Seasonal and part-time employees may work fewer hours or only during certain times of the year, but employers should remember that these workers are generally subject to the same federal payroll tax requirements as other employees.
According to the IRS, wages paid to seasonal and part-time employees are generally subject to federal income tax withholding, Social Security tax, and Medicare tax. Employers are responsible for properly calculating and withholding applicable employee taxes and paying the employer portion of Social Security and Medicare taxes.
During busy seasons, employers may add temporary workers to handle increased demand. Restaurants may hire additional staff during the holidays, retailers may increase staffing during peak shopping periods, and businesses may hire students or temporary workers during the summer. Even when an employee works for only a few weeks or months, normal payroll tax responsibilities still apply.
It can be easy to think of seasonal or part-time employees as payroll “extras,” but failing to properly report their wages or withhold employment taxes can create tax notices, penalties, and additional work for the employer.
Seasonal Employees Are Still Employees
The length of time an employee works does not generally change the employer’s payroll tax responsibilities. Employers should make sure seasonal and part-time employees are processed through payroll just like other employees.
This includes:
- Obtaining a completed Form W-4 for federal income tax withholding.
- Withholding federal income tax based on the employee’s Form W-4 and applicable IRS withholding rules.
- Withholding the employee’s portion of Social Security and Medicare taxes when applicable.
- Paying the employer’s portion of Social Security and Medicare taxes.
- Properly reporting wages and taxes on required payroll tax returns.
- Providing the employee with a Form W-2 after the end of the year.
Employers should also remember that calling someone a “seasonal worker” does not automatically make that person an independent contractor. Worker classification depends on the actual working relationship and applicable rules, not simply how long the person works for the business.
Seasonal Employers and Form 941
Seasonal employers may have different Form 941, Employer’s Quarterly Federal Tax Return, filing requirements than employers who operate and pay employees throughout the entire year.
A seasonal employer generally does not have to file Form 941 for a quarter in which the business has no employment tax liability because no wages were paid.
For example, a business that operates only during the summer may have employees and payroll tax liability during the second and third quarters but no employees or wages during the first and fourth quarters.
Employers can notify the IRS of their seasonal filing status by checking the “seasonal employer” box in Part 3 of every Form 941 they file.
If the seasonal employer box is checked and the employer files at least one taxable Form 941 during the year, the IRS generally will not inquire about quarters for which a Form 941 was not filed because the business had no wages or tax liability.
It is important to remember that the seasonal employer designation does not eliminate the employer’s responsibility to file Form 941 for quarters in which employees were paid and employment tax liability existed.
Employers can review Section 12 of IRS Publication 15 (Circular E), Employer’s Tax Guide for additional information regarding seasonal employers and Form 941 filing requirements.
Filing Form 943 for Agricultural Employers
Different payroll tax reporting rules may apply to employers with agricultural workers.
Businesses that employ farm workers should review the requirements for Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, rather than assuming the standard Form 941 rules apply.
Agricultural employers can find additional information in IRS Publication 51 (Circular A), Agricultural Employer’s Tax Guide, which explains federal income tax withholding, Social Security and Medicare taxes, depositing requirements, and reporting requirements that apply to agricultural employees.
Don’t Overlook Seasonal Payroll Responsibilities
Adding seasonal or part-time workers may seem like a temporary staffing decision, but it still creates important payroll responsibilities. Employers should make sure these employees are properly set up in payroll, taxes are calculated and withheld correctly, and wages are included on all required federal and state payroll tax filings.
Employers should also maintain accurate payroll records for seasonal employees even after their employment ends. These records may be needed for quarterly and year-end payroll tax reporting, including preparation of the employee’s Form W-2.
Taking the time to properly set up and process seasonal employees can help prevent payroll corrections, tax notices, penalties, and year-end reporting problems.
Have questions about your seasonal or part-time employees? Your qualified tax advisor can help you understand the withholding, reporting, and filing requirements that apply to your business.