Jan 13, 2020NCAE Column: If you’re using H-2A, pay attention to the details
I guess you have never really heard it all.
A couple of months back, I wrote an article describing some of the frustrations farmers and ranchers experience when faced with government bureaucracy. It seems as if the bureaucracy is sometimes disconnected from the real world. That article discussed the concept of what “harvesting a crop” might mean.
Is the harvest of a crop complete when the wheat is separated from the chaff in the field, the corn is shelled, the apple is picked from the tree in the orchard or when the melon is plucked from its vine? Most of us involved in agriculture would likely say no.
If the wheat or corn is still sitting in the combine, or the apple is still in someone’s hand in the orchard or the melon is lying in the field, has it been harvested? Or, instead, is the fruit of the farmer’s or rancher’s nurture and care laid to waste, absent its transport to the elevator, the granary, or the packing shed? Most folks quickly recognize that harvest doesn’t begin and end with the separation of the crop from its stalk, its tree or its vine.
On Oct. 23, 2019, the U.S. Department of Labor (DOL) published a series of frequently asked questions (FAQs) looking at the H-2A definition of agricultural labor or services. The DOL cites the Internal Revenue Code (IRC) and the Fair Labor Standards Act (FLSA) in the FAQS for determination what constitutes “agricultural labor or services” for purposes of the H-2A program.
The publication of these FAQs follows a number of administrative law judge rulings issued earlier this year. These rulings found, that although such H-2A job orders had been approved in previous years (in one case, approvals had been made for 19 prior consecutive years), that the employees of an H-2A labor contractor engaged in hauling crops from the orchard or the field to another location were not performing agricultural labor or services under either the IRC or FLSA definitions and, therefore, not eligible to employ H-2A workers. The FAQs expand on this new interpretation and potentially restrict an H-2A labor contractor’s ability to drive between farms.
Think about that.
I am a recovering CPA and have prepared hundreds of farm and ranch income tax returns over the years. I have taken hundreds of hours of professional continuing education in this area. Nowhere have I read in any IRS publication or heard in any continuing education lecture, that hiring of a farm labor contractor to perform certain tasks on a farm or for a farmer, would not qualify as agricultural services. In fact, the costs of such contracted services are deducted properly on the farmer’s or rancher’s income tax return.
The Internal Revenue Service annually publishes Publication 225 Farmers’ Tax Guide. The Guide for 2019 notes the following (emphasis added):
You can deduct reasonable wages paid for regular farm labor, piecework, contract labor and other forms of labor hired to perform your farming operations. You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. The cost of boarding farm labor is a deductible labor cost. Other deductible costs you incur for farm labor include health insurance, workers’ compensation insurance, and other benefits.
If you must withhold Social Security, Medicare and income taxes from your employees’ cash wages, you can still deduct the full amount of wages before withholding. See Chapter 13 for more information on Employment Taxes. Also, deduct the employer’s share of the Social Security and Medicare taxes you must pay on your employees’ wages as a farm business expense on Schedule F, line 29. See Taxes, later.”
The reason I write about this topic once again, is that I know with the continuing farm labor shortages endemic in the U.S., that many farmers and ranchers might be wondering what they might need to do for next year.
Unfortunately, I will have to suggest that if you are planning on trying to use the H-2A program to assist your operation that you 1) consult with an attorney expert in H-2A and, 2) consider giving your members of Congress a call in both their district and D.C. offices.
I guess you have never really heard it all.
— Michael Marsh, president & CEO, National Council of Agricultural Employers