Mismatching information is one of the most common errors for which an employer will receive a notice from the IRS. This is because the IRS will send a letter out for just about anything that doesn’t match up. So, what can we do to prevent such letters from being sent? One of the easiest ways is to be sure you collect all the necessary paperwork from your employee upon hiring them and making sure you have all of it before the employee begins work or receives a pay check.
All employers, including farmers, are required to collect certain forms from each employee or independent contractor they hire. This begs the question as to what the difference is between an employee and an independent contractor. Generally, farm hands are your employees, and not independent contractors. This is because of the amount of control you have over them. Typically, you control the following:
- Hours worked
- Duties performed
- Where they work
- The ability to let them go at any time
Now that we have established that fact that you probably have an employee, let’s cover what paperwork you should be collecting from each employee.
- Each employee should fill out a W-4. This will provide you with the information you need such as the employee’s name, if the employee is married or single, how many dependents they claim, their address, and their social security number.
- Obtain a copy of their Social Security Card. This will help alleviate errors, in case the number was written down incorrectly, or you are unable to read one of the numbers on the form. It also shows the real name of the employee. For instance, an employee may write his name as Jack Smith, but the name on his social security card is John Smith, and Jack is just his nickname. His wages should be paid and reported on his W-2 under his legal name to prevent the mismatch letters from being sent by the IRS. The social security card also allows you to know of name changes that may happen when an individual gets married or divorced. An employee may fill out the W-4 with her new married name but has not changed her name with the social security administration and, therefore, her social security card still shows her previous name. If this is the case, you must report the employee’s wages under the previous name, until they provide you with a new social security card.
- Form I-9, Employment Eligibility Verification form, must also be filled out by the employee and retained by the employer. This document should be kept in a separate folder that only contains I-9s. Along with the I-9 document, you are required to have acceptable documents from the lists provided on the I-9. The employee can provide you with one document from list A, such as a passport, or they must provide one document from list B and one document from list C, such as a driver’s license and a social security card.
- You should never accept an IRS individual taxpayer identification number (ITINS) for aliens in place of a social security number (SSN). You can identify an ITIN because it’s a nine-digit number, formatted like an SSN, but it starts with the number “9” and has a range of numbers from “50–65,” “70–88,” “90–92,” and “94–99” for the fourth and fifth digits (for example, 9NN-7N-NNNN). An individual who is eligible to work in the United States will have a SSN.
The IRS may request to review these forms. If they do, you must make the original form available for inspection by an IRS employee and, if requested, you may be required to send copies of certain forms to the IRS. If you are unsure of where to obtain these forms for your employees, please feel free to contact us, and we can assist you with this and any questions you may have on farm taxes.
*Disclaimer – Descriptions provided in this article are presented as generalities. There are many factors not listed above which may impact your tax position. This article should not be considered legal or tax advice. For advice on a specific transaction, please contact the AgriSolutions Tax department at firstname.lastname@example.org .