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A Guide For Farmers, Growers And Crew Leaders
SSA Publication No. 05-10025, January 2005 [View
.pdf]
ICN 455350 (En EspaƱol) |
Contacting Social SecurityOur website is a valuable resource for information about all of Social Security’s programs. There are a number of things you can do online. In addition to using our website, you can call us toll-free at 1-800-772-1213. We can answer specific questions from 7 a.m. to 7 p.m., Monday through Friday. We can provide information by automated phone service 24 hours a day. (You can use our automated response system to tell us a new address or request a replacement Medicare card.) If you are deaf or hard of hearing, you may call our TTY number, 1-800-325-0778. We treat all calls confidentially. We also want to make sure you receive accurate and courteous service. That is why we have a second Social Security representative monitor some telephone calls. |
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About this bookletIf you own or operate a farm, ranch, orchard or other place where you grow fruits, vegetables or flowers for sale, or if you are a grower or crew leader, this booklet has important information for you. It tells what you are paying for with your Social Security and Medicare taxes, how to report your employees’ income to Social Security and why it is important that you do so. It also tells you how to report your own income to Social Security, whether you are an owner/operator, partner, renter, share farmer or crew leader. |
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Social Security’s benefit packageGenerally, the Social Security benefits to which workers are entitled are based on how much income they have earned and is reported to us. That is why accurate income and wage reporting are so important. Your Social Security and Medicare taxes pay for:
Accurate reporting of wages is more than just a tax matter. It helps determine who is eligible for Social Security and how much they and their families can receive. That is why we always stress the importance of recording the right name, Social Security number and earnings for you and each of your employees. Make sure you use the name and number exactly as they are shown on the Social Security card. |
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Reporting farm workers’ incomeMost farm workers are covered by Social Security. If you employ covered workers, you must keep records of their wages, withhold their Social Security and Medicare taxes, report their wages and pay all taxes due. If you do not, you may be subject to a penalty. If a farm worker complains to Social Security that wages were not reported, and if he or she has proof of those wages, the violation will be reported to the Internal Revenue Service (IRS). Farm workers under your direction and control cannot be considered independent contractors. They are employees and their wages must be reported to Social Security. When are farm workers covered?Farm workers are covered by Social Security if you pay them:
However, if you employ seasonal hand-harvest laborers who commute to work daily from their homes, who are paid on a piece-rate basis and who did less than 13 weeks of farm work the previous year, a different rule applies. Their work is covered under Social Security only if you pay the employee at least $150 in cash for the job. Who is the “employer” of farm workers?Some farmers hire crew bosses who are independent contractors to handle all their wage-reporting responsibilities. However, if a written agreement states that the crew leader is the farmer’s employee, the farmer is responsible for all wage reporting and recordkeeping. If no written agreement exists, use the following rules:
NOTE: If you employ farm workers, you may need to register with the U.S. Department of Labor as a farm labor contractor. For more information, contact the Department of Labor’s Wage and Hour Division listed in most telephone directories under U.S. Government, Department of Labor, Employment Standards Administration. How to prepare a written agreementIf the farmer and crew leader agree that the farmer will handle Social Security matters and that the crew leader is the farmer’s employee, they should prepare a written agreement. No special form is needed, but the agreement should be signed by both parties and include:
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Employer’s responsibilitiesIf you employ farm workers, you must:
If the farm worker moves frequently and has trouble getting mail, you
can give him or her a W-2 when the job ends, instead of waiting until
January 31 of the next year. For more information, get IRS Publication
51, Circular A (Agricultural Employer’s Tax Guide). You
can order IRS forms and publications by calling |
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Reporting your own income to Social SecurityMaking sure you get credit for your own earnings is just as important as reporting your employees’ income to Social Security. Owner-operators, partners, landlords who take an active role in the farm operation, tenants, renters, share farmers or crew leaders who are independent contractors are all covered under Social Security. Types of farm arrangementsHere are examples of the most common types of farm arrangements and how the earnings from each must be reported. Family arrangement Usually on a family-operated farm, the head of the household is considered to be self-employed, and the farm income is credited to that person. This is true even though other family members may help on the farm. In some cases, all of the family members have a partnership, and all earn Social Security credit based on the farm income. If a husband and wife operate a farm as a partnership, they must report their share of the profits for Social Security purposes separately, even though they file a joint income tax return. Farm partnership A farm partnership is formed when two or more persons get together to carry on a farming operation. The agreement between partners is usually written, but it can be oral. Signs that a partnership exists include:
Each partner is responsible for reporting his or her own share of profits for Social Security purposes. Farm rental agreements Probably no two farm rental agreements are exactly alike. But all are similar in that the landlord lets the tenant use the farm to produce farm products and the tenant agrees to pay the landlord in cash or crop shares. If you own land or rent land from someone else, and then rent or lease that land to another person, you are a “landlord.” The arrangement between landlord and tenant can be oral or written. The advantage of a written arrangement is that it makes it easier to establish intent. An oral agreement may later make it necessary to obtain statements from the tenant and others who know the facts about how the two planned to operate. The cash or crop share that a landlord receives from a tenant can be included as farm income for Social Security purposes only if the landlord has an active role in the production or management of the crop or livestock. This is called “material participation.” Both the “materially participating” landlord and the renter/tenant/share farmer must report their own earnings for Social Security purposes. Crew leaders and farm labor contractors If you are a crew leader, you are either an employee of the farm owner/operator who hired you or an independent contractor. Your situation depends entirely on arrangements you made with the farm owner/operator. If you are an employee, the farmer must give you pay statements and W-2 forms and withhold Social Security and Medicare taxes, as explained in Employer’s responsibilities. However, if you are an independent contractor, you are considered a self-employed person just like the farmer, and you are responsible for paying your own Social Security and Medicare taxes. |
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Who should report farm incomeAnyone who has net earnings of $400 or more in one year must report those earnings and pay Social Security and Medicare taxes on them. If you have less than $400 net profit, you still may be able to pay the taxes and thus earn the Social Security and Medicare protection by using the “farm optional method” of reporting. Figuring net earningsIn general, your net farm earnings are your profits from your farm operation, which are figured by subtracting allowable farm business expenses, including depreciation, from your gross farm income. Any federal agricultural program payments you receive must be counted in figuring your earnings. However, the following kinds of income should not be counted when figuring net earnings for Social Security purposes:
NOTE: You may owe Social Security and Medicare (self-employment) tax even if your earnings are so low that you do not owe any income tax. |
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How to report your earningsYou use tax form Schedule F (Profit or Loss From Farming) to report your income and expenses for the year. Then you must complete Schedule SE (Self-Employment Tax) to figure out how much you should pay in taxes for Social Security and Medicare. File these forms along with your Form 1040 (U. S. Individual Income Tax Return). If you have low net earnings or a loss, you may want to use the “farm optional method” for reporting income. Using this method, you can report more net profit than you actually had, letting you pay the self-employment tax on this amount and get Social Security and Medicare protection. You may use this method in either one of the following situations:
Estimated taxesIf two-thirds of your gross income comes from farming, you may have to pay estimated income and self-employment taxes before the April 15 federal tax deadline. Generally, if you file your tax return and pay all taxes due by March 1, you do not need to pay estimated taxes. However, if you are going to wait until April 15 to file your tax return, then you must pay estimated taxes by January 15, using Form 1040-ES (Estimated Tax for Individuals). You also can spread the payment of these taxes out by completing the estimated tax worksheet in the instructions for the Form 1040-ES and including the amount of your self-employment tax in the estimate. Tax forms and more information More detailed information is available in IRS Publication 225, Farmer’s
Tax Guide. To request this publication and the tax forms you need, call
IRS’ toll-free number, The forms are also available from IRS offices or at most banks and post offices. In addition, you also can get all IRS forms and publications on the Internet at www.irs.gov/formspubs/index.html. If you have questions about income tax returns or taxes, contact any
IRS office or call |
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