Student interns do not fall into any special tax category. However, there are a number of tax rules that student interns and their employers need to consider. Interns may work for for-profit firms, schools or non-profit organizations. The tax implications of an internship are somewhat different depending on the type of organization the student works for.
The Student Intern Employee
An internship provides you with training and real-world experience that enhances classroom knowledge. You may work as an intern for a for-profit firm. Your employer must treat you as a regular employee for tax purposes. This means deducting taxes from your paycheck and paying employer payroll taxes, including unemployment taxes. Since your tenure as an intern is temporary, the length of the internship and any limitations on eligibility for job-related benefits should be spelled out in the contract.
Non-Profits and Intern Stipends
When a non-profit organization or school hires an intern, the tax rules are normally the same as for for-profit companies. However, non-profits can offer you a student internship and compensate you with a stipend. You must agree to work as a volunteer. The stipend is considered a nominal payment and may not exceed 20 percent of what an employee would make doing the same job. The organization must report the stipend to the Internal Revenue Service when it is more than $600 in one year. If you receive a stipend, you will get a Financial Statement in lieu of a W-2. Non-US residents get a 1042S form instead. Reporting any taxable portion of a stipend on your tax return is your responsibility.
Both for-profit and non-profit organizations can offer unpaid student internships. If the intern isn’t paid, there are no tax issues. However, unpaid internships must meet U.S. Department of Labor requirements. The internship must provide you with training comparable to what you would get in an educational setting like a vocational school. The training and any actual work must be for the student's benefit and carried out even if it interferes with the organization's normal operations. The organization may not derive any immediate benefit. Work must be performed under an employee’s supervision and may not displace any regular worker. Unpaid interns are not necessarily entitled to a job after the internship is completed. You must be informed that you are not owed wages for the time you put in.
What Student Interns Should Know
When you are paid wages, the earnings are taxable income just like wages for any other job and must be reported when you file your tax return. You can deduct job-related expenses as other employees do. A stipend may be exempt from taxes if certain conditions are met. The stipend may not be payment for services performed. For example, the stipend might be paid to enable you to complete school-related research while any work you do is unpaid. The stipend money usually needs to be paid directly to your school and used to pay tuition and fees or other expenses required as a condition for enrollment, such as books, supplies or equipment. Any part of the stipend not used for such expenses is income that you have to report on your tax return and is taxed as wages.
Student Intern Volunteer Tax Deductions
When you work as a student intern and you are classified as a nonprofit volunteer instead of an employee, you can't deduct job related-expenses or any of the time you put in. However, you may be able to take a deduction for travel expenses if they are incurred while you are performing a service for the organization. If you spend your own money to get your work done, such as paying for stamps or copier fees, you can write the cost off your taxes if the organization does not reimburse you.