All cash wages you pay to an employee during the year for farmwork are subject to social security and Medicare taxes if you meet either of the following tests.
- You pay the employee $150 or more in cash wages during the year for farmwork (the $150 test).
- You pay cash and noncash wages of $2,500 or more during the year to all your employees for farmwork (the $2,500 test).
If the $2,500 test for the group is not met, the $150 test for an employee still applies.taxmap/pubs/p225-058.htm#en_us_publink1000218817
Annual cash wages of less than $150 you pay to a seasonal farmworker are not subject to social security and Medicare taxes, even if you pay $2,500 or more to all your farmworkers. However, these wages count toward the $2,500 test for determining whether other farmworkers' wages are subject to social security and Medicare taxes.
A seasonal farmworker is a worker who:
- Works as a hand-harvest laborer,
- Is paid piece rates in an operation usually paid on this basis in the region of employment,
- Commutes daily from his or her permanent home to the farm, and
- Worked in agriculture less than 13 weeks in the preceding calendar year.
See Family Employees
, earlier, for certain exemptions from social security and Medicare taxes that apply to your child, spouse, and parent.
An exemption from social security and Medicare taxes is available to members of a recognized religious sect opposed to public insurance. This exemption is available only if both the employee and the employer are members of the sect.
For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.taxmap/pubs/p225-058.htm#en_us_publink1000218819
Only cash wages paid to farmworkers are subject to social security and Medicare taxes. Cash wages include checks, money orders, and any kind of money or cash.
Only cash wages subject to social security and Medicare taxes are credited to your employees for social security benefit purposes. Payments not subject to these taxes, such as commodity wages, do not contribute to your employees' social security coverage. For information about social security benefits, contact the SSA at 1-800-772-1213 or online
Noncash wages include food, lodging, clothing, transportation passes, and other goods and services. Noncash wages paid to farmworkers, including commodity wages, are not subject to social security and Medicare taxes. However, they are subject to these taxes if the substance of the transaction is a cash payment. For information on lodging provided as a condition of employment, see Publication 15-B.
Report the value of noncash wages on Form W-2 in box 1, Wages, tips, other compensation, together with cash wages. Do not show noncash wages in box 3, Social security wages, or in box 5, Medicare wages and tips (unless the substance of the transaction is a cash payment).taxmap/pubs/p225-058.htm#en_us_publink1000218821
For 2010, the employer and the employee will each pay both the following taxes.
- 6.2% of cash wages for social security tax (old-age, survivors, and disability insurance).
- 1.45% of cash wages for Medicare tax (hospital insurance).
The limit on wages subject to the social security tax for 2010 is $106,800. There is no limit on wages subject to the Medicare tax. All covered wages are subject to the Medicare tax.taxmap/pubs/p225-058.htm#en_us_publink1000218823
If you would rather pay the employee's share of social security and Medicare taxes without deducting it from his or her wages, you may do so. It is additional income to the employee. You must include it on the employee's Form W-2 in box 1, but do not count it as social security and Medicare wages (boxes 3 and 5 on Form W-2) or as wages for federal unemployment (FUTA) tax purposes.taxmap/pubs/p225-058.htm#en_us_publink1000218824
Jane operates a small family fruit farm. She employs day laborers in the picking season to enable her to timely get her crop to market. She does not deduct the employees' share of social security and Medicare taxes from their pay; instead, she pays it on their behalf. When her accountant, Susan, prepares the employees' Forms W-2, she adds each employee's share of social security and Medicare taxes paid by Jane to the employee's wage income (box 1 of Form W-2), but does not include it in box 3 (social security wages) or box 5 (Medicare wages and tips).
Jane paid Mary $1,000 during the year. Susan enters $1,076.50 in box 1 of Mary's Form W-2 ($1,000 wages plus $76.50 social security and Medicare taxes paid for Mary). She enters $1,000 in boxes 3 and 5.