Farm Payroll and Employment Taxes

• payroll
• employment
• labor

Is your worker an employee or a contractor?

The label does not decide it. The IRS and state agencies look at how much control you have over how, when and where the work is done, and the nature of the relationship. Mislabeling an employee as a contractor can lead to back taxes and penalties.

Check IRS guidance on worker classification, and ask an attorney or CPA if you are unsure.

If you use a labor contractor or a staffing company, ask who is the employer for tax and insurance purposes, and what happens if the contractor does not pay taxes properly. Employers can still have responsibility.

• How much control do you have over the work?
• Does the worker use their own tools and set their own schedule?
• Does the worker offer services to others?
• What do IRS and state tests say?

What taxes and duties come with employees?

Employers generally withhold income tax and the employee share of Social Security and Medicare, then pay the employer share and report wages. Unemployment tax rules can also apply. Farm employment has special thresholds and rules, which the IRS describes in its agricultural employer guidance and in Publication 51.

No numbers are given here. Check the current IRS and state pages, because rates and thresholds change.

Look at the Department of Labor and your state labor agency for farm-specific wage, housing and safety rules, since they differ by state and by size of operation.

• Withholding and employer taxes
• Unemployment insurance rules
• Workers' compensation, which varies by state
• Wage and hour rules for farm labor

What forms and records do you need?

Expect to collect a withholding form and eligibility verification from each employee, get an employer identification number, deposit taxes on schedule, file periodic returns and give workers year-end wage statements.

Keep payroll records, time records and copies of filings. Software or a payroll service can reduce errors. Ask your CPA what they recommend.

Keep payroll files in a secure place and limit who can see them, since they contain personal and tax information.

What about family members and seasonal help?

Special rules can apply to employing your children, spouse or parent, and to seasonal and temporary workers, including some workers on H-2A visas. These are technical areas. Get professional advice before assuming that a family worker is exempt from anything.

Child labor rules on farms are specific as well. Check Department of Labor guidance before assigning work to young people.

Consider asking your CPA or a payroll service to set up your first quarter, then take over yourself if you are comfortable. Mistakes in the first filings can be hard to untangle.

How do you stay compliant without getting overwhelmed?

Set up a payroll routine early. Use a separate payroll account, calendar your deposit and filing dates, and review your process each year. Use a payroll service if the time is better spent elsewhere.

Be wary of paying cash off the books. It may feel easier, but it exposes the farm to penalties and leaves workers without protection.

Remember to issue year-end wage statements to workers and file the matching reports by the deadlines stated by the IRS and your state.

What mistakes are most common?

Misclassifying workers, missing deposit deadlines, failing to carry workers' compensation where required, incomplete records and not asking for help are common. Another is assuming the rules are the same as last year without checking.

Review this with your CPA and an attorney familiar with agricultural employment, and contact your state labor and revenue agencies with questions.

Keep records of hours, pay and deductions for each person for the time your CPA advises.

What should you tell new workers and put in writing?

Even for a short season, give each worker a written offer that states pay rate, pay dates, expected hours, duties and any housing, meals or transportation arrangements. Explain how time is recorded and how pay is calculated.

Include safety rules and training, how to report injuries and who to call with questions. Keep a signed copy. Good communication up front prevents misunderstandings and many disputes over pay later.

Housing, meals and equipment provided to workers may have tax and wage effects, so ask your CPA or attorney how to treat them.

• Pay rate, schedule and pay dates
• Duties and expected hours
• Housing or meals, if provided
• Safety rules and injury reporting

Last reviewed: November 12, 2026. Written by the Farm Money & Grants Editorial Team. Educational only, not tax, legal or financial advice. See our editorial policy.