Income Tax Withholding

If the cash wages you pay farm workers are subject to social security and Medicare taxes, they are also subject to income tax withholding. Although noncash wages are subject to income tax, withhold income tax only if you and the employee agree to do so. The amount to withhold is figured on gross wages without taking out social security and Medicare taxes, union dues, insurance, etc.

Form W-4. Generally, the amount of income tax you withhold is based on the employee's marital status and withholding allowances claimed on the employee's Form W-4. In general, an employee can claim withholding allowances on Form W-4 equal to the number of exemptions the employee will be entitled to claim on his or her tax return. An employee may also be able to claim a special withholding allowance and allowances for estimated deductions and credits.

Do not withhold income tax from the wages of an employee who, by filing Form W-4, certifies that he or she had no income tax liability last year and anticipates no liability for the current year.

You should give each new employee a Form W-4 as soon as you hire the employee. Have the employee complete and return the form to you before the first payday. If the employee does not return the completed form to you, you must withhold income tax as if the employee is single and claims no withholding allowances.

New Form W-4 for 2002. You should make the 2002 Form W-4 available to your employees and encourage them to check their income tax withholding for 2002. Those employees who owed a large amount of tax or received a large refund for 2001 may want to file a new Form W-4.

How to figure withholding. You can use one of several methods to determine the amount to withhold. The methods are described in Circular A, which contains tables showing the correct amount of income tax you should withhold. Circular A also contains additional information about income tax withholding.

Nonemployee compensation. Generally, you are not required to withhold tax on payments for services to individuals who are not your employees. However, you may be required to report these payments on Form 1099-MISC, Miscellaneous Income, and to withhold under the backup withholding rules. See Information Returns in chapter 2 for information.

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