Farm children of any age working in mom or dad’s farm operation provide more tax opportunities for farmers.
Farmers can pay reasonable wages in the form of commodities to their children (for farm work) and reap family tax savings. Children can be paid wages in the form of commodities (and NOT cash) and not have to pay FICA tax on their wages. This also means the employer avoids matching that FICA.
Example: Farmer Joe hires son, Scott, to bale hay and feed livestock during the year. Scott is paid 1,500 bushels of corn on October 31st when the fair market value of a bushel of corn is $3.50. The grain is transferred to Scott and he has taxable W-2 income of $5,250 not subject to any withholding. Farmer Joe must recognize income, of $5,250 and receives a wage deduction of the same. Neither Joe nor Scott has to pay FICA on the $5,250, saving the family 15.3% (approximately $800). Employment contracts, commodity transfer documentation, holding period of commodity before sale date, carrying costs, proper ownership/sale and W2 reporting must be followed carefully.
Click to view Paying Farm Kids for Farm Work, Part I and Paying Farm Kids for Farm Work, Part II. Don’t forget to subscribe to our blog to see what farmer Joe saves if he pays his spouse, Jane, in our next blog.