Yes, a trust can have employees. When a trustee hires someone to work on trust business and pays them from trust funds, the trust itself is the legal employer, not the trustee personally. That means the trust needs its own Employer Identification Number, runs payroll like any small business, files employment tax returns, and follows federal labor law. It also means the trustee takes on one meaningful personal risk: unpaid payroll withholding can be collected from the trustee’s own assets.
The Trust Is the Employer, Not the Trustee
The IRS treats workers hired to perform services connected to trust property and paid from trust funds as employees of the trust rather than of the trustee individually. Employment obligations, tax liabilities, and lawsuits attach to the trust entity. The trust instrument usually grants the trustee authority to hire; even without an explicit clause, state trust codes generally give trustees the power to engage employees when reasonably necessary to carry out the trust’s purposes.
Getting an EIN for the Trust
Before paying wages, the trust needs a federal Employer Identification Number. Not every trust needs one from day one. A revocable living trust uses the grantor’s Social Security number while the grantor is alive, because the IRS treats it as an extension of the grantor. The Form SS-4 instructions state that a grantor-type trust does not need an EIN as long as the trustee furnishes the grantor’s name, taxpayer ID, and the trust’s address to all payers.1Internal Revenue Service. Instructions for Form SS-4 (Rev. December 2025)
Once the grantor dies, a revocable trust typically becomes irrevocable, the grantor’s Social Security number can no longer be used, and the trust must get its own EIN. An irrevocable trust is a separate taxable entity from creation, so if it holds income-producing assets or hires employees, it needs an EIN right away.2Internal Revenue Service. Get an Employer Identification Number
The trustee applies on Form SS-4. The application asks for the trust’s legal name as written in the trust instrument, the trustee’s name on the “care of” line, and a responsible party. For trusts, the IRS defines the responsible party as the grantor, owner, or trustor, and that person’s SSN or ITIN goes on the application.3Internal Revenue Service. Responsible Parties and Nominees The IRS online application issues an EIN immediately at no cost.
Payroll Taxes the Trust Owes
Once the trust has an EIN and hires an employee, the trustee runs payroll like any employer. Each paycheck requires withholding federal income tax based on the employee’s Form W-4.4Internal Revenue Service. About Form W-4, Employee’s Withholding Certificate
FICA comes next. Social Security is 6.2% withheld from the employee and 6.2% paid by the trust on earnings up to $184,500 in 2026. Medicare is 1.45% from each side with no wage cap. When an employee’s wages exceed $200,000 in a calendar year, the trust withholds an additional 0.9% Medicare tax from that employee’s pay, with no matching obligation from the trust.5Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
Federal unemployment tax is the trust’s cost alone. The FUTA rate is 6% on the first $7,000 of each employee’s annual wages, and most trusts that pay state unemployment tax qualify for a credit of up to 5.4%, dropping the effective rate to 0.6%.6Internal Revenue Service. Topic No. 759, Form 940 – Employers Annual Federal Unemployment (FUTA) Tax Return State unemployment tax applies too, at rates that vary by jurisdiction, industry, and claims history, and most states require workers’ compensation insurance.
Required Filings and Recordkeeping
The trustee files Form 941 each quarter to report federal income tax withheld, Social Security and Medicare taxes, and any additional Medicare tax. Once the first return is filed, 941 is required every quarter even if there’s no tax to report.7Internal Revenue Service. Instructions for Form 941 (03/2026) FUTA goes on Form 940, filed annually.
Every employee gets a Form W-2 showing wages and taxes withheld. For 2026 wages, W-2s must be filed with the Social Security Administration by February 1, 2027.8Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3 Keep all employment tax records, including payroll amounts, payment dates, W-4s, and copies of filed returns, for at least four years after the fourth-quarter return is filed.9Internal Revenue Service. Employment Tax Recordkeeping
Household Workers Have a Different Threshold
Trusts often hire household workers, such as a caretaker for a trust-owned home or an aide for a beneficiary. In 2026, Social Security and Medicare taxes only apply if the trust pays a household employee $3,000 or more in cash wages during the calendar year. Below that, no FICA is owed on those wages.10Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
A trust that files Form 1041 reports household employment taxes on Schedule H attached to the 1041. If the trust already files Form 941 for other employees, it can include household workers on that return and skip Schedule H.11Internal Revenue Service. Instructions for Schedule H – Household Employment Taxes
Employees Versus Independent Contractors
Whether the worker is an employee or an independent contractor decides whether the trust withholds taxes, pays unemployment insurance, and carries workers’ compensation. The IRS uses a common-law test in three parts: behavioral control (does the trust direct how the work gets done), financial control (does the trust control the business side of the arrangement, including tools and payment structure), and the type of relationship (written contracts, benefits, permanence, and whether the work is central to what the trust does).12Internal Revenue Service. Employee (Common-Law Employee)
For a genuine independent contractor, the trust doesn’t withhold income tax, doesn’t pay FICA, and doesn’t cover unemployment. If the trust pays a contractor $2,000 or more during 2026, though, it must report those payments on Form 1099-NEC. That threshold rose from $600 for payments made before 2026.13Internal Revenue Service. Form 1099-NEC and Independent Contractors
Misclassification is expensive. If the IRS reclassifies a “contractor” as an employee, the trust owes back employment taxes. Under Section 3509, penalties are reduced when the trust filed the required 1099s: 1.5% of wages for income tax withholding and 20% of the employee’s FICA share. With no information returns filed, those rates double to 3% and 40%. The IRS can add failure-to-file and failure-to-pay penalties on top when no employment returns were filed and there’s no reasonable cause.14Internal Revenue Service. 4.23.8 Determining Employment Tax Liability
When the Trustee Is Personally on the Hook
Federal income tax and FICA withheld from an employee’s paycheck are “trust fund” taxes in IRS terminology. That money belongs to the government from the moment it’s withheld. If the trustee collects those taxes but fails to pay them over, the trustee can be held personally liable for the full unpaid amount through the Trust Fund Recovery Penalty under 26 U.S.C. § 6672.15Office of the Law Revision Counsel. 26 USC 6672 – Failure to Collect and Pay Over Tax
The penalty applies to any “responsible person” who willfully fails to pay over withheld taxes. A trustee with authority over the trust’s bank accounts almost always qualifies. Willfulness doesn’t require an intent to defraud. Paying other creditors from trust funds while payroll taxes go unpaid meets the standard. Once the penalty is assessed, the IRS can collect from the trustee’s personal assets.16Internal Revenue Service. Employment Taxes and the Trust Fund Recovery Penalty (TFRP)
Labor Law Still Applies
A trust that employs workers is subject to federal labor law. The Fair Labor Standards Act defines “person” to include a business trust, so trust employees are entitled to the federal minimum wage of $7.25 per hour and overtime pay of at least one and a half times their regular rate for hours over 40 in a workweek.17Office of the Law Revision Counsel. 29 USC Chapter 8 – Fair Labor Standards Many states set higher minimums, so check the rate where the employee works.
Within three business days of the employee’s start date, the trustee must complete Section 2 of Form I-9 to verify identity and work authorization. If the employee will work fewer than three days, the form must be completed on the first day.18U.S. Citizenship and Immigration Services. Who Must Complete Form I-9