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Farmers, corporations and FUTA


Abby Normal
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Is a shareholder-employee of an S corp subject to FUTA?

Just inherited a farmer client and have never dealt with farming issues before.

I found this in pub 225, but it addresses only spouses and children, not the shareholder-employee:

Payments for the services of your child or spouse are subject to federal income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for any of the following entities.

  • A corporation, even if it is controlled by you.

Thanks!

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Please see the below copied text.  This is from Publication 51, Circular A, Agricultural Employer's Guide.  The corporate status does not appear to change the filing requirements.

 

10. Federal Unemployment (FUTA) Tax

The Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax. For a list of state unemployment agencies, visit the U.S. Department of Labor's website at workforcesecurity.doleta.gov/unemploy/agencies.asp. Only the employer pays FUTA tax; it isn't withheld from the employees' wages. For more information, see the Instructions for Form 940.

For 2017, you must file Form 940 if you:

  • Paid cash wages of $20,000 or more to farmworkers in any calendar quarter in 2016 or 2017, or

  • Employed 10 or more farmworkers during at least some part of a day (whether or not at the same time) during any 20 or more different weeks in 2016 or 20 or more different weeks in 2017.

 

To determine whether you meet either test above, you must count wages paid to aliens admitted on a temporary basis to the United States to perform farmwork, also known as "H-2A" visa workers. However, wages paid to "H-2A" visa workers aren't subject to the FUTA tax.

Generally, farmworkers supplied by a crew leader are considered employees of the farm operator for purposes of the FUTA tax unless (a) the crew leader is registered under the Migrant and Seasonal Agricultural Worker Protection Act, or (b) substantially all of the workers supplied by the crew leader operate or maintain tractors, harvesting or crop-dusting machines, or other machines provided by the crew leader. Therefore, if (a) or (b) applies, the farmworkers are generally employees of the crew leader.

You must deposit FUTA tax by EFT. The deposit rules for FUTA tax are different from those for income, social security, and Medicare taxes. See Deposit rules for FUTA tax , later in this section.

FUTA tax rate.

The FUTA tax rate is 6.0% for 2017. The tax applies to the first $7,000 you pay to each employee as wages during the year. The $7,000 is the federal wage base. Your state wage base may be different. Generally, you can take a credit against your FUTA tax for amounts you paid into state unemployment funds. The credit may be as much as 5.4% of wages subject to FUTA tax. If you’re entitled to the maximum 5.4% credit, the FUTA tax rate after credit is 0.6%. You’re entitled to the maximum credit if you paid your state unemployment taxes in full, on time, and on all the same wages as are subject to FUTA tax, and as long as the state isn't determined to be a credit reduction state. See the Instructions for Form 940 to determine the credit.

In some states, the wages subject to state unemployment tax are the same as the wages subject to FUTA tax. However, certain states exclude some types of wages from state unemployment tax, even though they are subject to FUTA tax (for example, wages paid to corporate officers, certain payments of sick pay by unions, and certain fringe benefits). In such a case, you may be required to deposit more than 0.6% FUTA tax on those wages. See the Instructions for Form 940 for further guidance.

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26 minutes ago, Abby Normal said:

So 20,000 per quarter is the trigger? But pub 225 doesn't mention this 20,000 figure. Grrrr.

 

First, let me say that I don't have any farms or farmers, and I was going to suggest this pub 51 also.

I read elsewhere that wages paid to spouse and children of the farmer are NOT included in calculating the total wages to determine whether that $20K threshold has been met.  That makes sense since those wages aren't subject to it anyway. 

I think that pubs 51 and 225 are written for sole proprietors, not any kind of incorporated entity. My inclination is that the shareholder-owner is NOT considered a farmworker for this determination either. In a quick google, I found that some states (found MN, IL, and PA so far) have a classification and rules related to "family farm corporations" that specifically address unemployment taxes including FUTA.  I've never heard of this this though, but that might be something for you to look into further.

Sorry, I know that's not much help.

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From page 78 of Pub 225:   ( The next to last section addresses Entities )


"Family Employees

 

Generally, the wages you pay to family members who are your employees are subject to employment taxes. However, certain exemptions may apply to wages paid to your child, spouse, or parent.

Exemptions for your child.(p78)

rule
 
Payments for the services of your child under age 18 who works for you in your trade or business (including a farm) aren't subject to social security and Medicare taxes. However, see Nonexempt services of a child or spouse, later. Payments for the services of your child under age 21 employed by you in other than a trade or business, such as payments for household services in your home, also aren't subject to social security or Medicare taxes. Payments for the services of your child under age 21 employed by you, whether or not in your trade or business, aren't subject to FUTA tax. Although not subject to social security, Medicare, or FUTA tax, the child's wages still may be subject to federal income tax withholding.

Exemptions for your spouse.(p78)

rule
 
Payments for the services of your spouse who works for you in your trade or business are subject to federal income tax withholding and social security and Medicare taxes, but not FUTA tax.
Payments for the services of your spouse employed by you in other than a trade or business, such as payments for household services in your home, aren't subject to social security, Medicare, or FUTA taxes.

Nonexempt services of a child or spouse.(p78)

rule
 
Payments for the services of your child or spouse are subject to federal income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for any of the following entities.
  • A corporation, even if it is controlled by you.
  • A partnership, even if you’re a partner. This doesn't apply to wages paid to your child if each partner is a parent of the child.
  • An estate or trust, even if it is the estate of a deceased parent.
In these situations, the child or spouse is considered to work for the corporation, partnership, or estate, not you.

Exemptions for your parent.(p78)

rule
 
Payments for the services of your parent employed by you in your trade or business are subject to federal income tax withholding and social security and Medicare taxes. Social security and Medicare taxes don't apply to wages paid to your parent for services not in your trade or business, but they do apply to payments for household services in your home if both the following conditions are satisfied.
  • You have a child (including an adopted child or stepchild) living in your home who is under age 18 or has a physical or mental condition that requires care by an adult for at least 4 continuous weeks in the calendar quarter services were performed.
  • You’re a widow or widower; or divorced and not remarried; or have a spouse in the home who, because of a physical or mental condition, can't care for your child for at least 4 continuous weeks in the calendar quarter services were performed.
Wages you pay to your parent aren't subject to FUTA tax, regardless of the type of services provided.
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And no exemption for the child or spouse if they work for a corporation, partnership or estate/trust even if you control the entity EXCEPT if all the partners are parents of the child, then the partnership doesn't prevent the child from being exempt.  They probably could make this more confusing if they tried.  Maybe.

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