written by: ciel s cantoria•edited by: Linda Richter•updated: 5/25/2011
Many agricultural employers ask about recent federal reforms implemented for the employment of H-2A workers, while some others ask, "Do H-2A temporary workers pay taxes?" This article provides answers to the latter question, as it presents the IRS conditions for tax exemption of H-2A farm workers.
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Tax Exemption of Farm Workers under H2A Hiring Program
Most agricultural employers who are into hiring seasonal migrant workers under an approved H-2A program are seeking answers to the question---“Do H-2A temporary workers pay taxes?" The detailed answers to this can be found in the IRS’s website under the publication title “Foreign Agricultural Workers – Withholding Tax Requirement."
As a general rule, agricultural workers hired under the H-2A program are exempt from withholding taxes because they are working under the condition that their jobs are temporary or only for a season, which should be limited to less than one year. Hence their compensation is not considered as “wages" and is thus exempt under the IRS withholding tax system. In addition, H-2As are likewise exempt from paying US Social Security and Medicare taxes.
However, the exemption is not that simple since there are certain compliance requirements that the temporary H-2A agricultural worker must meet in order to qualify for withholding tax exclusion.
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Submission of Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)
The H-2A employees are required to submit their SSN or ITIN to their agricultural employers in order to be considered exempt from withholding tax as well as Social Security and Medicare taxes.
Non-resident aliens who are not eligible for SSN issuance can instead apply with the IRS for an ITIN using Form W-7, which is the prescribed form for ITIN application.
H-2A agricultural employees whose wages for the entire tax year may possibly amount to $600 or more should have their SSN or ITIN submitted to their employers. Neglect or willful refusal to do so will subject the said wages to backup withholding taxes which will continue until the H-2A worker submits the required ITIN. (See the separate section for procedures on backup withholding tax).
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Reporting of Wages Paid to H-2A Agricultural Workers
All wages paid to H-2A foreign agricultural workers amounting to $600 or more per H-2A during the tax year should be reported to the IRS by using the form 1099-MISC. These wages shall be indicated under Block 3 as Other Income.
Readers may view a sample of the 1099-MISC form, here; however, this online version cannot be downloaded or reprinted. Instead, the official scannable IRS 1099-MISC form may be requested and will be subsequently mailed to the requesting taxpayer.
The use of a non-scannable IRS form for filing tax information returns is subject to a $50 penalty for every return filed.
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H-2A Farm Worker’s Income Tax Filing Requirements
As a non-resident alien, the agricultural employee who works seasonally during the tax year under an approved H-2A hiring program, but whose wages for the tax year aggregated to more than his allowed personal exemption of $3,650, is required to file information about his wages using IRS Form 1040NR or Form 1040NR-EZ. This is regardless whether some portions of the aggregate wages received during the tax were received under a tax-exempt program or treaty.
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Procedures for Backup Withholding Taxes
If you're asking, “Do H-2A temporary workers pay taxes?" --The answer would be yes, if the said worker does not submit a valid SSN or ITIN to his employer, since the latter is required to furnish the IRS with such information.
Wages paid to non-resident aliens who have not submitted their ITIN, or whose submitted ITINs are incorrect, are subject to a 28% backup withholding tax until such time that a valid ITIN may be provided to the IRS. This information is required when submitting the 1099-MISC form for backup taxes withheld against the wages of H-2A temporary workers, regardless of the non-resident alien’s hiring status as an H-2A worker.
Employers, on the other hand, are required to send a solicitation request to the non-resident alien on two occasions. The first would be before any transaction begins or as soon as an official notice has been received from the IRS about a defective or erroneous ITIN; the second notice should be sent on or before December 31 of the tax year.
The sending of the solicitation notices will protect the employer against any penalty for submitting a 1099-MISC that is lacking in information or containing an erroneous TIN.
Backup withholding taxes are remitted or deposited to the IRS account just like any of the regular taxes withheld from the regular payroll.
The H-2A employer who deducted backup withholding tax on wages reported via the 1099-MISC form shall likewise accomplish and file IRS Form 945 in the month of January, succeeding the tax year. The said form provides the IRS with information about all federal income taxes withheld and deposited by the employer or business entity during the tax year, including those withheld as backup taxes.
Do H-2A temporary workers pay taxes? All the information herein is provided to answer that question but should not be misconstrued as legal or professional advice. Readers who may be interested in the latest regulations for H-2A hiring programs may proceed to a related article entitled Employment of H-2a Workers: The Basics.
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Reference Materials and Image Credit Section:
Alien Liability for Social Security and Medicare Taxes of Foreign Teachers, Foreign Researchers, and Other Foreign Professionals -- http://www.irs.gov/businesses/small/international/article/0,,id=188413,00.html
Frequently Asked Questions about Backup Withholding -- http://www.irs.gov/efile/article/0,,id=98145,00.html