremployeesarepart-time orfull-time,wagespaidarereported onFormW-2andnotForm1099 ...................5

Tip 6: TheIRSprovidesanalternative methodtolowerincometaxwithholding forpart-yearemployment .............................6

ii | Six tips for managing summer employment 1June 2019 |

Six tips for managing summer employment in 2019By Debera Salam, CPP, and Kenneth Hausser, CPP, Ernst & Young LLP

Top six tips for managing summer employment in 2019

1 Agecertificatesarerequiredforminorsandtheirworkhoursmayberestricted.

2 Nonresident-aliensummerinternemployeesneedtoapplyforaSocialSecurityNumber.AnIndividualTaxpayerIdentificationNumberisnotacceptable.

3 Wagespaidtotemporarysummeremployees are generally subject to unemployment insurance tax.

4 Exceptionstoemploymentandwithholdingtaxesmayapplywhenhiringfamily members.

5 Whetheremployeesarepart-timeorfull-time,wagespaidarereportedontheFormW-2andnotForm1099.

6 TheIRSprovidesanalternativemethodtolowerincometaxwithholdingforpart-year employment.

Thesummermonthsprovideanabundantsupplyofstudentsandothertemporaryworkerstomeetthepeakdemandsoftheseason while also giving interns an opportunity to gain experience in jobs requiring a professional or technicaldiscipline.

The summer months also promote a casual atmospherethatcan,ifnotchecked,stretchbeyondthebeachesandfairgroundsandintotheenforcementofgovernmentrulesandregulationspertainingtopart-timeandtemporaryhelp.

Toavoidthepitfallsofsummeremploymentanditsemploymenttaxmyths,weofferarefresheronpart-timeandseasonalemployment.

Tip 1Minors require age certificates, and their work hours may be restricted.Often,school-agechildrenarehiredtofillsummerjobs,butbusinessesshouldbeawarethatnumerousfederalrestrictionsapply,includingthelimitationonworkhoursandtherequirementtoobtainagecertificates.

Federalandstatelawsrequirethatemployersobtainagecertificatesfromworkerswhoareknowntobeunderage18(orappeartobeunderage).Ingeneral,age/employmentcertificatessecuredbystatelabordepartmentsalsosatisfytherequirementsunderfederallaw,butthisisnotalwaysthecase.Forinformationconcerningstateagecertificates,visittheU.S.DepartmentofLabor(DOL)website.

Notethatemployersarerequiredtoreturnagecertificatestoemployeesupontheirterminationsothattheycanbeprovidedtofutureemployers.

Federallawimposescertainworkrestrictionsintheemploymentofminors.For example:

• Minors under age 14.Employersareprohibitedfromhiringminorsundertheageof14unlesstheyworkfortheirparents.(Seepage3forexplanationoftheparent-employerexception.)

• Minors age 14 and 15 — hours restrictions.Whenschoolisnotinsession,minorsage14or15areallowedtoworknomorethan8hoursperday,40hoursperweek.Whenschoolisinsession,minorsage14or15canworknomorethan3hoursperschoolday,8hoursperdayonSaturdayandSunday,andnomorethan18hoursperweek.FromJune1throughLaborDay,minorsage14or15canworkonlybetweenthehoursof7:00a.m.and9:00p.m.(7:00a.m.and7:00p.m.theremainderoftheyear).

Notethattheageandwork-hourrestrictionsdonotapplytoemployeeswhodelivernewspaperstotheultimateconsumerandtocertaindutiesperformedbyminorsemployedassportsattendants.Inaddition,thereisaverylimited“parental exemption” that applies when the parent is the “sole employer” of thechild.A“soleemployer”isaparent/employerwhoisasoleproprietororoneparentorbothwhoare100%stockholdersofacorporationforwhichtheirchildworks.ThisparentalexemptiondoesnotapplytomanufacturingjobsortothosedutieslistedbytheDOLasa“hazardousoccupation.”

• Minors under age 18.Allminorsareprohibitedfromworkinginjobsconsideredtobehazardous.Formoreinformationonhazardousoccupations,visittheDOLwebsite.

2 | Six tips for managing summer employment 3June 2019 |

Exceptions to the minor age certificate and work-hour restrictionsAgeandwork-hourrestrictionsdonotapplytoemployeeswhodelivernewspaperstotheultimateconsumerandtocertaindutiesperformedbyminorsemployedassportsattendants.

Inaddition,thereisaverylimited“parental exemption” that applies when the parent is the “sole employer”ofthechild.A“soleemployer”isaparent/employerwhois a sole proprietor or one parent or bothwhoare100%stockholdersofacorporationforwhichtheirchildworks.Thisparentalexemptiondoesnot apply to manufacturing jobs or tothosedutieslistedbytheDOLasa“hazardousoccupation.”

Inadditiontofederalrequirements,statesoftenimposeadditionalrestrictions on the employment of minors.

Tip 2Nonresident-alien summer intern employees need to apply or a Social Security Number.Allemployees,includingresidentandnonresidentalienswhoareeligibleforemploymentintheUS,arerequiredtoapplyforaSocialSecurityNumber(SSN)by completing the SS-5, Application for Social Security Card,andsubmittingittotheSocialSecurityAdministration(SSA)alongwithdocumentationtheSSArequiresforissuinganSSN.(IRC §6109(d); IRC §301.6109-1(d)(d).)

• Non-US employees.BecauseofadditionalstepstheSSAtakestoverifytheUSworkeligibilityofnonresidentaliens,therecanbeasignificantdelayinissuingtheirSSNs.WhentheprocesstoobtainanSSNislongerthanexpectedordeadlinesareapproaching,suchastheduedatetofiletheFormsW-2,someemployersasknonresident-alienemployeestoobtainanIndividualTaxpayerIdentificationNumber(ITIN)thatcanbeusedinlieuoftheSSN.ThisisnotanacceptablealternativefordealingwithadelayinobtaininganSSN.TheIRSprohibitsindividualsfromholdingbothanITINandanSSN,andindividualswhoareeligibleforanSSNarenotallowedtoapplyforanITIN.(Seetheinstructionsfor FormW-7,Application for IRS Individual Taxpayer Identification Number.)

The IRS prohibits individuals from holding both an ITIN and an SSN, and individuals who are eligible for an SSN are not allowed to apply for an ITIN.

AccordingtotheFormW-2instructions,whenanSSNisappliedfor,employersareinstructedtoenter“appliedfor”astheSSNwhenfilingpaperFormsW-2or“000-00-0000”iffilingelectronically.EmployerscanobtainanabatementforfailingtoreportavalidSSNontheFormW-2ifitcanbedemonstratedthatsolicitationsweremadefortheSSNsoftheseemployees.Asaleadingpractice,someemployersaskthatanemployeeprovideacopyoftheSS-5filedwiththeSSAaswellasareceiptfromtheSSAshowingthattheSS-5wasproperlyfiledandthattheSSNispending.Thisdocumentationismaintainedintheemployee’sfileortheemploymenttaxrecords.

Six tips for managing summer employment in 2019Continued

2 | Six tips for managing summer employment 3June 2019 |

Tip 3Wages paid to temporary summer employees are generally subject to unemployment insurance tax.Employers sometimes believe that the wages of summer workersareexemptfromfederal(FUTA)andstateunemploymentinsurance(SUI),particularlywhentheseworkers participate in summer intern programs. The fact is,forunemploymentinsurancepurposes,thereislittledistinctionbetweenstudentsworkinginthesummerandotherpart-timeandseasonalemployees.ThewagespaidtostudentsgenerallyaresubjecttoFUTAandSUIandarereportedontheForm940andSUIreturns.(IRS Publication 15, Employer’s Tax Guide; IRC §3306; IRC §3309):

ThereareafewexceptionstotheFUTAcoverageasfollows:

• Asonordaughter(includingstepchildrenandadoptedchildren)underage21,whenpaidbyaparentwhosebusinessisasoleproprietorship(orapartnershipconsistingonlyofparents)

• Aspouse,whenpaidbyhisorherspouse

• Newspapercarriersunderage18whodelivernewspapersto customers

• Studentsworkingforaprivateschool,collegeoruniversity,ifenrolledandregularlyattendingclassesattheschoolatwhichtheyareemployed,andspousesofstudentsiftheyareadvisedatthetimeofhirethat(a)theemploymentisprovidedunderaprogramtoprovidefinancialassistancetothestudentbytheschooland(b)theindividualisnotcoveredbyanyunemploymentprogramandisnotentitledtounemploymentinsurancebenefitsintheeventof separation

• Studentsenrolledinafull-timeprogramatanonprofitorpubliceducationalinstitutionthatcombinesacademicinstructionwithworkexperience,givingthestudentcreditforservicesperformedunlesstheprogramwasestablishedfor or on behalf of an employer or group of employers

• Studentnursesforservicesperformedintheemployofahospitalornursestrainingschoolbyanindividualwhoisenrolledandisregularlyattendingclassesinanursestrainingschoolcharteredorapprovedpursuanttostatelaw

• Full-timestudentsforservicesperformedintheemployofanorganizedcamp,ifthecampdidnotoperatemorethansevenmonthsinthecalendaryearanddidnotoperateformorethansevenmonthsintheprecedingcalendaryear

• Students,scholars,trainees,teachersandsimilarwhoqualifyasnon-immigrantaliensholdingF,J,MorQvisasandareworkingwithinthescopeoftheirrespectivevisa(IRSReg.§301.7701(b)-3(b))

• AliensperformingagriculturallaborwithH-2Avisas

• Internsandpatientsworkinginhospitals

• Certainmembersofafishingvessel

Note that this is not a complete list of employment exempt fromFUTA,butratherasummaryofthetypesofjobpositionsexemptfromFUTAthataretypicallyheldbystudentsorothertemporary or seasonal employees.

WhileSUIlawstypicallymirrorthefederalunemploymentinsurancelawasitpertainstostudentemployment,thereareexceptions.Forexample,onlyafewstatesexemptservicesperformedbyforeignstudentsfromthedefinitionofemploymentforSUIpurposes.Also,severalstatesrestricttheSUIexemptionforwork-studystudentstothoseundertheageof22.SomestatesdonotprovideanySUIexemptionforservicesperformedbywork-studystudents.EmployersshouldreviewthelawofthestateinwhichthestudentsareperformingservicestodeterminewhethertheirwagesaresubjecttoSUI.

Several states have special provisions preventing seasonal employees from receiving unemployment benefits.

4 | Six tips for managing summer employment 5June 2019 |

Six tips for managing summer employment in 2019Continued

Unemployment insurance benefits and seasonal employmentSeveral states have special provisions that prevent seasonal employees from receiving unemploymentbenefits.Sinceanemployer’sSUIrateisbasedpartlyonthebenefitspaidtoitsseparatedworkers,understandingwhen these exclusions apply is important for industriesthatoperateonlyduringcertainmonths of the year. While the exclusion is commonlyassociatedwithagriculturalworkers,some states also make it available to other industrieswithseasonalemployment(e.g.,parksandrecreation).

Statelawgenerallydefines“seasonal”interms of:

• Theindustry,employeroroccupationinvolved

• Thewagesearnedduringtheoperatingperiodoftheemployerorindustry

• Theworkperformedbytheindividualemployee

Intheapplicablestates,employersgenerallyqualify or obtain approval for the seasonal employment exemption through a formal procedureofthestateunemploymentagency.Whengranted,theexclusionappliesforaspecifiedperiodduringtheyearinaccordancewith the nature of the seasonal work or operation.

For more information on unemployment insuranceandseasonalemployment,seetheDOLwebsite.

4 | Six tips for managing summer employment 5June 2019 |

Tip 4Exceptions to employment and withholding tax may apply when hiring family members.Parentswhoemploytheirchildrenaregivenasmallemploymenttaxbreak.Specifically,thewagesofchildrenunder18areexemptfromSocialSecurityandMedicaretaxes,andthewagesofchildrenunderage21areexemptfromFUTAifthewagesaredirectlyconnectedtoservicesperformedfortheirparent’stradeorbusiness.(TheSocialSecurityandMedicareexemptionextendstochildrenunderage21ifdomesticworkisprovidedinthehomeoftheparent.)

Theparent’sbusinessmustbeeitherasoleproprietorshiporapartnershipinwhicheachpartnerisaparentofthechild.

Becausewagespaidtochildrenarenotnecessarilyexemptfromfederalincometax(FIT)orwithholding(FITW),theymustbereportedonForms941andW-2.ParentsmustobtainafederalEmployerIdentificationNumbertoreportwagespaidtotheirchildrenbecauseFormsW-2and941cannotbefiledundertheSSNofeitherparent.

Because wages paid to children are not necessarily exempt from FIT or FITW, they must be reported on Forms 941 and W-2.

Tip 5Whether employees are part-time or full-time, wages paid are reported on Form W-2 and not Form 1099.Employers sometimes mistakenly believe that because summerhelpispart-timeandtemporary,theseworkersareindependentcontractorsandnotemployees.Thefactis,whetherhalf-timeorfull-time,temporaryorpermanent,minorsoradults,employeesareemployees.Workersmeetingthecommon-lawtestgenerallyareemployeesunderIRSstandards,andhoursofworkandlengthofemploymentarenotconsideredinthistest.

Whether half-time or full-time, temporary or permanent, minors or adults, employees are employees and not independent contractors.

Asaconsequence,wagespaidtopart-timeandtemporaryemployeesaresubjecttofederaltaxes(FIT,FITW,FICAandFUTA)andapplicablestateandlocaltaxes(IRC §3401(a)(4); IRC §3121(a)).

Inaddition,wages,regardlessoftheamount,arereportedonFormW-2,notForm1099.Thisreportingrequirementholdstrueregardlessoftheworkperformed.Forinstance,themerry-go-roundattendantwhomakesafewextradollarsbytrimmingweedsaroundtheconcessionstandsshouldnotexpecttoreceiveaForm1099foramountspaidtohimforweekendweeding.(Ringling Bros-Barnum & Bailey Combined Shows, Inc. v. Higgins (1951, CA2 NY) 189 F2d 865, 40 AFTR 795.)

6 | Six tips for managing summer employment 7June 2019 |

Six tips for managing summer employment in 2019Continued

Tip 6The IRS provides an alternative method to lower income tax withholding for part-year employment.Mostautomatedpayrollsystemsusesomeformofanannualestimatedwagemethodofwithholding(e.g.,percentagemethodwithholding).Thismethodofwithholdingissomewhataccurateforfull-yearemploymentbuttendstocauseoverwithholdingfromthewagesofseasonalemployees.Inconsiderationofthisproblem,theIRSallowsemployerstouseanalternativewithholdingmethodforseasonalemployees.

Tousethemethod,theemployermustobtainawrittenauthorizationfromtheemployeethatincludesthefollowing:

• Thelastdayofanyemploymentduringthecalendaryearwith any prior employer

• Astatementthattheemployeeusesthecalendaryearaccountingperiod

• A statement that the employee reasonably anticipates he orshewillbeemployedforatotalofnomorethan245daysinalltermsofcontinuousemployment(nosignificantinterruptionintheemploymentperiod)duringthecurrentcalendaryear

A term of continuous employment may be a single term or two or more following terms of employment with the same employer.Acontinuoustermincludesholidays,regulardaysoff,anddaysoffforillnessorvacation.Itbeginsonthefirstdayanemployeeworksfortheemployerandearnspay.Itendsontheearlieroftheemployee’slastdayofworkfortheemployer,oriftheemployeedoesnotperformservicesformorethan30calendardays,thelastworkdaybeforethe30-dayperiod.Ifanemploymentrelationshipisended,thenthetermofcontinuousemploymentisended,evenifanewemploymentrelationshipisestablishedwiththesameemployerwithin30days.(IRS Reg. §31.3402(h)(4)-1(c); IRS Publication 15-A, Employer’s Supplemental Tax Guide.)

Themethodforcomputingfederalincometaxunderthismethodisasfollows:

1. Addtothecurrent-periodwagesanyotherwagespaidinthecurrentcalendaryear,ignoringanywagesthatwerepaid(a)priortoaterminationinemploymentor(b)priortoany30-dayperiodwherenoworkwasperformed.(Ifanemployeereceivedonlypaidtimeoffinatermofemployment,thisisconsideredwagespaidfortheperformanceofwork.)

2. Determinethenumberofdaysintheperiodrepresentedin(1)above.

3. Dividethetotalnumberofdaysfrom(2)abovebythenumberofrepresentativedaysintheemployer’sregularpayrollperiod.Forinstance,divideby7forweekly,14forbiweekly,etc.

4. Dividetheresultin(1)bytheresultin(3)todeterminethepayperiodwages.

5. ComputetheFITontheresultfrom(4)usingeitherthepercentagemethodorwage-bracketmethodsofwithholding.(Usetheemployee’smostrecentFormW-4todeterminemaritalstatusandnumberofpersonalallowances.)

6. Multiplytheresultin(5)bytheresultfrom(3)todeterminetheannualwithholding.

7. Subtractfromtheresultin(6)fromtheFITWintheperiodrepresentedin(1).

8. Theresultfrom(7)iswithheldfromtheemployee’scurrentperiodwages.

6 | Six tips for managing summer employment 7June 2019 |

Example:KirstenperformsnoworkfromFebruary1throughJuly5,2019(156calendardays).SheperformsservicesforthebiweeklypayrollperiodJuly6–19andwillbepaidwagesof$9,000forthepayrollperiod.Kirstenismarriedwithoneallowance.Usingthepart-yearmethodandpercentagemethodwithholding,thefederalincometaxcalculationisasfollows:

1. AddcurrentwagestoallwagespaidsinceFebruary1,2019($9,000+$0)

$9,000

2. NumberofdaysbetweenFebruary1,2019,andJuly19,2019(14days+156days)

170

3. NumberofpayperiodsfromFebruary1,2019,toJuly19,2019+ (170days/14daysperpayperiod)

12

4. Averagewagesperpayrollperiod ($9,000/12payperiods)

$750

5. Amounttobewithheldfrom$750forbiweeklypayrollperiod [($750−$454)×10%][Table2(b)]

$29.60

6. TotaltobewithheldforallwagespaidsinceFebruary1,2019 ($29.60×12payperiods)

$355.20

7. RemainingFITWtobewithheld ($355.20−$0withheldsinceFebruary1,2019)

$355.20

8. Current FITW $355.20

8 | Six tips for managing summer employment

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