2012 Employment Taxes Extended
Curtis Talley, Jr.
Extension Business Management Educator
The U.S. Congress has extended the reduced social security tax rate for the rest of 2012. This will affect both the employee and employer.
Similar to 2011, the reduced withholding rate for employees is 4.2% (instead of 6.2% prior to 2011) for social security and 1.45% for Medicare. This does not change the cost to the employer as the extra 2% (6.2 – 4.2) goes to the employee’s paycheck rather than the federal government. The amount the employer contributes on behalf of the employee has remained at 7.65% (6.2% for Social Security and 1.45% for Medicare). As employers learned last year, deposits must be made by electronic funds transfer. For 2012, the maximum earnings subject to Social Security is $110,100, while there is no upper limit for Medicare taxes. Employers must also withhold federal and state income taxes and a few situations might require farmers to withhold for city (local) income taxes.
Taxable Cash and Non-cash Incomes
All cash wages become subject to social security and Medicare (SSM) taxes when the farm employee is annually paid $150 or more in cash wages or when the combination of cash and non-cash wages to all employees of a farm exceeds $2,500. However, some exceptions exist for family employees. A child under 18 working only for parents is probably exempt. Other family situations do not have exceptions. A child working for a corporation or a partnership with a partner who is not a parent is subject to SSM. A spouse who is an employee is also subject to SSM.
Non-cash wages for farm workers including food, lodging, clothing, and other goods and services are normally not subject to SSM as long as the substance of the transaction is not a cash payment. For example, if an employer owes an employee $600 and corn is $6 per bushel, paying them 100 bushels of corn is substantially a cash transaction. To give an employee 5 bushels of corn each week to take home should be taken as non-cash wage which is not subject to SSM taxes. However, non-cash wages are still subject to income tax. The value of these non-cash wages is reported on the W-2 as part of wages (box 1) but not as social security wages (box 3) or Medicare wages (box 5). If an employer requires an employee to use lodging on the farm (for example, to watch over the herd at night) then this lodging is probably not subject to either income taxes or SSM taxes.
If a farmer is not currently paying federal or Michigan unemployment tax, the $20,000 rule often causes payments to begin. If cash wages paid in any calendar quarter (January to March, April to June, July to September, October to December) exceeds $20,000 for either 2012 or 2011 then unemployment taxes are required to be paid by the employer. If annual cash wages for the farm exceeds $80,000, then at least one quarter is greater than $20,000. The federal (FUTA) rate rose to 1.7% of the first $7,000 of wages for each employee in 2011.
The rate returned to 0.8% for 2012. The Michigan Unemployment Insurance Agency (UIA) rate was increased for employers in 2012 to allow the federal rate to decrease. Employers should have received a notice in February 2012 with the new rate for the first $9,500 paid to each employee. The rate is calculated for each employer based on factors and historical use of unemployment benefits. The $9,500 for 2012 was an increase over the taxable wage base for 2011 of $9,000.
Michigan Dairy Review is published and mailed to all Michigan dairy farmers and individuals working in allied industries. With its ever increasing on-line presence, the MDR target audience has spread beyond Michigan and the U.S.; today electronic subscribers are located in places such as Australia, The Scandinavia, Italy, Mexico, Ireland, Peru, and New Zealand.
The MDR is the primary communications vehicle for research findings, extension programming, and teaching between faculty and staff in MSU dairy programs and the dairy industry. The MDR web site is paid for by the C. E. Meadows Endowment.
April 2012 Topics
Right-to-Farm: Site Selection 
Weather Provides Opportunity
Cleaning Overwinter Sites
MSU Extension Educational Sessions
Dairy Farmers' Views of Dairy Policies
When is a Milk Price a "Good" Milk Price?
2012 Employment Taxes
Detecting Mycoplasma Mastitis
Communication with Consumers
New Scholaships for Dairy Students
Dairy Students Awarded Over $95,000
Real-world Experience Via Internship