Many farms employ workers to accomplish the tasks of the business. Cash wages paid to these employees are reported on Line 22, Schedule F as ordinary and necessary business expenses. As part of the compensation package of the employee, the employer may provide accident and health insurance and retirement benefits. These two benefits are reported and deducted on Lines 20 and 23 of Schedule F, respectively. Employment taxes related to wages paid are reported on Line 29, Schedule F.
If the farm employer benefits from the following employment-related credits, the amount of the credit(s) must be deducted from the labor expense
- Work Opportunity Credit (IRS Form 5884)
- Empowerment Zone Employer Credit (IRS Form 8844)
- Indian Employment Credit (IRS Form 8845)
- Credit for Employer Differential Wage Payments (IRS Form 8932)
- Employer Credit for Paid Family and Medical Leave (IRS Form 8994)
- Employee Retention Credit (IRS Form 943)
Example 1. Tomas hires two employees to work on his farm. This year he paid them $30,000 each in cash wages. Tomas reports and deducts $60,000 on Line 22, Schedule F.
Example 2.. Carla has 5 part-time employees who work in her farming business. This year, she pays them, on average, $10,000 each, thus $50,000 in total cash wages. Carla is eligible to claim the Work Opportunity Credit in the amount of $2,000 on two of her employees. Additionally, Carla claims $3,000 in Employer Credit For Paid Family and Medical Leave. Because Carla enjoys a tax benefit (the two credits) she must reduce her cash wages paid by these two credit amounts and thus, reports and deducts $45,000 in labor expense. [$50,000 - $5,000]
Farmers who pay commodity wages to their employees may deduct as wages on line 22 the fair market value of the property on the date of the transfer. The farmer must also appropriately report the commodity as income.
The Center for Agricultural Law and Taxation is a partner of the National Agricultural Law Center (NALC) at the University of Arkansas System Division of Agriculture, which serves as the nation’s leading source of agricultural and food law research and information. This material is provided as part of that partnership and is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.