Ibrahim Gardner
Whether an intern is considered a student or an employee depends on the unique circumstances of each case. Paid internships are taxed at the federal, state, and local levels, and interns are expected to file tax returns. However, if the internship is provided by the school for credit, it may be exempt from certain taxes. In such cases, the income may be reported as scholarship income rather than self-employment income. On the other hand, if the internship is provided by an outside company for general education purposes and is not required for obtaining a degree, it is typically considered self-employment income. The IRS has specific tests to determine if an intern can be claimed as a dependent, considering factors such as age, relationship, residency, and financial support.
| Characteristics | Values |
|---|---|
| Interns as students | If the internship is provided by an outside company for general education purposes, it is considered self-employment income. |
| Internship income | Interns are subject to tax just like everyone else. |
| If the internship is provided by the school for credit, it is exempt from Social Security and Medicare tax. | |
| If the internship is provided by a third party, Schedule C likely applies. | |
| If the internship is unpaid and for a non-profit, it is generally permissible. | |
| Internship income may be treated differently depending on what it covers (housing, meals, etc.). | |
| If an intern's parents provide more than half of their total support for the year, they can likely claim the intern as a dependent regardless of their income. | |
| If an intern's income means they're providing more than half of their own support, they wouldn't qualify as their parents' dependent. | |
| If an intern owes no tax, they may still want to file a tax return to qualify for a tax refund. |
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What You'll Learn
Interns are not exempt from income tax
Interns in the United States are liable for federal income taxes based on their total income for the year. This means that interns are not exempt from income tax and must pay taxes on their internship income, just like everyone else.
For example, let's consider a three-month internship that pays $7,200. If this is your only income for the year, you will pay 10% in federal taxes and 1% in state taxes. You will also need to pay Medicare and Social Security taxes on this income. During your internship, you will be paying taxes on your earnings as if that were your annual salary. However, when tax time comes, your tax liability will be calculated based on your actual income for the entire year. If your internship income is your only income, you may be eligible for a tax refund.
It is important to note that interns may receive a W-2 Form from their employer before filing their taxes. This document details your total earnings for the year, as well as any taxes already paid. Additionally, interns on a J-1 Visa are required to file Form 1040NR-EZ with the IRS for their federal U.S. individual income tax returns.
In some cases, if the internship is provided by the school and is for credit, it may be exempt from certain taxes. For example, it may be considered scholarship income rather than self-employment income, and Social Security and Medicare taxes may not apply. However, if the internship is provided by an outside company and is not a requirement for obtaining a degree, it is typically considered self-employment income, and taxes must be paid accordingly.
Overall, interns in the United States are not exempt from income tax and must comply with federal, state, and local tax laws, depending on their specific circumstances.
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Internships provided by schools are exempt from Social Security and Medicare tax
In the United States, internships provided by schools, colleges, or universities are exempt from Social Security and Medicare tax, provided that the student is enrolled at least half-time and that the on-campus employment is incidental to and for the purpose of pursuing a course of study. This exemption also applies during school breaks of five weeks or less, as long as the student was eligible for exemption on the last day of classes in the academic period preceding the break and is eligible to enroll in classes following the break.
For example, if a student works as a teaching assistant during the summer break and meets the above criteria, their earnings would be exempt from Social Security and Medicare taxes. However, if a student worker has multiple appointments during a semester or summer break, at least one of which confers professional, career, or full-time employee status, FICA taxes will be withheld from all earnings, and no exemption will be allowed.
It is important to note that this exemption only applies to internships provided by educational institutions. If an internship is provided by an outside company, even if it is for general educational purposes, it is typically considered self-employment income, and the student will likely need to pay self-employment taxes for Social Security and Medicare.
Additionally, while internships provided by schools may be exempt from Social Security and Medicare taxes, any income earned through these internships may still be subject to federal, state, and local income taxes. Whether or not an intern needs to file a tax return will depend on their total income for the year and the applicable tax laws and thresholds. Even if an intern's income is below the threshold for filing a tax return, it may still be beneficial to do so to claim any overpaid taxes as a refund.
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Interns may be eligible for a tax refund
For example, in the 2021 tax year, the minimum gross income required for single filers under the age of 65 was $12,550. Assuming a full-time summer intern works 40 hours a week for 10 weeks at the national average hourly wage of $15 per hour, their total summer earnings would be about $6,000 before taxes. In this case, the average intern likely wouldn't make enough annually to have to file a tax return. However, it is still recommended to file a tax return to claim any overpaid taxes and take advantage of eligible tax credits.
College students working as interns may receive a 1099-NEC form, which indicates that they earned more than $600 for their work and that this income was reported to the IRS. This income is typically considered self-employment income, and interns will owe self-employment taxes for Social Security and Medicare. However, if the internship is provided by the school for credit, it may be exempt from these taxes and reported as scholarship income instead.
To determine if you are due a tax refund, you can use tax filing software such as TurboTax and H&R Block, which offer tax estimators to calculate your refund amount. Additionally, consulting a tax professional can help you navigate the tax landscape and ensure compliance with IRS regulations.
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Internships can be considered self-employment
Whether or not internships can be considered self-employment is a complex issue. While internships are typically thought of as educational opportunities, they can sometimes blur the lines between employment and self-employment. The IRS considers internships as self-employment if the intern receives a 1099-NEC form, indicating that they were paid more than $600 for their work. In this case, the intern is expected to pay self-employment taxes for Social Security and Medicare, although it may not be enough to pay ordinary income tax.
However, if the internship is provided by the school and is for credit, it is exempt from self-employment taxes and can be reported as scholarship income. Additionally, if the internship is a mandatory part of a degree program, it may be treated as a fellowship for education and taxed as miscellaneous income, rather than self-employment income.
It's important to note that interns are not considered independent contractors or employees, even if they are paid. Interns are typically supervised and guided by existing staff, and their work is not essential to the business's function. Unpaid interns, in particular, are designated as "trainees" and are comparable to volunteers, with a more structured learning experience.
When it comes to taxes, interns may still want to file a tax return even if they are not required to, as they may be eligible for a tax refund. This is because interns who have overpaid their taxes or had taxes over-withheld by their employers can claim this money back.
In conclusion, while internships can sometimes be considered self-employment by the IRS, it depends on the specific circumstances of the internship and the intern's educational program. It is always advisable to seek professional advice when unsure about tax obligations.
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The IRS determines whether interns can be claimed as dependents
Qualifying relatives can be non-relatives who live with the taxpayer as a member of their household for the entire year or fall under specific relationships outlined by the IRS, including parents, siblings, and certain in-laws. If they do not live with the taxpayer, the relationship criterion still ensures that the taxpayer can provide necessary financial support. For 2024, a qualifying relative must have a gross income of less than $5,050, which increases to $5,200 in 2025.
Qualifying children, on the other hand, must live with the taxpayer for more than half of the year and typically bring larger tax credits but have stricter requirements.
In the context of internships, the IRS's determination of whether an intern can be claimed as a dependent depends on the specific circumstances. If the internship is provided by the school for credit, it may be considered scholarship income rather than self-employment, and the intern may not be considered a dependent as they do not rely on the taxpayer for financial support in the same way.
Additionally, the income of the intern needs to be considered. If the intern's income is above a certain threshold, they may not qualify as a dependent. For example, in the 2021 tax year, the minimum gross income required for single filers to be claimed as a dependent was $12,550 for those under 65.
Overall, the IRS's determination of whether an intern can be claimed as a dependent depends on various factors, including the relationship between the taxpayer and the intern, the income of the intern, and the financial support provided by the taxpayer.
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Frequently asked questions
Yes, interns are subject to tax just like everyone else. Internship income is taxed at the federal, state, and sometimes local levels.
The method of filing depends on the nature of the internship. If the internship is provided by an outside company and is not a requirement for obtaining a degree, the income is considered self-employment income. In this case, you would file using a 1099-NEC form. If the internship is provided by a school for credit, the income is exempt from self-employment tax and can be reported as scholarship income.
Yes, interns may be eligible for tax refunds. Even if you are not required to file a tax return, you may still want to do so to claim a refund on overpaid taxes. Additionally, if you have student loans or pay for education costs, you may be able to claim education deductions and credits on your tax return.
The IRS has specific tests to determine if you can be claimed as a dependent, including age, relationship, residency, and support. If you provide more than half of your own financial support, you are likely considered independent.
Courts use the "primary beneficiary test" to determine whether an intern or student is an employee under the FLSA (Fair Labor Standards Act). This test examines the "economic reality" of the intern-employer relationship and considers factors such as the expectation of compensation, the extent of training provided, and whether the internship is tied to a formal education program.
