Employment Taxes for Farm or Agricultural Workers
It's common to think of an "employer" as a person or company that owns and operates a retail store or restaurant. However, it doesn't cover all the bases, especially for tax purposes. If you have a farm and have workers who help you grow and harvest crops or raise livestock, then you're probably an "employer" for purposes of employment taxes.
Employment taxes include several different things:
- 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 from your workers' salaries or wages and/or pay various employment taxes. Specifically, you must:
- Withhold federal income taxes from your employees' wages, which you usually do with 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, 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, rather than independent contractors, because of the amount of control you have over them: You control their hours and duties, and you can fire them for any reason at any time.
However, some farmers hire "crew bosses" or "crew leaders" as independent contractors to hire workers and to take care of their wages and taxes. In such cases, the crew leader is the employer for tax purposes. However, if the crew leader is really your employee, then you're responsible for the 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 a worker:
- At least $150 or more in cash wages during the calendar year for farm work, or
- Less than $150 in cash wages, but your total expenses (that is, cash and noncash wages, such as room and board) for him are $2,500 or more in a year
You report income and FICA taxes on Form 943. Generally, you can pay these taxes by sending in payment with your Form 943, depositing the taxes with an authorized depository, or using the Electronic Federal Tax Payment System (EFTPS).
FUTA and state unemployment taxes. You have to pay FUTA and (and usually state unemployment taxes) if you:
- Paid cash wages of $20,000 or more to farm workers in any calendar quarter in the current or prior tax year (2010 or 2011, for example), 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
You report FUTA taxes by filing Form 940. Depending on the amount due, you must either:
- Deposit payment with an authorized financial institution or use EFTPS quarterly, 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.
If you don't pay employment taxes on time, the IRS can charge you a penalty. You'll be charged interest on the amount of the unpaid taxes. The interest rate may my 2, 5, 10 or 15 percent; it depends on how late you are on making the required payment or deposit.
If you have any questions about how employment taxes impact your farm operations, the IRS has a helpful pamphlet you should look at carefully. If you still have questions, consider talking to a professional tax preparer or a tax lawyer before you file.
Questions for Your Attorney
- I use a crew boss to provide enough labor to harvest my crops, so what should I do to make sure that I'm not treated as the employer for tax purposes?
- When counting the number of employees for a given tax year, do I have to count my family members, including my kids, who work on the farm?
- Do I have to withhold taxes from wages I pay to an undocumented immigrant?