4. Social Security and Medicare Taxes(p10)

Generally, you must withhold social security and Medicare taxes on all cash wage payments that you make to your employees.

All cash wages that you pay to an employee during the year for farmwork are subject to social security and Medicare taxes and federal income tax withholding if either of the two tests below is met.

• You pay cash wages to an employee of $150 or more in a year for farmwork (count all cash wages paid on a time, piecework, or other basis). The $150 test applies separately to each farmworker that you employ. If you employ a family of workers, each member is treated separately. Do not count wages paid by other employers.
• The total that you pay for farmwork (cash and noncash) to all your employees is $2,500 or more during the year.

The $150 and $2,500 tests do not apply to wages that you pay to a farmworker who receives less than $150 in annual cash wages and the wages are not subject to social security and Medicare taxes, or federal income tax withholding, even if you pay $2,500 or more in that year to all of your farmworkers if the farmworker:

• Is employed in agriculture as a hand-harvest laborer,
• Is paid piece rates in an operation that is usually paid on a piece-rate basis in the region of employment,
• Commutes daily from his or her permanent home to the farm, and
• Had been employed in agriculture less than 13 weeks in the preceding calendar year.

Amounts that you pay to these seasonal farmworkers, however, count toward the $2,500-or-more test to determine whether wages that you pay to other farmworkers are subject to social security and Medicare taxes.

The employee tax rate for social security is 4.2% on wages paid and tips received before March 1, 2012. The employee tax rate for social security increases to 6.2% on wages paid and tips received after February 29, 2012. The employer tax rate for social security remains unchanged at 6.2%. The social security wage base limit is $110,100. The 2012 employee tax rate for Medicare is 1.45% (amount withheld) each for the employee and employer (2.9% total). There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax.

Social security and Medicare taxes apply to most payments of sick pay, including payments made by third parties such as insurance companies. For details, see Publication 15-A.

If you would rather pay a household or agricultural employee's share of the social security and Medicare taxes without withholding them from his or her wages, you may do so. If you do not withhold the taxes, however, you must still pay them. Any employee social security and Medicare taxes that you pay is additional income to the employee. Include it in box 1 of the employee's Form W-2, but do not count it as social security and Medicare wages and do not include it in boxes 3 and 5. Also, do not count the additional income as wages for FUTA tax purposes. Different rules apply to employer payments of social security and Medicare taxes for non-household and non-agricultural employees. See section 7 of Publication 15-A.

In general, if you pay wages to nonresident alien employees, you must withhold social security and Medicare taxes as you would for a U.S. citizen or resident alien. However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. Also see
Compensation paid to H-2A visa holders, in section 3.

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.