Federal laws and regulations are not linked in every case on this page.  However, if you wish to conduct further research on a particular employment tax topic, you can find federal laws governing employment taxation here, and employment tax regulations here.

If You Have Employees

You must register your business with the Illinois Department of Employment Security within 30 days of starting your direct farm business if you hire any employees.  This includes corporate officers.  You can do this electronically or by form. 

If you have employees, you are responsible for collecting and paying federal and state employment taxes.  Federal employment taxes include the Federal Income Tax, Social Security/Medicare (FICA) Taxes, and the Federal Unemployment Tax.  State employment taxes include the state income tax and unemployment insurance tax.

Income Taxes

Employers must withhold federal income tax from your employees wages.  The IRS Publishes The Agricultural Employer's Tax Guide (Publication 51), which gives instructions on the intricacies of withholding federal taxes from employees' wages.  If you withhold federal income taxes, you most likely will withhold Illinois state income taxes.  The Illinois Department of Revenue publishes some guides on state income tax withholding by employers, including Publication 130 (Who Is Required to Withhold Illinois Income Tax) and Publication 131 (Withholding Income Tax Filing and Payment Requirements).  The Illinois withholding forms can be found here.

Social Security and Medicare Taxes

Social Security and Medicare taxes pay for benefits your employees receive when they retire.  These taxes are otherwise known as Federal Insurance Contributions Act taxes, or "FICA" taxes.  Social Security and Medicare taxes have different rates, and the Social Security Tax has a wage base cap--a maximum limit on the wages subject to the Social Security tax.  The employee pays the tax from his/her wages, and you as the employer make a matching payment.  The IRS's Agricultural Employer's Tax Guide (Publication 51), and the Employer's Tax Guide (Publication 15) explain FICA taxes in more detail.

Form 943 is used to file income taxes and FICA taxes withheld for farm workers.  Some exemptions from payment apply, which are detailed in the instructions for form 943.  These taxes are deposited on a weekly or monthly basis, depending on the total taxes reported for a lookback period (2 years prior to the current year, e.g., the lookback period for 2007 is 2005).

Unemployment Insurance Taxes

Unemployment taxes are excise taxes imposed on every employer that has employees.  An employer must pay both federal and state unemployment insurance taxes.  If you pay Illinois unemployment taxes, you can receive credit for some of the federal unemployment tax paid.  The Federal Unemployment Tax Act and the Illinois Unemployment Insurance Act govern whether agricultural operations must pay an unemployment insurance tax on cash wages paid to its employees. 

An agricultural operation is considered an employer subject to the Acts' requirements if:  (a) during any calendar quarter in the calendar year or preceding calendar year paid wages of $20,000 or more for agricultural labor, or (b) the farmer employs 10 or more individual employees for some portion of a day during each of 20 different calendar weeks (see 26 U.S.C. § 3306(c)(5); 820 ILCS § 405/211.4(1)).

The Illinois Department of Employment Security has published Fast Facts For Employers, including a section on unemployment insurance.

The federal tax rate is 6% for the years 2008 and after (26 U.S.C. § 3301(2)).  Federal unemployment taxes are explained on page 79 of the Farmer's Tax Guide (Publication 225).  How the rate for Illinois businesses is determined can be found in the Fast Facts guide. 

If You Are Self-Employed

The self-employment tax is a Social Security and Medicare tax paid by persons who work for themselves.  If you are carrying on the direct farm business as a sole proprietor, member of a partnership, or are otherwise in business for yourself (e.g., operating your own farm), you are considered "self-employed."   Page 71 of the IRS's Farmer's Tax Guide (Publication 225) details the self-employment tax.  You must pay self-employment tax if your earnings are $400 or more.  The self-employment tax rate for 2007 is 15.7%.  Income subject to the Social Security Tax is capped, and 50% of the self-employment tax due is deductible from total income on Form 1040.  Self-employment taxes are reported on Schedule SE.

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