Circular A

What Is Circular A?

Circular A, Agricultural Employer's Tax Guide, is a document published by the IRS that provides guidelines for farm employers’ federal tax responsibilities. These are different from those of regular employers, who would use Circular E, Employer’s Tax Guide.

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Agricultural Employer's Tax Guide Overview

Circular A includes basic IRS rules for withholding and depositing taxes and filing the necessary forms. The Agricultural Employer’s Tax Guide breaks down the most recent updates to the document at the beginning, making it easy for farm employers to take note, and covers several key topics, including:

Taxpayer Identification Numbers (TINs)

This section reviews the importance of having the appropriate taxpayer ID numbers for your agricultural business. An employer ID number (EIN) is required to withhold taxes. This is different from a Social Security number (SSN), which business owners need to get from their employees.

Employee Wages and Compensation

Circular A breaks down how to handle cash wages and non-cash payments to employees, share farmers, household employees, and family members. This section addresses which types of compensation are subject to tax withholding and which aren’t.

Tax Withholding

Agricultural employers are typically required to withhold Social Security, Medicare, and federal income taxes, as well as federal and state unemployment taxes (FUTA and SUTA). These sections in the guide cover the specifics with examples to show employers how special rules may apply in certain cases.

Earned Income Credit (EIC) Notice for Employees

Farm employers must notify employees about the Earned Income Credit (EIC). This part in Circular A details who should receive notice and how to meet this requirement. For example, employees who have no federal income tax withheld must be notified.

How to Deposit Taxes

This section of the guide goes over how and when to deposit taxes for a farm business. It reviews monthly and semiweekly deposit schedules, what to do if a due date falls on a legal holiday, tax penalties, and other essential information.

How to Complete IRS Form 943

Employers must file Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, each calendar year. In this section, Circular A covers when to submit this form, what penalties apply, and how to report current and previous year adjustments.

Reconciling Wage Reporting Discrepancies

Circular A lets employers know what to do if discrepancies arise between Form 943 and Forms W-2 and W-3. It also provides tips on how to reduce common discrepancies and ensure accurate recordkeeping.

What Items Are Tax Exempt for Farmers?

Farmers are exempt from paying state and local sales taxes on certain items. Laws vary by state, but this typically includes equipment and supplies directly related to an agribusiness, such as:

Additionally, farms may be eligible for special tax credits under state law. For instance, NY farmers can claim school property and investment tax credits, among other benefits. Agricultural employers should consult their state’s regulations to see what they qualify for and take full advantage of the farming benefits available in their area.

What Are Tax-Deductible Farm Expenses?

According to IRS Publication 225, Farmer’s Tax Guide (a helpful resource for agricultural employers listed in Circular A), only necessary farm expenses are tax deductible. A deduction is an expense you can subtract from your gross income on your return, effectively lowering the amount of total taxes owed to the government. Not every expense counts and the list varies, but agribusinesses generally have a variety of options. Typical tax-deductible expenses for farmers include:

For further reference, common expenses are also listed on Schedule F, (Form 1040), Profit or Loss From Farming.

Tax Help for Agricultural Employers

Agricultural employers can learn additional information about tax reporting and other insights using the last chapter in Circular A: How to Get Tax Help. This section links to several helpful resources, such as:

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