Social Security: 6 Things Farmers and Ranchers Need To Know
Farming is a job you rarely retire from completely, even when you’re long past retirement age and have already started collecting Social Security. This presents some unique challenges for farmers and ranchers in terms of what counts as earnings and how they might impact your Social Security benefits and income taxes.
Those challenges don’t only include the fact that many farmers and ranchers keep earning outside income after they have filed for Social Security benefits. It also involves the type of income. For example, some farmers and ranchers earn wages “in kind” rather than in cash, meaning they are paid in crops or livestock. Many also earn rental income from renting out part of their land, or they earn income at other jobs.
Here are six things that farmers and ranchers need to know when it comes to Social Security.
Social Security Benefits are Taxable
You will pay federal tax on no more than 85% of your Social Security benefits, as GOBankingRates recently reported. This is based on your combined income, which is the total of your adjusted gross income (including farm income), nontaxable interest and one half of your Social Security benefits. Here’s a quick breakdown of how it applies to federal taxes:
- If you file a federal tax return as an individual and your combined annual income is between $25,000 and $34,000, you might have to pay income tax on up to 50% of your benefits. If your income is more than $34,000, up to 85% of your benefits may be taxable.
- If you file a joint return and you and your spouse have a combined income of between $32,000 and $44,000, you might have to pay income tax on up to 50% of your benefits. If you earn more than $44,000, up to 85% of your benefits may be taxable.
Wages in Kind Count as Earnings
Wages paid in kind rather than in cash count toward the Social Security earnings limitations test, according to a publication from Kansas State University’s Department of Agricultural Economics Extension. The earnings limit test includes all earnings you receive — not just those that are subject to Social Security and Medicare tax.
Federal Farm Program Payments Not Considered Earnings
Federal farm program payments, such as those from the USDA’s Farm Service Agency, are not deemed to be “earnings” when calculating each calendar year’s earnings limitation. The only exception is for the initial year of Social Security benefit application. In that year, all FSA payments are counted along with other earned income and earnings for purposes of the annual earnings limitation test.
Off-Farm Income Is Taxable
If you have off-farm income, whether self-employed or as a paid employee of a company, you’ll pay Social Security taxes on those wages, according to Iowa State University Extension and Outreach. If you are employed by a company, the tax will be deducted from your paycheck. If you are self-employed, you are responsible for paying the tax yourself — and it will be twice that of the tax paid by a wage or salary earner because you must pay both the employee and employer parts.
Farm Rental Income Counts as Earnings
Renting farmland, whether for cash or under a crop-sharing plan, can be counted as income for Social Security purposes if you have an active role in the production or management of the crop or livestock. These activities are called “material participation.”
Also, if you “cash rent” farm ground to an employer, the cash rental income will likely be treated as earnings even if you are getting a wage from the employer. This is especially true if the ground is being farmed on the employer’s behalf.
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CRP Payments Are Not Subject to Taxes
For farmers and ranchers who receive Social Security benefits, Conservation Reserve Program payments are not subject to Social Security tax. This is the case whether or not you are retired.
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