Yes, a trust can have employees. A trustee has the authority to hire workers and pay them from trust assets, and when that happens the trust itself becomes the legal employer, with its own tax ID, its own payroll filings, and its own exposure under federal labor law. The trustee signs the paperwork, but the obligations attach to the trust entity, with one important exception for unpaid withheld taxes.
The Trust as the Legal Employer
When a trustee hires someone to perform services connected to trust property and pays them from trust funds, the IRS treats the trust, not the trustee personally, as the employer. Employment tax liabilities, wage obligations, and lawsuits brought by workers attach to the trust entity. The trust instrument usually grants the trustee authority to engage professionals and employees, and most state trust codes supply that power by default when hiring is reasonably necessary to carry out the trust’s purposes.
The exception involves withheld payroll taxes. If those are collected from employee paychecks and not turned over to the IRS, the trustee’s own assets can be reached. That rule is covered further down.
Getting an EIN for the Trust
Before paying wages, the trust needs its own 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 say a trustee does not need an EIN for a grantor-type trust 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 obtain its own EIN. An irrevocable trust is a separate taxable entity from the day it is created, 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, listing the trust’s legal name as it appears in the instrument, the trustee on the “care of” line, and a responsible party. For trusts, the IRS defines the responsible party as the grantor, owner, or trustor, whose Social Security number or ITIN goes on the application.3Internal Revenue Service. Responsible Parties and Nominees The online application issues an EIN immediately at no cost; fax and mail applications take longer.2Internal Revenue Service. Get an Employer Identification Number
Payroll Taxes the Trustee Must Handle
Once the trust has an EIN and brings on an employee, the trustee carries the same payroll tax duties as any business owner. Each paycheck requires federal income tax withholding based on the employee’s Form W-4.4Internal Revenue Service. About Form W-4, Employee’s Withholding Certificate
The trust also withholds and pays FICA. Social Security is 6.2% from the employee and a matching 6.2% from the trust, on earnings up to $184,500 in 2026. Medicare is 1.45% from each side, with no wage cap. When an individual employee’s wages exceed $200,000 in a calendar year, the trust withholds an additional 0.9% Medicare tax from that employee’s pay, and the trust has no matching obligation for the additional amount.5Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
Federal unemployment tax is the trust’s alone. The FUTA rate is 6% on the first $7,000 of each employee’s annual wages, and most trusts that pay into their state’s unemployment fund qualify for a credit of up to 5.4%, bringing the effective rate to 0.6%.6Internal Revenue Service. Topic No. 759, Form 940 – Employers Annual Federal Unemployment (FUTA) Tax Return State unemployment taxes apply on top, with rates set by the jurisdiction, industry, and claims history. Most states also require workers’ compensation coverage.
Required Filings and Records
The trustee files Form 941 each quarter to report withheld federal income tax, Social Security and Medicare, and any additional Medicare tax. Once the first return is filed, 941 is due every quarter, even quarters with no tax liability.7Internal Revenue Service. Instructions for Form 941 (03/2026) FUTA is reported annually on Form 940.6Internal Revenue Service. Topic No. 759, Form 940 – Employers Annual Federal Unemployment (FUTA) Tax Return
Each employee gets a Form W-2 showing wages and withholdings. For 2026 wages, the deadline to file W-2s with the Social Security Administration is February 1, 2027.8Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3 Employment tax records, including payroll amounts, payment dates, W-4s, and copies of filed returns, must be kept at least four years after the fourth-quarter return for the year is filed.9Internal Revenue Service. Employment Tax Recordkeeping
Household Workers Hired by a Trust
Trusts often employ household workers, such as a caretaker for a trust-owned home or a personal aide for a beneficiary. These employees have a separate FICA threshold. In 2026, Social Security and Medicare taxes apply only once the trust pays a household employee $3,000 or more in cash wages during the calendar year. Below that, neither side owes FICA 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 the household workers on that return and skip Schedule H.11Internal Revenue Service. Instructions for Schedule H – Household Employment Taxes
Employees Versus Independent Contractors
Classification decides whether the trust must withhold, pay unemployment taxes, and carry workers’ compensation. The IRS applies a common-law test with three categories: behavioral control (does the trust direct how the work is done, including instructions and training), financial control (does the trust control the business side, such as tools and payment structure), and the type of relationship (written contracts, benefits, permanence, and how central the work is to the trust).12Internal Revenue Service. Employee (Common-Law Employee)
With a genuine independent contractor, the trust does not withhold income tax, pay FICA, or carry unemployment coverage. It does have a reporting duty: payments of $2,000 or more to a contractor during 2026 go on Form 1099-NEC.13Internal Revenue Service. Form 1099-NEC and Independent Contractors
Getting classification wrong is costly. If the IRS later finds that a “contractor” was actually an employee, the trust owes back employment taxes, with reduced rates under Section 3509 if the required 1099s were filed and doubled rates if they were not. Failure-to-file and failure-to-pay penalties can be added on top where the trust never filed employment tax returns and lacks 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 paychecks are “trust fund” taxes in IRS terminology. That money belongs to the government the moment it is withheld. If the trustee collects it and fails to turn it over, the trustee can be held personally liable for the full unpaid amount under the Trust Fund Recovery Penalty, 26 U.S.C. ยง 6672.15Office of the Law Revision Counsel. 26 USC 6672 – Failure to Collect and Pay Over Tax
The penalty reaches 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 does not require bad intent. Using trust funds to pay other creditors while payroll taxes go unpaid meets the standard, and once assessed, the IRS can pursue the trustee’s personal assets to collect.16Internal Revenue Service. Employment Taxes and the Trust Fund Recovery Penalty (TFRP)
Wage, Hour, and I-9 Rules
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 of at least one and a half times the 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 actually works.
Within three business days of the start date, the trustee must complete Section 2 of Form I-9 to verify the employee’s identity and work authorization. If the employee will work fewer than three days, the form must be completed on the first day of employment.18U.S. Citizenship and Immigration Services. Who Must Complete Form I-9