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Taxmap/pubs/p51-003.htm#TXMP0ef348e9 4. Social Security and Medicare Taxes

Medicare Tax

Generally, you must withhold social security and Medicare taxes on all cash wage payments that you make to your employees.

Taxmap/pubs/p51-003.htm#TXMP2c182133 The $150 Test or the $2,500 Test

All cash wages that you pay to an employee during the year for farmwork are subject to social security and Medicare taxes and federal income tax withholding if either of the two tests below is met.

• You pay cash wages to an employee of $150 or more in a year for farmwork (count all cash wages paid on a time, piecework, or other basis). The $150 test applies separately to each farmworker that you employ. If you employ a family of workers, each member is treated separately. Do not count wages paid by other employers.
• The total that you pay for farmwork (cash and noncash) to all your employees is $2,500 or more during the year.

Taxmap/pubs/p51-003.htm#TXMP22460746 Exceptions.

The $150 and $2,500 tests do not apply wages that you pay to a farmworker who receives less than $150 in annual cash wages and the wages are not subject to social security and Medicare taxes, or federal income tax withholding, even if you pay $2,500 or more in that year to all of your farmworkers if the farmworker:

• Is employed in agriculture as a hand-harvest laborer,
• Is paid piece rates in an operation that is usually paid on a piece-rate basis in the region of employment,
• Commutes daily from his or her home to the farm, and
• Had been employed in agriculture less than 13 weeks in the preceding calendar year.

Amounts that you pay to these seasonal farmworkers, however, count toward the $2,500-or-more test to determine whether wages that you pay to other farmworkers are subject to social security and Medicare taxes.

Taxmap/pubs/p51-003.htm#TXMP10f9632c Social Security and Medicare Tax Rates

Social Security and Medicare Tax Rates

For wages paid in 2005 the social security tax rate is 6.2%, for both the employee and employer, on the first $90,000 paid to each employee. You must withhold at this rate from each employee and pay a matching amount.

The Medicare tax rate is 1.45% each for the employer and the employee on all wages. You must withhold at this rate from each employee and pay a matching amount.

Taxmap/pubs/p51-003.htm#TXMP7f72aa83 Employee share paid by employer.

If you would rather pay the employee's share of the social security and Medicare taxes without withholding them from his or her wages, you may do so. If you do not withhold the taxes, however, you must still pay them. Any employee social security and Medicare taxes that you pay is additional income to the employee. Include it in the employee's Form W-2, box 1, but do not count it as social security and Medicare wages, boxes 3 and 5. Also, do not count the additional income as wages for FUTA tax purposes.

Social security and Medicare taxes apply to most payments of sick pay, including payments made by third parties such as insurance companies. For details, see  
Publication 15-A.

Previous Page:  Publication 51 - Circular A, Agricultural Employer's Tax Guide - 3. Taxable Wages Next Page:  Publication 51 - Circular A, Agricultural Employer's Tax Guide - 5. Income Tax Withholding Use     to find additional instances of index items.