Perhaps you’ve decided to hire a part-time employee because a particular job does not require someone full-time. Or, your business has a busy season, so you hire seasonal workers. Are part-time or seasonal workers treated any differently than full-time employees in regards to reporting and withholding tax? All employees, seasonal, part-time, or full-time need to complete the W-4 and I-9 forms. Also, according to the new rules created by the Tax Cuts and Jobs Act, all employees must know that any changes to their withholding on the W-4 Form can cause substantial changes to their income. However, there are some instances where special attention should be paid to employees who work only part-time or seasonally.
Many seasonal and part-time workers have jobs in which they earn tips. All tips of any form whether it be cash tips received directly or split tips can be subject to federal income tax. There are specific guidelines to follow to ensure your part-time employee’s tips are taxed properly. Cash tips given to an employee by a customer exceeding $20 in a calendar month are considered taxable income. The employee should be keeping track of their tips (both cash and credit) by using Form 4070A, Employee’s Daily Record of Tips and report them to you by the 10th of the following month. All cash tips including the initial $20 are subject to taxation, because they are now classified as wages. With these reported tips, you are responsible for withholding FICA and income taxes, and paying your portion of FICA and FUTA taxes on them. If your business does not allow customers to give tips, but instead you have a set gratuity included in the bill, that gratuity is always taxable as it is considered a wage.
It is also important to pay attention to payroll taxes. Many part-time and seasonal workers don’t make enough in their pay period to owe any income tax. However, in most cases, the employer has to withhold both Medicare and Social Security taxes from their pay, regardless if the employee has earned enough to owe income tax.
For employers of seasonal workers, there are specific regulations regarding Form 941. Seasonal employers do not have to fill out Form 941 for quarters that they did not pay any wages because they have no tax liability. However, when filling out the Form 941, in order for the IRS to know that you may not be filing a return for one or more quarters during the year, be sure to have the Seasonal Employer box checked in the quarters that you are filing. By doing so, the IRS will not be expecting a 941 Form every quarter.
If you have questions about the tax implications of hiring part-time or seasonal workers, Zinman & Company is always here to help. Please contact us at 215-357-2250 or visit us at www.thecpa.com.