Publication 225 |
2000 Tax Year |
Social Security & Medicare Taxes
All cash wages you pay to an employee during the year for farm work
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 farm work (the $150 test).
- You pay cash and noncash wages of $2,500 or more during the
year to all your employees for farm work (the $2,500 test).
If the $2,500 test for the group is not met, the $150 test for an
individual still applies.
See Table 16-1 at the end of this chapter. Exceptions.
The following wages are not subject to social security and Medicare
taxes, even if you pay $2,500 or more to all your farm workers. These
wages, however, do count toward the $2,500 test for determining
whether other farm worker's wages are subject to social security and
Medicare taxes.
- Annual cash wages of less than $150 paid to a seasonal farm
worker. A seasonal farm worker is one 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.
- Annual cash wages of less than $1,300 paid to your household
employee.
See Circular A for more information on these exceptions. See
Family Employees, earlier, for certain exemptions from
social security and Medicare taxes that apply to your child, spouse,
and parent.
Table 16-1.
Religious exemption.
An exemption from social security and Medicare taxes is available
to members of a recognized sect opposed to insurance. This exemption
is available only if both the employee and the employer are members of
such a sect.
For more information, see Publication 517,
Social Security and
Other Information for Members of the Clergy and Religious Workers.
Cash wages.
Cash wages paid to farm workers are subject to social security tax,
Medicare tax, and income tax withholding. 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 Social
Security Administration. Internet users can go to www.ssa.gov
for more information.
Noncash wages.
Noncash wages include food, lodging,
clothing, transportation passes, and other goods and services. Noncash
wages, 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.
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.
Tax rates and social security wage limit.
For 2001, the employer and the employee will each pay:
- 6.2% of cash wages for social security tax (old-age,
survivors, and disability insurance), and
- 1.45% of cash wages for Medicare tax (hospital
insurance).
Wage limit.
The maximum amount of 2001 wages subject to the social security tax
will be published in Circular A. There is no limit on wages subject to
the Medicare tax. All covered wages are subject to the tax.
Paying employee's share.
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. If you do not deduct the employee's share, you must still pay it.
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.
Example.
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).
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