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Updated by Marilee J. Springer, Ice Miller,
Original Publication:
1998
Employers in the United States, including camps, are
required to pay Social Security, Medicare, and state and federal unemployment
and income taxes on most employees. How these taxes are calculated and
collected, to whom they are paid, and the nuances of special camp-related
laws are some of the issues addressed in this article.
In 1935 the Congress of the United States passed a single
law creating the Federal Insurance Contributions Act ("FICA")
and the Federal Unemployment Tax Act ("FUTA"). FICA imposes
Social Security and Medicare taxes, and FUTA imposes federal unemployment
taxes. States also impose separate state unemployment taxes ("SUTA").
Social Security and Medicare (FICA)
Except as noted below, all camp employees are subject to FICA taxation.
As a general rule, Social Security and Medicare taxes are shared by the
camp and the employee. In 2001, the camp and the employee each
pay: (a) a 6.2 percent Social Security tax on the first $80,400 earned
by the employee each year, and (b) a 1.45 percent Medicare tax on the
employee’s entire annual gross pay. The combined tax is 15.3 percent of
gross pay, half of which is paid directly by the camp, and half withheld
by the camp from the employee’s paycheck, to be forwarded to the Internal
Revenue Service (the "IRS"). These taxes are reported to the
IRS on Form 941, due April 30, July 31, October 31, and January 31 of
each year. The taxes are paid quarterly if less than $2,500 per quarter,
or monthly or semi-weekly depending upon the amount owed. See IRS Publication
15, Page 22, for special provisions affecting seasonal employers and the
filing of Form 941.
Exemptions
International staff who are nonresident aliens holding the J-1 (cultural
exchange) or F (student) visa are exempt from FICA withholding, provided
the services rendered are consistent with the purpose of their visa.
The American Camping Association supports an exemption
from FICA for seasonal employment of all camp counselors who are full-time
students. The United States Senate and United States House of Representatives
both passed an ACA-sponsored FICA amendment in 1992, but the amendment
was not enacted into law. Efforts continue to secure this beneficial change
in the law.
Federal Unemployment Tax (FUTA)
This tax is paid entirely by the employer, and is NOT withheld from the
camp employee’s paycheck. The FUTA tax rate is 6.2 percent for 2001 and
is applied against the first $7,000 in annual wages of each employee.
Camps may take a credit against their FUTA tax liabilities for amounts
paid into state unemployment funds. The maximum credit is 5.4 percent.
Taxes are reported on IRS Form 940 or 940-EZ due January 31
of the following year. The tax is deposited quarterly on April 30,
July 31, October 31, and January 31 of each year if the
tax due is more than $100 per quarter.
Exemptions
Three exemptions to FUTA may apply to camps or their employees. First,
nonprofit charitable, religious and educational camps described in Section 501(c)(3)
of the Internal Revenue Code (the "Code") and exempt from income
tax under Code Section 501(a) are generally exempt from FUTA. (For-profit
camps may be exempt from FUTA for full-time students IF they meet the
seasonal exemption criteria listed below.)
Secondly, international staff who are nonresident aliens
holding the J-1 (cultural exchange) or F (student) visa are also exempt
from FUTA, provided the services rendered are consistent with the purpose
of their visa.
Thirdly, the American Camping Association secured an
exemption from FUTA for seasonal employment of all full-time students
who work at a camp for less than thirteen weeks per year. This applies
to camps whether they are nonprofit or for-profit, as long as the camp
meets the definition as "seasonal."
Seasonal Exemption
Seasonal is defined as operating less than seven months per year in both
the current year and the previous year or having average gross
receipts in any six months of the preceding year not greater than 33 percent
of the camp’s average gross receipts in the other six months of that year.
In addition, the student must have a bona fide intention to return
to a full course of study after leaving camp employment.
State Unemployment Tax (SUTA)
States impose unemployment taxes independent of the federal government.
As a general rule, states follow the federal lead in granting exemptions,
although they are not required to do so. Those that do often have laws
which provide for blanket adoption of federal exemptions. Accordingly,
camps will find that the vast majority of states do not impose SUTA on
camps already exempt from FUTA.
Since there are some exceptions, camps should contact
their state labor department to correctly ascertain SUTA tax liability.
Don’t hesitate to question your state labor department if they do impose
SUTA liability, as the American Camping Association has discovered state
tax officials to be frequently unaware of the federal exemption for camps.
Withholding of Federal Income Taxes
Except as noted below, most camp employees are subject to withholding
of federal income taxes. Every camp must obtain IRS Form W-4 from each
employee to determine the appropriate withholding amount. Most camp counselors
will have insufficient earnings in the summer to trigger federal income
tax withholding. Full-time employees, and part-time summer staff with
other full-time positions, will likely be subject to withholding.
Foreign nationals working at a camp under the J-1 or
F visa are considered to be engaged in business in the United States,
and are generally considered taxable at the same rates as U.S. citizens
(even though exempt from FICA and FUTA). In the event the personal exemptions
claimed on a foreign national’s Form W-4 are not sufficient to avoid withholding
at a given compensation level, camps should consult IRS Publications 515
and 519 to determine eligibility for exemption pursuant to a treaty. The
United States is party to many treaties which exempt varying levels of
compensation. Students studying in the United States on the F visa would
be typical beneficiaries. An individual claiming exemption pursuant to
a tax treaty should provide the employer with IRS Form 8233.
Forms W-2, summarizing all withholding, must be delivered
to all camp employees by January 31st of the following year. By February 28th,
copies of the Forms W-2 together with forwarding Form W-3 must be delivered
to the Social Security Administration by the camp. Withheld income taxes
are reported on IRS Form 941, and are payable to the federal government
monthly or semi-weekly, depending upon the amount owed. See IRS Publication
15, Page 17 et seq., for taxpayer specific rules regarding depositing
taxes.
Withholding of State Income Taxes
Many states impose state income tax and withholding requirements. Camps
should check with their state department of revenue to determine liability
and compliance procedures.
Independent Contractors
No federal income tax withholding or FICA or FUTA taxes apply to a camp’s
use of independent contractors. There are objective and stringent criteria
by which the IRS determines who is and who is not a legitimate independent
contractor and most camp employees do not meet the criteria. Generally
speaking, an independent contractor works under contract, provides his
or her own equipment, and maintains total discretion in the details of
how a particular service is provided. Independent contractors are typically
in business for themselves. Examples in the camp environment might be
pool service companies, construction contractors or independent consultants.
See IRS Publication 15-A, Page 5, for additional information regarding
the criteria the IRS uses to determine whether an individual is an independent
contractor.
Part-Time Workers
For purposes of federal income tax withholding, FUTA and FICA, there
is no difference between full-time, part-time, and employees hired only
for short periods. It does not matter if an employee has another job,
and the full limit of Social Security taxes was already withheld by that
employer.
Meals
The value of meals, if provided to an employee "for the convenience
of the employer" and on the employer’s premises, is not gross income
to the employee and is therefore not subject to income tax withholding,
FICA and FUTA. Generally, meals are considered to be provided for the
convenience of the employer if the employer has a substantial business
reason for doing so other than providing additional compensation to the
employee (e.g., the employee’s duties require that the employee be available
at all times). Meals that are furnished with lodging which is excludable
from gross income, as discussed below, are generally excludable from gross
income. See IRS Publication 15-B, Page 12, for additional information
regarding meals provided to employees.
Lodging
The value of lodging, if provided to an employee "for the convenience
of the employer" on the employer’s premises and as a condition of
employment, is not gross income to the employee and is therefore not subject
to income tax withholding, FICA and FUTA. Generally, lodging is considered
to be provided for the convenience of the employer if the employer has
a substantial business reason for doing so other than providing additional
compensation to the employee (e.g., the employee’s duties require that
the employee be available at all times). Lodging will not be considered
to be provided for the convenience of the employer if the employee is
permitted to choose between the lodging or additional compensation.
Lodging provided to a camp employee (including during
off-season periods) will be gross income to the employee unless the employee
has duties which justify the provision of lodging. The provision of lodging
must be "integrally related" to the employee’s duties. Factors
which the IRS has considered in determining whether lodging is provided
for the convenience of the employer and integrally related to the employee’s
duties include:
- The employee’s duties require that he or she be available at all times
(e.g., nurse, counselor, maintenance, etc.).
- The employee is not simply on call in order to deal with infrequent
problems.
- The employee performs regular inspections of the premises.
- The employee addresses any concerns identified during inspections.
- The employee is available to constantly monitor the property.
- The employee is available to answer calls to a business phone located
in the lodging.
- The employee’s performance of his or her duties would suffer if lodging
were not provided.
- The premises are sufficiently isolated that lodging is not available
within a distance which allows the employee to adequately perform his
or her duties.
- The employee performs significant work duties at the residence provided.
See IRS Publication 15-B, Page 11, for additional information
regarding lodging provided to employees.
Seasonal Camps Operated by Year-round Organizations
There is a serious question whether, upon audit, seasonal camps can avoid
FUTA, SUTA and minimum wage and hour liability if the camp is part of
a larger year-round entity. Seasonal camps in this situation should strive
to create true independence from the "parent" year-round organization.
An independent corporation, a separate board of directors, employees,
budgets, assets, liabilities and bookkeeping staff are all objective criteria
which have been used in the past to determine whether an entity is truly
independent and therefore eligible for "seasonal" exemptions.
Operating Camp Year-round
There is a growing trend among camps to expand operations beyond the
traditional summer season. One of many considerations a camp should review
is the revenue impact that loss of seasonal exemptions can have on its
camp operation. Those changes can be substantial offsets to anticipated
revenue gains. Year-round for-profit camps must generally pay FUTA and
SUTA on student counselors.
Remember too, that federal and state minimum wage and
hour provisions, including overtime, apply to employees of most year-round
camp operations. The same "seasonal camp" definition applies
for purposes of the federal minimum wage and hour laws.
IRS Forms and Publications
Camps and foreign nationals may access and download IRS forms and publications
through the Internet at www.irs.ustreas.gov
or obtain them via fax at 703-368-9694. To use the fax service, you must
use a fax that includes a handset so that after dialing the fax number
you can respond to questions to get to the right menu options.
Originally published in the 2001 Winter issue of The CampLine.
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