Depending on what your goal is for the family member to be hired at the farm, there are two types of workers the family member could be - an independent contractor or an employee.
Independent Contractor - An independent contractor would be someone who is "hired" to do a function that is normally not a task an employee would normally perform.
They are independent meaning they
- make their own hours,
- work under their own direction (you do not "tell them how to perform the work")
- they perform to an agreement or contract for performance
- they have a definate time for completion of the work.
You do not withhold taxes on the money paid to them, nor does the company pay FICA/Medicare on the payment to them. Independent contractors pay their own taxes at year end. When you hire them, if you expect to pay them more than $600 for the year, you are required to obtain their Tax ID (SS number, EIN or TIN) on a W9 form and send a 1099-NEC at the end of the year.
Employees - An employee is someone who you hire to be either a seasonal, part-time or full-time worker. Employees earn wages and are paid by various different methods. To hire an employee you are obligated to obtain their SS number, verify they are allowed to work in the US (using the I-9 form and E-Verify in most cases), and their address.
Employees work tasks you assign to them and you have control over their work, hours and how you wish them to perform the tasks given. Unlike independent workers, they can only perform the work you assign to them. You also control their wage and when they are paid.
When paid, you are required to withhold money, per IRS and US Treasury standards, and also pay company taxes on the gross amounts you pay employees on a monthly or quarterly basis. Employee wages are summarized annually on W2 forms, hence the nickname W2 Employees.
ADVANTAGES OF W2 EMPLOYEES - Despite the type company organization (sole-proprietor, partnership or corporation) having family members hired as W2 employees has tax advantages.
TAX ADVANTAGES
- Employees have their taxes withheld based on W4 declarations
- Company/Farm pays FICA/Medicare taxes per payroll wages.
- Appropriate and accurate accounting of payroll expenses and taxes
- Proper Net Income deductions = Correct Company Taxes Paid at Year End
CASH to SEASONAL FARMWORKERS (in general) -
A seasonal farmworker is a worker who:
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is employed in agriculture as a hand-harvest laborer,
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is paid piece rates in an operation that is usually paid on a piece-rate basis,
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commutes daily from their permanent home to the farm, and
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was employed in agriculture less than 13 weeks in the preceding calendar year.
Annual cash wages of less than $150 you pay to a seasonal farmworker are not subject to social security and Medicare taxes, or federal income tax withholding, 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.
CASH wages are subject to SS and Medicare taxes if either of the two tests below is met.
- You pay cash wages to a farm worker of $150 or more in a year for work paid on a time, piecework, or other basis. OR
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The total that you pay for farmwork (cash and noncash) to all your employees is $2,500 or more during the year.
CHILD WORKERS ON THE FARM- SEASONAL -
If your farm is a sole-proprietor or partnership, and you are the owner or a partner in the partnership, you may, as the parent , hire your child/ren UNDER 18 as a seasonal worker/s. Their wages aren't subject to social security and Medicare taxes. However, they are counted when combining wages in TEST #2 of the CASH wages test (see above).
Note - if you hire farm workers that belong to the same family, remember EACH member of the family is counted separately toward the Annual Cash Wage total. Do not combine the family as a total.
We trust this updated answer more closely reflects the solution to your original question. For more detailed remarks on a specific company type, please find those answers in the irs.gov website under the Business section.
Thank you for participating in our Ask The Expert Event.
[Edited 5/28/2024 12:01PM PT]
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