Taxation

Employment Taxes for Farm or Agricultural Workers

By Stephen Fishman, J.D., University of Southern California Law School
If you own a farm and hire workers, you're probably an "employer" and need to understand your employment tax responsibilities.

It's common to think of an "employer" as a person or company that owns and operates a retail store or restaurant. However, this doesn't cover all the bases, especially for tax purposes. If you own a farm and hire workers to help you run it, then you're probably an "employer" for employment tax purposes. Farming is not limited to the growing or raising of traditional agricultural products. It includes stock, dairy, poultry, fruit, fur bearing animals, truck farms, plantations, orchards, ranches, nurseries, ranges, and greenhouses.

Employment taxes include several different taxes:

  • Income taxes
  • Social Security and Medicare taxes, and
  • Federal unemployment tax

Employment taxes for farm or agricultural workers are a bit different than other types of employees.

Employment Taxes - Basics

As an employer, you're required to withhold employment taxes from your workers' salaries or wages and/or pay some taxes yourself. Specifically, you must:

  • Withhold federal income taxes from your employees' wages, usually from each paycheck. Your employees fill out a W-4 Form, which tells you how much to withhold. Also, you have to withhold state income taxes if your state has income taxes, and maybe local income taxes, too.
  • Withhold Federal Insurance Contributions Act (FICA) taxes, which you probably know as Social Security and Medicare taxes. Social Security taxes pay for your employees' old-age, survivors, and disability insurance. Medicare taxes pay for hospital insurance.
  • Pay a share of FICA taxes that's equal to what your workers pay.
  • Pay Federal Unemployment Tax Act (FUTA) taxes, which provide payments for your workers if they lose their jobs. Usually, you have to pay state unemployment taxes, too

Agricultural or Farm Workers

Generally, farm workers are your employees, not self-employed independent contractors. For tax purposes, an employee is any person over whom you have the right to control on the job. Farm workers are usually your employees because you control their hours and duties, and you can fire them for any reason at any time.

However, some farmers hire "crew leaders" or "crew bosses" as independent contractors to provide farm labor. The crew leader hires the necessary farmworkers and pays their wages. In such cases, the crew leader is the employer of the other farmworkers for tax and other legal purposes and is supposed to withhold and pay their employment taxes. If you hire a crew leader to provide labor, you must make sure not to treat the crew leader and the farmworkers the leader hires as your employees. You may not supervise or otherwise control the crew leader or farmworkers. Your control is limited to accepting or rejecting the final results the crew leader achieves. If you don't want to give up control over the workers who labor on your farm, don't hire an independent contractor crew leader. If you do treat a crew leader like your employee, you'll be responsible for the taxes of the farmworkers he or she hires.

If you hire a crew leader to furnish you with farmworkers, you must keep a record of the crew leader's name, permanent mailing address, and employer identification number (EIN). If the crew leader has no permanent mailing address, record his or her present address. Keep this with your tax records.

Taxes

Income and FICA taxes. You don't have to withhold income tax on noncash wages paid to agricultural workers, like room and board. Also, no withholding is required on cash wages unless the wages are subject to FICA tax. While there are some exceptions, generally FICA applies if:

  • you pay at least $150 or more in cash wages during the calendar year for farm work to a single employee, or
  • the total amount you pay to all your employees, (including cash and noncash wages, such as room and board) is $2,500 or more in a year.

The $150 test applies separately to each farmworker that you employ. If you employ a family of workers, each member is treated separately. Don't count wages paid by other employers. The $2,500 test applies to all your employees together.

You report income and FICA taxes on Form 943. You must pay the IRS these taxes using electronic funds transfer (EFT). You may do so using the IRS Electronic Federal Tax Payment System (EFTPS), which is free. Alternatively, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf.

FUTA and state unemployment taxes. You have to pay FUTA if you:

  • paid cash wages of $20,000 or more to employee farm workers in any calendar quarter in the current or prior tax year, or
  • employed 10 or more farm workers during at least some part of a day during any 20 or more different weeks in the current or prior tax year

To determine whether you meet either test above, you must count wages paid to aliens admitted on a temporary basis to the United States to perform farmwork, also known as "H-2A" visa workers. However, wages paid to "H-2A" visa workers aren't subject to the FUTA tax.

If you hire a crew leader to provide farmworkers, they will be your employees for FUTA purposes unless:

  • the crew leader is registered under the Migrant and Seasonal Agricultural Worker Protection Act, or
  • substantially all of the workers supplied by the crew leader operate or maintain tractors, harvesting or crop-dusting machines, or other machines provided by the crew leader.

If you pay FUTA, you'll almost certainly have to pay state employment taxes as well. If so, you'll obtain a credit for your state tax payments. The FUTA tax rate is 6% of the first $7,000 in employee wages, but employers obtain a 5.4% credit for timely payment of state unemployment taxes. Thus, the FUTA tax rate is generally 0.6%, or $42 per year per employee.

You report FUTA taxes by filing Form 940. Depending on the amount due, you must either:

  • pay the IRS electronically each quarter using EFTPS, or
  • pay the taxes at the end of the year by making a deposit, paying with a credit card, or sending payment with your Form 940

The IRS has a detailed guide on how and when to make payments.

Penalties

If you don't pay employment taxes on time, the IRS can charge you a penalty. The penalty may be 2, 5, 10 or 15 percent of the underpayment; it depends on how late you are on making the required payment. You'll also be charged interest on the amount of the unpaid taxes.

If you have any questions about how employment taxes impact your farm operations, refer to IRS Publication 51, Circular A, Agricultural Employer's Tax Guide. If you still have questions, consider talking to a professional tax preparer or a tax lawyer before you file.

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