Payroll in Practice: 7.22.2024

Question: What are the payroll requirements for employers operating farms and what are the tax, withholding, and reporting requirements?

Answer: The tax rules for farm workers differ in some respects from the rules for nonfarm workers. Prior to 2024, IRS Publication 51, (Circular A) Agricultural Employer’s Tax Guide, covered the payroll rules for farmworkers. The IRS discontinued the publication, and the payroll rules for farmworkers now are included in Publication 15, (Circular E), Employer’s Tax Guide.

Farm operators and crew leaders must withhold federal income tax from the wages of farmworkers if the wages are subject to FICA taxes, which comprise Social Security and Medicare taxes. Crew leaders furnish and pay workers to do farm work for the farm operator. Crew leaders are employers of farm workers and not employees of farm operators. Farm operators must keep records of crew leaders including name, mailing address, and employer identification number of any crew leader that furnished workers to the farm.

All cash wages paid to an employee during the year are subject to FICA taxes if either the $150 test or the $2,500 test is met.

The $150 test is met if the employer pays an individual worker cash wages of $150 or more during the year for farmwork. This test applies to each individual worker separately, including members of a family of workers. The $2,500 test is met if the employer pays a total of $2,500, whether cash or non-cash, to all workers for farmwork during the year.

However, a seasonal farmworker paid annual wages of less than $150 is not subject to FICA taxes or federal income tax withholding even if the $2,500 test is met. The wages of seasonal farmworkers count toward the $2,500 test.

A seasonal farmworker is a worker who is employed in agriculture as a hand-harvest laborer, is paid piece rates in an occupation usually paid on that basis, commutes daily from their permanent home to the farm, and was employed in agriculture less than 13 weeks in the preceding calendar year.

Wages are not subject to FICA taxes if they are paid to a child under age 18 for work on a farm that is a sole proprietorship or a partnership in which each partner is a parent of the child. As with the wages paid to seasonal farmworkers, these wages count toward the $2,500 test.

Cash wages paid to employees for farmwork are generally subject to FICA taxes. Wages subject to FICA taxes are also subject to federal income tax withholding. Cash wages include checks, money orders, and any kind of money or cash.

Noncash wages paid to farmworkers are not subject to FICA taxes or federal income tax withholding, but an employer and employee may agree to have income tax withheld from noncash wages. Noncash wages include food, lodging, clothing, transportation passes, farm products, or other goods or commodities. Noncash wages are treated as cash wages if the substance of the transaction is a cash payment.

Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, is used by employers of farmworkers. Form 941, Employer’s Quarterly Federal Tax Return, is used for nonfarm workers. If an employer has both farm and nonfarm employees, the employment taxes for the farm workers must be handled separately from those of the nonfarm workers. Tax deposits must be made separately as the forms have separate deposit requirements and lookback periods. Use of the separate forms ensures accurate reporting and compliance with the tax laws for each group of workers.

In general, farmworkers perform agricultural services on the employer’s farm such as raising or harvesting agricultural or horticultural products, or raising and feeding livestock. Farmworkers can also operate, manage, conserve, improve, and maintain farms and their tools and equipment. Some salvage timber, clear land of brush, package unmanufactured agricultural products, or do work related to cotton ginning, turpentine, gum resin products, or operation and maintenance of irrigation facilities.

A farm includes stock, dairy, poultry, fruit, fur-bearing animal, truck farms, plantations, ranches, nurseries, ranges, greenhouses, orchards, or structures used primarily for the raising of agricultural or horticultural commodities.

Farmwork does not include reselling activities or processing services that change a commodity from its raw or natural state. Some examples of establishments with no farmwork include retail stores and greenhouses that are used primarily for display or storage.

This column does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., or its owners.

Author Information

Patrick Haggerty is the owner of a tax practice in Chapel Hill, North Carolina, and an enrolled agent licensed to practice before the Internal Revenue Service. The author may be contacted at phaggerty@prodigy.net.

Do you have a question for Payroll in Practice? Send it to phaggerty@prodigy.net.