Schedule J

Farm Income Averaging

Farmers (and fishermen) may elect to compute their tax by averaging their farm income over three years.

Tax for a year that an election is made will equal the sum of: 

(1)Tax computed on current-year taxable income not including any elected farm income plus 

(2)Increase in tax if taxable income for each of three prior tax years was increased by 1/3 of current-year elected farm income.

Election is available to 

(1)Individuals engaged in a farming business, including a sole proprietor, partner or shareholder of an S corporation and 

(2)Individuals engaged in a fishing business.

Agricultural Labor

1)Noncash payments – Noncash payments for agricultural labor are exempt from FICA and FUTA taxes.  Income tax is withheld only if both the employer and the employee agree to do so.

2)Small cash payments – Annual cash payments of less than $150 per worker for agricultural labor are exempt from FICA tax unless the employer pays more than $2,500 to all employees.  For payments to seasonal workers, the $2,500 test does not apply.  However, those wages are counted toward the $2,500 limit to see if FICA taxes apply to other workers.