Publication 51
Circular A, Agricultural Employer's Tax Guide
(Revised: 1/2003)

(Including 2003 Wage Withholding and Advance Earned Income Credit Payment Tables)

Deposit Penalties

Penalties may apply if you do not make required deposits on time, make deposits for less than the required amount, or do not use EFTPS when required. The penalties do not apply if any failure to make a proper and timely deposit was due to reasonable cause and not to willful neglect. For amounts not properly deposited or not deposited on time, the penalty rates are:

Order in which deposits are applied.   Deposits generally are applied to the most recent tax liability within the year. If you receive a failure-to-deposit penalty notice, you may designate how your payment is to be applied in order to minimize the amount of the penalty. Follow the instructions on the penalty notice you receive. For examples on how the IRS will apply deposits and more information on designating deposits, see Rev. Proc. 2001-58. You can find Rev. Proc. 2001-58 on page 579 of Internal Revenue Bulletin 2001-50 at www.irs.gov/pub/irs-irbs/irb01-50.pdf.

Example:   Cedar Inc. is required to make a deposit of $1,000 on April 15 and $1,500 on May 15. It does not make the deposit on April 15. On May 15, Cedar Inc. deposits $2,000. Under the new rule, which applies deposits to the most recent tax liability, $1,500 of the deposit is applied to the May 15 deposit and the remaining $500 is applied to the April deposit. Accordingly, $500 of the April 15 liability remains undeposited. The penalty on this underdeposit will apply as explained above.

Trust fund recovery penalty.   If income, social security, and Medicare taxes that must be withheld are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. The penalty is the full amount of the unpaid trust fund tax. This penalty may apply to you if these unpaid taxes cannot be immediately collected from the employer or business.

The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so.

A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship. A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds.

Willfully means voluntarily, consciously, and intentionally. A responsible person acts willfully if the person knows the required actions are not taking place.

Employers of Both Farm and Nonfarm Workers

If you employ both farm and nonfarm workers, you must treat employment taxes for the farmworkers (Form 943 taxes) separately from employment taxes for the nonfarm workers (Form 941 taxes). Form 943 taxes and Form 941 taxes are not combined for purposes of applying any of the deposit schedule rules.

If a deposit is due, deposit the Form 941 taxes and the Form 943 taxes with separate FTD coupons, or by making separate EFTPS deposits. For example, if you are a monthly schedule depositor for both Forms 941 and 943 taxes and your tax liability at the end of April is $1,500 reportable on Form 941 and $1,200 reportable on Form 943, deposit both amounts by May 15. Use one FTD coupon to deposit the $1,500 of Form 941 taxes and another FTD coupon to deposit the $1,200 of Form 943 taxes.

8. Form 943

You must file Form 943 for each calendar year beginning with the first year you pay $2,500 or more for farmwork or you employ a farmworker who meets the $150 test explained in section 4. Do not report these wages on Form 941.

After you file your first return, each year the IRS will send you a Form 943 preaddressed with your name, address, and EIN. If you do not receive the preaddressed form, request a blank form from the IRS. If you use a blank form, show your name and EIN exactly as they appeared on previous returns.

Household employees.   If you file Form 943 and pay wages to household workers who work on your for-profit farm, you may include the wages and taxes of these workers on Form 943. If you choose not to report these wages and taxes on Form 943, or if your household worker does not work on your for-profit farm, report the wages of these workers separately on Schedule H (Form 1040), Household Employment Taxes. If you report the wages on Form 943, include the taxes when you figure deposit requirements or make deposits. If you include household employee wages and taxes on Schedule H (Form 1040), do not include the household employee taxes when you figure deposit requirements or make Form 943 deposits. See Pub. 926, Household Employer's Tax Guide, for more information about household workers.

Penalties.   For each month or part of a month a return is not filed when required (disregarding any extensions of the filing deadline), there is a penalty of 5% of the unpaid tax due with that return. The maximum penalty is 25% of the tax due. Also, for each month or part of a month the tax is paid late (disregarding any extensions of the payment deadline), a penalty of 0.5% of the amount of unpaid tax may apply. The maximum amount of this penalty is also 25% of the tax due. If both penalties apply in any month, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty. The penalties will not be charged if you have reasonable cause for failing to file or pay. If you file or pay late, attach an explanation to your Form 943. In addition, interest accrues from the due date of the tax on any unpaid balance.

If income, social security, and Medicare taxes that must be withheld are not withheld or are not paid, you may be personally liable for the trust fund recovery penalty. See section 7.

9. Adjustments on Form 943

There are two types of adjustments: current year adjustments and prior year adjustments. See the instructions for Form 943 for more information on how to report these adjustments.

Current Year Adjustments

In certain cases, amounts reported as social security and Medicare taxes on lines 3 and 5 of Form 943 must be adjusted to arrive at your correct tax liability. The most common situation involves differences in cents totals due to rounding. Other situations when current year adjustments may be necessary include third-party sick pay, group-term life insurance for former employees, and the uncollected employee share of tax on tips. See Circular E (Pub. 15) for more information on these adjustments.

If you withhold an incorrect amount of income tax from an employee, you may adjust the amount withheld in later pay periods during the same year to compensate for the error.

Prior Year Adjustments

Generally, you can correct social security and Medicare errors on prior year Forms 943 by making an adjustment on the Form 943 for the year during which the error is discovered. The adjustment increases or decreases your tax liability for the year in which it is reported (the year the error is discovered) and is interest free. The net adjustments reported on Form 943 may include any number of corrections for one or more previous years, including both overpayments and underpayments.

You are required to provide background information and certifications supporting prior year adjustments. File with Form 943 a Form 941c, Supporting Statement To Correct Information, or attach a statement that shows all of the following:

• What the error was,
• The year in which each error was made and the amount of each error,
• The date you found each error,
• That you repaid the employee tax or received from each affected employee written consent to this refund or credit, if the entry corrects an overcollection, and
• If the entry corrects social security and Medicare taxes overcollected in an earlier year, that you received from the employee a written statement that he or she will not claim a refund or credit for the amount.

Do not file Form 941c separately. The IRS will not be able to process your adjustments without this supporting information. See the instructions for Form 941c for more information.

Income tax withholding adjustments.   You cannot adjust the amount reported as income tax withheld for a prior year return, even if you withheld the wrong amount. However, you may adjust prior year income tax withholding to correct an administrative error. An administrative error occurs if the amount you entered on Form 943 is not the amount you actually withheld. Examples include mathematical or transposition errors. In these cases, you should adjust the return to show the amount actually withheld.

The administrative error adjustment corrects only the amount reported on Form 943 to agree with the actual amount withheld from wages in that year.

You may also need to correct Forms W-2 for the prior year if they do not show the actual withholding by filing Form W-2c, Corrected Wage and Tax Statement, and Form W-3c, Transmittal of Corrected Wage and Tax Statements.

Social security and Medicare tax adjustments.   Correct prior year social security and Medicare tax errors by making an adjustment on line 8 of Form 943 for the year during which the error was discovered.

If you withheld no tax or less than the correct amount, you may correct the mistake by withholding the tax from a later payment to the same employee.

If you withheld employee tax when no tax is due or if you withheld more than the correct amount, you must repay the employee.

Filing a claim for overreported prior year liabilities.   If you discover an error on a prior year return resulting in a tax overpayment, you may file Form 843, Claim for Refund and Request for Abatement, for a refund. This form also can be used to request an abatement of an overassessment of employment taxes, interest, and/or penalties. You must file Form 941c, or an equivalent statement, with Form 843. See the separate Instructions for Form 843.

Note:   For purposes of filing Form 843, a Form 943 filed on time is considered to be filed on April 15 of the year after the close of the tax year. Generally, a claim may be filed within 3 years after that date.

Refunding amounts incorrectly withheld from employees.   If you withheld more than the right amount of income, social security, or Medicare taxes from wages paid, give the employee the excess. Any excess income tax withholding must be reimbursed to the employee before the end of the calendar year. Keep in your records the employee's written receipt showing the date and amount of the repayment. If you do not have a receipt, you must report and pay each excess amount when you file Form 943 for the year in which you withheld too much tax.

Filing corrections to Form W-2 and W-3 statements.   When adjustments are made to correct social security and Medicare taxes because of a change in the wage totals reported for a previous year, you also may need to file Forms W-2c and Form W-3c.

10. Federal Unemployment (FUTA) Tax

The Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a Federal and a state unemployment tax. Only the employer pays FUTA tax; it is not withheld from the employees' wages. For information, see the Instructions for Form 940.

For 2002, you must file Form 940 or 940-EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return, if you:

• Paid cash wages of $20,000 or more to farmworkers in any calendar quarter in 2001 or 2002 or
• Employed 10 or more farmworkers during at least some part of a day (whether or not at the same time) during any 20 or more different weeks in 2001 or 20 or more different weeks in 2002.

To determine whether you meet either test above, you must count wages paid to aliens admitted on a temporary basis to the United States to perform farmwork, also known as H-2(A) visa workers. However, wages paid to H-2(A) workers are not subject to the FUTA tax.

Generally, farmworkers supplied by a crew leader are considered employees of the farm operator for purposes of the FUTA tax unless (1) the crew leader is registered under the Migrant and Seasonal Agricultural Worker Protection Act or (2) substantially all the workers supplied by the crew leader operate or maintain tractors, harvesting or cropdusting machines, or other machines provided by the crew leader. Therefore, if (1) or (2) applies, the farmworkers are generally employees of the crew leader.

You must deposit FUTA tax with an authorized financial institution. (If you are subject to the electronic deposit requirements, you must use EFTPS. See section 7.) The deposit rules for FUTA tax are different from those for income, social security, and Medicare taxes. See Deposit rules for FUTA tax below.

FUTA tax rate.   For 2002 and 2003, the FUTA tax rate is 6.2% on the first $7,000 of cash wages you pay each employee. You may receive a credit of up to 5.4% of FUTA wages for the state unemployment tax you pay. If your state tax rate (experience rate) is less than 5.4%, you are still allowed the full 5.4% credit. Therefore, your net FUTA tax rate may be as low as 0.8% (.008). FUTA tax applies, however, even if you are exempt from state unemployment tax or your employees are ineligible for unemployment compensation benefits. Forms 940 and 940-EZ take state credits into account.

Note:   If you have acquired a business from someone else, you may be able to claim a special credit as a successor employer. See the Instructions for Form 940.

Deposit rules for FUTA tax.   Generally, deposit FUTA tax quarterly. To figure your FUTA tax, multiply .008 times the amount of wages paid to each employee during the quarter. When an employee's wages reach $7,000, do not figure any additional FUTA tax for that employee. If the FUTA tax for the quarter (plus any undeposited FUTA tax from prior quarters) is more than $100, deposit the FUTA tax with an authorized financial institution, or by using EFTPS, explained in section 7, by the last day of the month following the close of the quarter. If the amount is $100 or less, you do not have to deposit it, but you must add it to the amount of tax for the next quarter to determine whether a deposit is required for that quarter. To help ensure proper crediting to your account, write your employer identification number, Form 940, and the tax period the deposit applies to on your check or money order.

If the FUTA tax reported on Form 940 or 940-EZ minus the amounts deposited for the first three quarters is more than $100, deposit the whole amount by January 31. If the tax (minus any deposits) is $100 or less, you may either deposit the tax or pay it with the return by January 31.

Form 940 or 940-EZ.   By January 31, file Form 940 or 940-EZ. If you make deposits on time in full payment of the tax due for the year, you have 10 additional days to file.

Form 940-EZ is a simpler version of Form 940. You can generally use Form 940-EZ if:

• You pay state unemployment taxes (contributions) to only one state;
• You make the payments to the state by the due date of Form 940 or 940-EZ; and
• All wages subject to FUTA tax are also subject to state unemployment tax.

If you do not meet these conditions, file Form 940 instead.

Once you have filed a Form 940 or 940-EZ, you will receive a preaddressed form near the end of each calendar year. If you do not receive a form, request one by calling 1-800-TAX-FORM in time to receive it and file when due.

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