Oskaloosa, Iowa 52577 | IRS has said it better than I can------publication 15, page 12: Wages not paid in money. If in the course of your trade or business you pay your employees in a medium that is neither cash nor a readily negotiable instrument, such as a check, you are said to pay them “in kind.” Payments in kind may be in the form of goods, lodging, food, clothing, services. Generally, the fair market value of such payments at the time that they are provided is subject to federal income tax withholding and social security, Medi-care, and FUTA taxes. However, noncash payments for household work, agricultural labor, and service not in the employer’s business are exempt from social security, Medicare, and FUTA taxes. Withhold income tax on these payments only if you and the employee agree to do so. Nonetheless, noncash payments for agricultural labor, such as commodity wages, are treated as cash payments subject to employment taxes if the substance of the transaction is a cash payment. ******************************** First.........report on W-2. I recommend using box 14 for explanation. Second........applies to only certain kinds of labor...........agricultural labor in this case. Third........note the last sentence above..........."are treated as cash payments subject to employment taxes if the substance of the transaction is a cash payment" The law originally went into effect to cover the farmer giving his hired hand a steer, and some sweet corn, or whatever. Objective was to make things easy on the non-record-keepers. Now, however, it is being used as a tax avoidance mechanism, so IRS just doesn't like it----------BUT I have not read of any cases where IRS has taken anyone to court over it---------probably because it is a small amount of tax, and most taxpayers would choose to pay it vs fight it---------I would. So..........IRS is aware of the game, and is going to take a hard line approach to the details surrounding the payment of the in kind wages. Fourth..........I am concerned about the definition of "ag wages", when it relates to the spouse, who usually gets the tag of "bookkeeper" in order to justify the wages. Ag employers do not have to pay overtime under Fed Labor laws..........except for their office help..........little known fact by a lot of pros. I am concerned that the IRS would stretch the definition used by the DOL re "ag labor", and exclude the office personnel............and therefore that portion of the compensation would not be able to come under the exclusion for ag labor re the in kind wages............and since most farmers would not document the AMOUNT of office time vs "field" time, IRS would go after the whole thing...........I would if I were them. I do not know that I am right...........but the amount of excluded tax is not worth the test. |
It's official---- have heard the "rumors"--- but IRS is stepping up enforcement.........
