Do Farmers Have to Pay Into Social Security?

Farmers who operate their own businesses are required to pay into Social Security through the self-employment tax. This tax covers both Social Security and Medicare obligations. Unlike traditional employees, self-employed farmers are responsible for calculating and remitting these taxes themselves. This system ensures farmers contribute to these federal programs and can receive benefits in retirement or in the event of disability.

Determining Net Earnings from Farming

To determine their Social Security obligation, a farmer must first calculate their net earnings. The calculation begins with the farm’s gross income, which includes all revenue from agricultural activities. This encompasses proceeds from selling livestock, crops, and produce. It also includes government farm program payments, income from a farming cooperative, and crop insurance proceeds.

From this gross income, a farmer subtracts all ordinary and necessary farm business expenses. Common deductible expenses include the cost of feed, seed, fertilizer, and fuel. Other examples are insurance premiums, interest on farm-related loans, and wages paid to farm labor.

The calculation of income minus expenses is documented on IRS Schedule F, “Profit or Loss From Farming,” which is attached to the farmer’s annual Form 1040 tax return. The net farm profit or loss shown on Schedule F is the figure used to calculate the self-employment tax.

Calculating Self-Employment Tax

Once net earnings are determined, the self-employment tax is calculated. The tax rate is 15.3%, which breaks down into 12.4% for Social Security and 2.9% for Medicare. This combined rate reflects that a self-employed individual pays both the employee and employer portions of these taxes.

The tax is not applied to the entire net earnings from farming, but rather on 92.35% of that amount. This adjustment accounts for the deduction employers get for their share of FICA taxes. For example, if a farmer has net earnings of $50,000, the self-employment tax would be calculated on $46,175.

There is an annual limit on earnings subject to the Social Security portion of the tax. For 2025, this wage base limit is $176,100, and earnings above this amount are not subject to the 12.4% Social Security tax. The 2.9% Medicare tax applies to all net earnings without a limit. This calculation is performed on Schedule SE, “Self-Employment Tax,” which is filed with the Form 1040.

Optional Methods for Farmers

The tax code provides optional methods for calculating net earnings, which can be beneficial for farmers. These methods allow farmers to gain credits for Social Security and Medicare coverage during years of low profit or a net loss. Earning these credits is necessary to qualify for Social Security benefits in the future.

The farm optional method can be used if a farmer’s gross farm income or net farm profits are below certain amounts. For 2025, a farmer can use this method if their gross farm income is $10,860 or less, or if net farm profits are less than $7,840. If gross farm income is $10,860 or less, the farmer can report two-thirds of that gross income as net earnings. If gross income is more than $10,860 but net earnings are less than $7,840, they can report $7,240 as net earnings.

For a farmer with a net loss, the regular method results in no self-employment tax paid and no credits earned toward Social Security. Using the optional method allows them to report a predetermined amount of earnings, pay the tax, and earn up to four credits for the year. There is no limit to the number of years a farmer can use the farm optional method.

Reporting and Paying the Tax

The total self-employment tax from Schedule SE is transferred to Schedule 2 of Form 1040. Farmers can also deduct one-half of their self-employment tax from their gross income on Schedule 1 of Form 1040. This deduction lowers their overall income tax liability.

Special rules for paying estimated taxes exist due to the unpredictable nature of farm income. To avoid underpayment penalties, qualified farmers, who receive at least two-thirds of their gross income from farming, have two options. They can make a single estimated tax payment by January 15 of the following year or file their complete tax return and pay the full amount by March 1.

The March 1 deadline provides farmers more time to determine their income before paying their tax, unlike the standard April 15 date. If the March 1 deadline is missed and the January 15 estimated payment was not made, an underpayment penalty may be assessed. This penalty is calculated using Form 2210-F, “Underpayment of Estimated Tax by Farmers and Fishermen.”

Special Considerations for Farm Employment

When farmers hire workers, they must withhold Federal Insurance Contributions Act (FICA) taxes from their employees’ cash wages if certain thresholds are met. FICA taxes must be withheld if a farmer pays a single employee $150 or more in a year. This is also required if the total payroll for all farmworkers is $2,500 or more for the year.

Unique rules apply to family members working on the farm. For a farm operated as a sole proprietorship, wages paid to the farmer’s child under 18 are not subject to FICA taxes. Wages paid to a child under 21 are not subject to Federal Unemployment Tax Act (FUTA) tax. Payments for a spouse’s services are subject to FICA taxes but exempt from FUTA tax.

If the farm is a corporation or a partnership, these exemptions for children do not apply unless each partner is the child’s parent. In those cases, wages paid to a child are subject to FICA and FUTA taxes regardless of age.