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Who is an Ag employee?

Are You Classifying Your Employees Correctly?

Alicia Marcy, Farm Tax Specialist

The tax and filing requirements for employers of Agricultural (Ag) and Non-Agricultural (Non-Ag) employees differ significantly. Accurately classifying employees will ensure that an employer correctly satisfies those obligations.

Who is an Ag employee?

The IRS defines an Ag employee as a worker that performs any one of the following activities on a farm:

  • Raises or harvests agricultural or horticultural products;
  • Operates, manages, conserves, improves, or maintains farm tools and equipment;
  • Handles, processes, or packages any agricultural or horticultural commodity in its unmanufactured state, such as a dairy producer that sells raw milk, or selling maple sap.

Who is a Non-Ag employee?

  • Any employee not meeting the definition above, such as workers involved in:
    • Resale activities. Including the resale of agricultural of horticultural products;
    • Processing services that change a commodity from its raw or natural state, such as turning milk into cheese or maple sap into syrup.

Why is it important to know the difference?

Incorrectly classifying employees can result in costly penalties and interest if Non-Ag wages are incorrectly identified as Ag wages for the following reasons:

  • Non-Ag wages must be reported quarterly on form 941 to the IRS, not annually on Form 943. The failure to report Non-Ag wages in a timely manner will result in stiff penalties from the IRS
  • In most cases, employees classified as Non-Ag are eligible for overtime for any hours they work in excess of 40 hours per week while Ag employees are exempted from overtime rules.
  • The threshold for Federal and State Unemployment taxes (FUTA and SUTA) is much smaller for Non-Ag wages than Ag wages; ≥ $1,000 in gross wages in any quarter vs ≥ $20,000 in gross wages in any quarter. Referring to the incorrect threshold can result in penalties for failing to file and failing to pay the tax due. Penalties in this area can be severe and will add up quickly.

For more information about the classification of Ag vs. Non-Ag Employees or Federal and State Unemployment requirements, please contact your local Financial Services  Representative.

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