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Summer Hiring? How to Manage Seasonal Workers, Interns, and Payroll Compliance Without the Stress
Planning to hire seasonal staff this summer? It’s an exciting time for your business—but the complexities of payroll and …
Planning to hire seasonal staff this summer? It’s an exciting time for your business—but the complexities of payroll and compliance can quickly turn that excitement into headaches. Whether you’re onboarding interns or part-time employees, summer hires are one of the most frequent sources of payroll classification errors for small businesses.
Even a single mistake—like treating a W-2 employee as an independent contractor just because it’s temporary—can lead to costly penalties.
Employee or Contractor? The IRS Wants Clarity
Many employers assume that paying a flat fee or hiring someone for a short summer stint means they can classify the worker as a contractor. You might have thought:
“It’s easier to pay them a fixed amount.”
“They’re only here for a few weeks.”
“They’re students, so it’s not really a ‘job.’”
The reality? If you control the when, where, and how of their work, the IRS will likely consider them an employee—and require you to handle payroll taxes accordingly.
IRS guidelines on worker classification make no exceptions based on hours worked, seasonality, or whether the work is freelance. If the worker looks like an employee, that’s how they’ll be treated.
Interns Usually Count as Employees, Too
Some employers believe unpaid internships fall outside payroll rules. However, unless the internship is part of a formal educational program and does not expect compensation, the Department of Labor often views interns as employees. This means:
Minimum wage laws apply
Payroll taxes may be due
Workers’ compensation coverage could be necessary
If an intern contributes meaningful work to your business, chances are they should be on your payroll.
Take Advantage of the Work Opportunity Tax Credit (WOTC)
Here’s some good news: hiring from specific groups—such as veterans, long-term unemployed individuals, or summer youth workers—may make your business eligible for the Work Opportunity Tax Credit. This credit can reduce your federal income tax by up to $2,400 for each qualifying hire.
Keep in mind:
You must apply before hiring
Paperwork must be submitted to your state agency
Many businesses overlook this valuable credit
For more details, visit the official WOTC program website.
Other Must-Dos Before Your First Payroll
To stay compliant when bringing on seasonal or intern help, make sure to:
Set up proper federal and state tax withholdings
Use an active payroll system—manual payments often miss required filings
Collect and securely store Forms I-9 and W-4
Verify any local labor laws that apply, such as mandatory sick leave or special reporting for part-time workers
Know your overtime pay obligations—even if the work is temporary or seasonal
Why Proper Payroll Matters
Your priority is running and growing your business—not wrestling with payroll complications. But ignoring payroll compliance, even briefly, can lead to:
Costly penalties for worker misclassification
Missing out on tax credits like the WOTC
Risk of state audits
Potential claims from former workers
Need Help? Talk to the Payroll Experts Before You Hire
We’ve guided countless small businesses through summer hiring—helping them set up payroll correctly and avoid compliance pitfalls. If you’re bringing on seasonal, part-time, or intern workers soon, contact DeBoer, Baumann & Company.
We’ll assist you in navigating payroll rules, reducing tax risk, and maximizing potential credits—so you can focus on what matters most: your business.
Reach out today before your first paycheck runs, and let us help you get it right from the start.
Unlocking Business Tax Credits: A Comprehensive Guide
Tax credits offer businesses significant opportunities to reduce their tax liabilities while simultaneously incentivizing certain beneficial activities. By understanding …
Tax credits offer businesses significant opportunities to reduce their tax liabilities while simultaneously incentivizing certain beneficial activities. By understanding and utilizing these credits, businesses can not only save money but also contribute positively to community well-being and innovation. Here’s an in-depth look at several key business tax credits.
The Work Opportunity Credit
The Work Opportunity Tax Credit (WOTC) serves as a powerful incentive for business owners to hire individuals from specific targeted groups who face significant barriers to employment. By leveraging this federal tax credit, employers not only contribute to the economic empowerment of disadvantaged communities but can also enhance their workforce diversity and talent pool. This article explores the intricacies of the WOTC program, including the eligible targeted groups, certification process, qualifications, and its relationship to the general business credit.
The Work Opportunity Credit targets several distinct groups that include Veterans, Recipients of Temporary Assistance for Needy Families (TANF), Long-Term Family Assistance (TANF) Recipients, Long-term unemployed individuals, Vocational rehabilitation referrals, Supplemental Nutrition Assistance Program (SNAP) recipients, Summer Youth Employees, SSI recipients, and certain residents of a Designated Community (empowerment zones and specified rural renewal counties).
- Certification Process –The certification process for the Work Opportunity Tax Credit is critical to ensure compliance and determine eligibility. Here’s how the system operates:
1. Pre-Screening Notice: Employers must complete IRS Form 8850, the Pre-Screening Notice, and Certification Request for the Work Opportunity Credit. It must be filled out on or before the day the job offer is made.
2. Submission: This form must be submitted to the respective State Workforce Agency (SWA) within 28 days of the employee’s start date.
3. Certification by SWA: The SWA reviews the application to determine if the employee belongs to a targeted group and meets the necessary qualifications.
4. Receiving Certification: Once certified, the employer may claim the tax credit in their tax return by completing IRS Form 5884.
- Qualifications and Credit Determination – To qualify for the WOTC, the following general criteria must be met:
o Employment Duration and Hours Worked: The employee must work at least 120 hours to qualify for the credit. If they work over 400 hours, the potential credit increases. For instance, if the employee works a minimum of 120 hours but fewer than 400, the credit equals 25% of the first $6,000 in wages ($1,500). For over 400 hours, it equals 40% ($2,400).
o Percentage of Wages: The employee must receive at least 50% of their wages from the employer for work performed in the employer’s business.
o Relation Restrictions: The employee cannot be a relative of the employer or have previously worked for the employer.
o Specific Qualification Criteria: Each targeted group has particular qualifications specified in IRS Form 8850’s instructions.
- Integration with the General Business Credit - The WOTC is part of the general business credit.
- Cannabis Businesses Excluded – The credit is unavailable for wages paid in carrying on a cannabis business.
Employer-Provided Childcare Credit
In today’s complex economic landscape, where dual-income households are increasingly the norm, access to affordable childcare remains a cornerstone issue for many working parents. Recognizing this pressing need, the Employer-Provided Childcare Credit, delineated under IRC Section 45F, emerges as a vital economic incentive designed to encourage businesses to offer childcare services to their employees. This tax provision aims not only to support the workforce but also to provide significant tax savings to participating employers. As of recently, Congress has been contemplating legislation to potentially expand this credit, signifying its growing importance in public policy discussions.
The Employer-Provided Childcare Credit allows businesses that furnish childcare facilities and services to reclaim a portion of their expenses through tax credits. Specifically, businesses can claim a credit worth 25% of qualified childcare expenses and an additional 10% of childcare resource and referral expenditures. The aggregate limit for any given tax year is capped at $150,000, making it an attractive, albeit capped, option for firms looking to invest in their workforce.
Eligibility for the credit encompasses a wide range of expenses. Qualifying businesses include corporations, partnerships, and sole proprietorships that incur costs in providing childcare services. Expenses associated with the acquisition, construction, rehabilitation, or expansion of property used as part of a qualified childcare facility qualify under this credit. Moreover, operational costs, such as employee training, scholarship programs, and enhanced compensation for staff with advanced childcare training, also are eligible expenses. Critically, qualified childcare facilities must primarily provide childcare assistance, comply with relevant state and local regulations, and not be provided in the principal residence of the operator. Non-discriminatory policies regarding employee eligibility also apply.
The advantages of this credit extend beyond mere financial reimbursements for employers. By offering employer-subsidized childcare services, firms can significantly alleviate the childcare burden on their employees, fostering a more productive, loyal, and satisfied workforce. Employees with access to these facilities benefit from reduced stress and greater work-life balance, enhancing job performance and retention rates. Moreover, these benefits can frequently translate into tax savings for employees, assuming the benefits align with IRC Section 129’s guidelines for a Qualified Dependent Care Assistance Program (DCAP).
Nevertheless, the credit involves intricate compliance conditions. Employers must navigate the nuances of IRS Form 8882 (for calculating the credit) and Form 3800 (to report the credit under the general business credit). Notably, if a qualified childcare facility ceases operation or changes ownership, firms may face recapture issues, increasing their tax liability. Thus, businesses must ensure that all childcare benefits are structured to meet the exclusion requirements, maintaining vigilance over licensing and operational standards to avoid potential recapture events.
As legislative discussions about expanding the Employer-Provided Childcare Credit gain traction, businesses of all sizes may soon find greater incentives to offer childcare solutions. Whether through on-site facilities, partnerships with local childcare providers, or resource referral services, the expanded credit holds promise for transforming workplace dynamics, ultimately supporting working families while enabling businesses to thrive. The broader economic implications of such a shift, encompassing increased workforce participation and economic productivity, underline the Employer-Provided Childcare Credit as not just a financial instrument, but a pivotal socio-economic catalyst in modern times.
Research Credit
The research credit is a tax incentive designed to encourage businesses to invest in research and development (R&D) in the United States. It provides a credit for increasing research activities, allowing qualifying businesses to reduce their tax liability based on expenditures related to R&D.
- Qualified Research: Qualified research refers to activities that meet specific criteria defined by the Internal Revenue Code. Generally, it must involve a process of experimentation aimed at improving a product or process, and it must encompass elements of technological uncertainty and be intended for discovering information that is technological in nature.
- Regular and Simplified Methods:
o Regular Method: This calculates the credit as a percentage of the qualified research expenses above a base amount.
o Simplified Method: 14% of the qualified research expenses over 50% of the average annual qualified research expenses in the three immediately preceding tax years. If no such expenses were incurred in the prior years, it may be 6% of the current year’s qualified research expenses. This method is often preferred by taxpayers with incomplete records or complications from mergers and acquisitions.
- Qualified Small Business Payroll Election: A qualified small business (QSB) may elect to apply a portion of its research credit against its payroll tax liability, specifically the employer’s share of FICA withholding. To qualify, the business must be a corporation whose stock is not publicly traded, partnership, or sole proprietorship with gross receipts of less than $5 million for the credit year and must not have gross receipts before the fourth preceding year.
Disabled Access Credit
The disabled access credit, under Section 44 of the Internal Revenue Code, aims to assist small businesses in accommodating individuals with disabilities. This credit allows eligible small businesses to claim up to 50% of the expenditures incurred for compliant accessibility improvements, up to a maximum credit of $5,000 annually. The expenditures can include physical changes to the business premises or interpreting services, making facilities more accessible to employees and customers with disabilities.
Eligible expenses for this credit include:
- Removing barriers that hinder access for individuals with disabilities.
- Providing interpreters or audio materials for hearing-impaired individuals.
- Offering readers or taped texts for visually impaired individuals.
- Acquiring or modifying equipment for individuals with disabilities.
Importantly, expenses claimed for this credit cannot be used for other deductions or credits.
Pension Startup Credit
The Pension Start-Up Credit is a benefit for small employers starting new retirement plans. It allows eligible employers to claim a credit for costs related to establishing and administering a new pension plan. The credit is part of the general business credit and includes a one-year carryback and a 20-year carryforward for any unused credits. In addition, there is a specific credit for companies incorporating automatic enrollment in their plans, providing up to $500 per year for the first three years. The credit is designed to support small businesses in setting up retirement plans for their employees and applies to entities with 100 or fewer employees who earn more than $5,000 annually.
Business Energy Credit
To promote the use of renewable energy, the business energy investment credit encourages investing in energy-efficient technologies and sustainable practices. Activities such as solar, wind, and geothermal installations can qualify for this credit under Section 46. The business energy investment credit is significant because it reflects the broader intent to move towards sustainable energy sources. The credit varies depending on the technology and can greatly reduce the overall costs of energy projects.
General Business Credit
The general business credit is a comprehensive tax credit that combines several specific individual credits. This includes the credits mentioned above and others such as the Indian employment credit, the small employer health insurance premiums credit, and the clean vehicle credit. The general business credit allows business taxpayers to utilize tax credits against not only their regular income taxes but sometimes their alternative minimum tax as well. Limitation rules apply to ensure these credits do not exceed the taxpayer’s net income tax liabilities.
Educational Assistance Programs
Although not a tax credit, educational assistance programs offered by employers can be advantageous for both employers and employees when it comes to taxes. Under Section 127 of the Internal Revenue Code, businesses can provide employees with up to $5,250 annually for educational assistance without the amount being taxable to the employee. This tax-exempt status encourages employers to invest in their workforce’s education and skills development, fostering a learning culture and competitive edge in the industry.
A program must not favor highly compensated employees and no more than 5% of the benefits during the year can be provided to shareholders or owners (or their spouses or dependents).
In conclusion, understanding and effectively utilizing these various business tax credits can serve as a vital part of a company’s financial strategy. From supporting employment of diverse groups and providing employee benefits to fostering sustainable and innovative practices, these credits offer significant opportunities for financial savings and positive societal impacts.
Contact our office to efficiently navigate and apply these credits for optimal benefit.
Foreign Reporting Requirements: Navigating Harsh Penalties and Complex Compliance Rules
In today’s increasingly global financial environment, it’s common for U.S. taxpayers to hold accounts or receive income from foreign …
In today’s increasingly global financial environment, it’s common for U.S. taxpayers to hold accounts or receive income from foreign sources—whether that’s through overseas investments, inherited accounts, or rental income deposited in a foreign bank. But with this global reach comes a critical responsibility: complying with foreign reporting rules.
Two key reporting obligations include the Foreign Bank Account Report (FBAR) and IRS Form 8938, part of the Foreign Account Tax Compliance Act (FATCA). Understanding when these forms apply—and the steep penalties for getting it wrong—is essential for taxpayers with international financial ties.
What Is the FBAR (FinCEN Form 114)?
U.S. persons—including individuals, corporations, partnerships, trusts, and estates—must file an FBAR if they have a financial interest in or signature authority over one or more foreign financial accounts and the total value exceeds $10,000 at any point during the calendar year.
Accounts that may require FBAR reporting include:
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Checking, savings, or brokerage accounts held outside the U.S.
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Accounts associated with foreign rental income
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Online gambling accounts maintained by foreign platforms
-
Accounts inherited from a non-U.S. resident
-
Joint accounts held with relatives abroad
Importantly, FBAR filings are submitted directly to FinCEN, not included with the taxpayer’s income tax return.
Who Must File?
FBAR filing isn’t limited to those who own accounts directly. You may also have a filing obligation if:
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You own or benefit from a foreign account
-
You have signature or other authority over a foreign account, even if not in your name
-
You are listed on a foreign relative’s account, even without contributing funds
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You inherited a foreign account with a balance over the threshold
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You maintain a foreign rental property and deposit income into a local bank
The $10,000 threshold applies to the total value of all foreign accounts combined—not individually. If the combined value exceeds $10,000 for even a single day during the year, you’re required to file.
Common FBAR Exceptions
While FBAR requirements are extensive, a few exceptions exist:
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Accounts at foreign branches of U.S. banks located in the U.S.
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Accounts held on U.S. military banking facilities abroad
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Jointly held spousal accounts, if reported by one spouse with proper documentation (Form 114a)
Even with these exceptions, it’s important to evaluate all accounts carefully to avoid underreporting.
FBAR Penalties: What’s at Stake?
Penalties for noncompliance can be severe:
-
Non-willful violations may result in civil penalties up to $10,000 per violation
(Adjusted to $16,536 as of January 17, 2025) -
Willful violations carry a penalty of the greater of $100,000 or 50% of the account balance
(Adjusted to $165,353 as of January 17, 2025)
In cases of willful neglect, criminal charges and imprisonment are also possible. The statute of limitations for FBAR enforcement extends for several years, making it possible for past violations to surface during audits or investigations.
How Does Form 8938 Differ from the FBAR?
In addition to the FBAR, certain taxpayers may also need to file Form 8938, the IRS’s Statement of Specified Foreign Financial Assets under FATCA. While both forms address foreign holdings, they differ in how they are filed, what they include, and their thresholds.
Unlike the FBAR, Form 8938 is filed as part of your federal income tax return.
Thresholds for Filing Form 8938
The value of your foreign financial assets must exceed the following thresholds to trigger filing:
| Filing Status | Living in the U.S. | Living Abroad |
|---|---|---|
| Married Filing Jointly | $100,000 (end of year) / $150,000 (any time) | $400,000 / $600,000 |
| All Others | $50,000 / $75,000 | $200,000 / $300,000 |
To qualify as living abroad, a U.S. person must either be a bona fide resident of a foreign country for the entire year, or be physically present abroad for at least 330 full days in any 12-month period ending in the reporting year.
What Assets Are Reported on Form 8938?
Form 8938 captures a broad range of foreign assets, including:
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Foreign checking, savings, and brokerage accounts
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Investments in foreign stocks, bonds, or securities
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Interests in foreign partnerships or mutual funds
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Foreign retirement accounts or annuities
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Other financial instruments with exposure to foreign markets
Although many of these assets may also appear on the FBAR, the definitions and thresholds differ—which is why both forms may be required.
Penalties for Failing to File Form 8938
The IRS can impose significant penalties for failing to file Form 8938:
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$10,000 for failure to file when required
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Up to an additional $50,000 for continued noncompliance (if not filed within 90 days of IRS notification)
These are in addition to any FBAR-related penalties and are not adjusted for inflation.
Where Do FBAR and Form 8938 Overlap?
Many taxpayers are surprised to learn they must file both the FBAR and Form 8938 for the same accounts or assets. For example:
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A foreign bank account may need to be reported on both forms if the combined balance exceeds $10,000 (FBAR threshold) and also surpasses the FATCA threshold for Form 8938.
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Foreign stocks, securities, or investment funds held in a foreign account may also fall under both reporting rules.
Because the definitions and thresholds are not identical, it’s important to review both sets of requirements closely.
Best Practices for Compliance
Given the complexity of foreign reporting, taxpayers should take a proactive approach:
Conduct a Full Review of All Foreign Assets
Evaluate all bank accounts, investments, and other assets held abroad—including those inherited or jointly held.
Understand the Different Thresholds
Keep in mind that FBAR uses a flat $10,000 threshold, while Form 8938’s limits depend on filing status and residency.
Monitor Foreign Currency Fluctuations
Because valuations are based on U.S. dollar equivalents, shifts in exchange rates can impact whether a filing is required.
Maintain Complete Documentation
Both FinCEN and the IRS recommend keeping supporting records for at least five years—including statements, ownership documents, and balances.
Seek Professional Guidance
Due to the penalties involved, working with a tax advisor who understands international reporting is often the best way to ensure accuracy and peace of mind.
Final Thoughts
For U.S. taxpayers with overseas financial interests, compliance with FBAR and FATCA (Form 8938) reporting is critical. These rules apply in a variety of scenarios—from receiving rental income abroad, to holding signature authority over a family member’s account, to participating in online gambling platforms hosted overseas.
Given the significant risks—including steep civil penalties and potential criminal exposure—taxpayers should take foreign reporting obligations seriously. If you’re unsure about your filing responsibilities, the team at DeBoer, Baumann & Company is here to help you navigate the complexities and stay in compliance.