Social Security Basics for Farmers

This is part one of a four-part series on Social Security. This series is based on information from the Social Security Administration and reviewed by Robert Simons from the Escanaba Social Security office.

Many farmers think of Social Security strictly in terms of retirement, unaware of the benefits available in situations of accidental sudden death or a long-term medical disability. The majority of farmers won’t have to take advantage of the disability or survivor portions of Social Security benefits, but all can profit from knowing exactly what the benefits are and considering them, along with other personal retirement resources, in planning for the future.

Let’s start by looking at how much farmers or anyone pays into the Social Security system. Your Social Security contributions basically consist of Federal Insurance Contributions Act (FICA) taxes, which earners pay the government in exchange for financial assistance in retirement and disability, survivor and Medicare benefits.

Most full-time farmers are self-employed and would pay FICA taxes amounting to 13.3% of earnings. Of that 13.3%, the Social Security portion is 10.4%. The remaining 2.9% is for Medicare. The Social Security portion is paid on earnings up to $106,800 for 2011. There is no limit on the Medicare portion. The 10.4% rate is only for 2011.

If you’re a farm employee and receive a W-2 form each year, for 2011 you pay 5.65% of your salary in FICA taxes. Your employer contributes 7.65% up to the maximum earnings limit of $106,800 in 2011.

If you earn more than $106,800 in 2011, you still pay Medicare taxes of 1.45% on all your earnings. But you don’t pay the 5.65% portion on any earnings beyond $106,800. Remember, however, that the maximum earnings limit goes up each year. Also the 5.65% rate is only for 2011.

If you’re considered contract labor and receive a 1099 at the end of the year, or if you’re self-employed as are most farmers, then you must pay the entire amount yourself. That amounts to 13.3% of your net self-employment income up to the $106,800 earnings limit. You also pay 2.90% (1.45% x 2) for Medicare on all earnings over the limit.

The reason for the larger amount for self-employed workers is that you’re responsible for the entire amount since you have no employer to match your contribution.

In the next part of this series, I will discuss your social security statement. For more information, log on to www.socialsecurity.gov or contact your local Social Security office.

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