Lower Income Farm Hands Lose Money on New Tax Bill!
The Tax Relief Act passed last week provided for a 2% reduction in the employee’s portion of the FICA tax. This dropped the tax rate from 6.2% to 4.2% for 2011 only. For individuals making more than $20,000 in salary or net farm income, this is an actual net tax decrease.
However, for farm hands making less than $20,000 for the year, this is actually a net tax increase. Let me explain. This reduction in payroll taxes replaces the Making Work Pay credit which was equal to the amount of FICA tax an individual would pay up to a maximum of $400 for singles and $800 for married filing joint couples.
Therefore, if a farm hand was single and received wages of $6,452, under the old law, they would have received the maximum credit of $400. Under the new law, with these same wages, the farm hand would only get a tax savings of $129 or net cost to the farm hand of $271. It is not until the wages reach $20,000 that the farm hand would break even.
Although the Tax Relief Act of 2010 had many tax goodies for farmers, it does appear to hit lower income employees in some cases. However, the extension of the higher earned income tax credit procedures and other related individual provisions should more than offset this possible tax increase.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Comments are closed.