EFFECTIVE/PUBLICATION DATE: 08/07/95
SSR 95-3p: POLICY INTERPRETATION RULING
TITLE II: TRANSACTIONS
INVOLVING NONCASH TRANSFERS FOR AGRICULTURAL LABOR
PURPOSE: This Ruling explains when certain transactions involving
noncash transfers for agricultural labor may be considered wages under
section 209(a) of the Social Security Act. The purpose of this Ruling is
to provide that the treatment afforded by the Social Security
Administration (SSA) of such transactions will be the same as the
treatment afforded by the Internal Revenue Service (IRS).
CITATION (AUTHORITY): Sections 209(a), 210(f), and 210(j)(2) of the
Social Security Act (the Act); Regulations No. 4, sections 404.1005,
404.1007, 404.1010, 404.1016, 404.1017, 404.1041(e), 404.1055, 404.1056,
404.1068(c), and 404.1074.
BACKGROUND: Section 209(a)(7)(A) of the Act and section
3121(a)(8)(A) of the Internal Revenue Code (IRC) provide that, for
purposes of Social Security coverage and Federal Insurance Contributions
Act (FICA) taxation, respectively, the term "wages" does not include
"remuneration paid in any medium other than cash for agricultural labor"
(as defined in section 210(f) of the Act and section 3121(g) of the IRC).
Any medium other than cash (generally referred to as "in-kind" payments)
includes, for example, lodging, food, clothing, or agricultural
commodities. Some farmers have attempted to use commodity payments as
remuneration for agricultural services to avoid paying FICA tax. This
practice can prevent farm workers from accumulating the quarters of
coverage needed to qualify for Social Security benefits. However, the IRS
clarified in Revenue Ruling 79-207 and in subsequent guidelines that a
transfer of an in-kind item which is immediately converted to cash is, in
economic reality, a payment in cash not subject to the wage exclusion. The
effect of the ruling is that certain transactions involving in-kind
transfers for agricultural labor have been considered cash payments and
therefore wages subject to tax under FICA. SSA policy has been not to
treat such in-kind transfers as wages under the Act when evaluating them
for Social Security coverage purposes.
To achieve consistent treatment between SSA and the IRS of transactions
involving in-kind transfers for agricultural labor, SSA is adopting the
policy position in IRS Revenue Ruling 79-207.
POLICY INTERPRETATION: To determine whether certain transactions
involving in-kind transfers for agricultural labor are wages within the
meaning of section 209(a) of the Act, and thus creditable as wages for
Social Security benefit purposes, SSA will consider the following:
1. Does an employer-employee relationship exist? Only noncash
payments to an employee qualify for the section 209(a)(7)(A) exception.
In-kind payments received by a self-employed individual engaged in farming
are not subject to this exception and may be considered in determining
self-employment income which is credited for Social Security coverage
purposes. Section 210(j)(2) of the Act defines "employee" as "any
individual who, under the usual common law rules applicable in determining
the employer-employee relationship, has the status of an employee." SSA's
rules for evaluating whether an individual is a common-law employee are
found in 20 CFR section 404.1007.
When a farmer's spouse (or child 18 or older) performs agricultural labor
for the farmer, the individual may be an employee. Generally, an
employer-employee relationship exists when the person for whom the labor
is performed has the right to control and direct the person who performs
the services. Special coverage rules with respect to farm crew leaders,
foreign agricultural workers, and sharefarmers are found in 20 CFR
sections 404.1010, 404.1016, 404.1017, 404.1068(c), and 404.1074.
2. Is the in-kind transfer, in economic reality, equivalent to a
payment in cash? Although section 209(a)(7)(A) of the Act excludes
from the definition of covered wages remuneration paid in any medium other
than cash for agricultural labor, if a bona fide transfer of the noncash
medium from the employer to the employee has not occurred and the
transaction is, in economic reality, equivalent to a payment in cash, the
wage exclusion will not apply.
In determining whether a transaction involving a noncash medium is, in
economic reality, a payment in cash, SSA will consider the extent to which
the employee exercised dominion and control over the noncash item. Many
factors may be relevant including, among other things: (1) whether the
employer has transferred a readily identifiable portion of an item; (2)
whether there is documentation of the transfer; (3) the length of time
between the employee's receipt and sale of the item; (4) whether the
employee negotiates the subsequent sale of the item; (5) whether the risk
of gain or loss shifted to the employee; and (6) whether the employee
bears the costs incident to ownership of the item, for example, storage,
feeding, or maintenance costs.
Example 1: A farm operator agrees to give an employee 30 head of
cattle for services performed on the farm. The farm operator sells 100
head of cattle to a commodity purchaser. The commodity purchaser gives the
farm operator a check for 70 head of cattle and the employee a check for
30 head of cattle. These facts indicate that the cash proceeds from the
sale are wages because the employee did not exercise dominion and control
over the cattle.
Example 2: A farm operator pays an employee $50 a month plus 10
head of cattle per month for services performed on the farm. The employee
pays the farm operator rent to maintain the cattle on the farm property in
an area separate from the farm operator's livestock. The employee assumes
the costs of feeding, maintaining, and transferring the cattle to the
market for sale. The employee is paid directly by the commodity purchaser
for the cattle. These facts indicate that the commodity payments are not
wages because the employee exercises dominion and control over the cattle
subsequent to receipt and bears the costs incident to ownership of the
Example 3: An employment agreement provides that a farmer will
compensate his wife in cash wages of $100 per month and transfer 100 head
of cattle each year. The wife's cattle are raised and maintained with the
husband's cattle. Under the employment agreement, the farmer delivers the
cattle to a market location agreed upon by the wife and at the market
transfers ownership to the wife. The wife's cattle were not
distinguishable or readily identifiable from the other cattle taken to
market. The wife receives a check directly from the market for the cattle.
Since the sale of the cattle occurs almost simultaneously with their
delivery to the wife, these facts indicate that the in-kind transfer is,
in substance, equivalent to a cash payment and therefore wages for Social
DOCUMENTATION: Evidence documenting the existence of an employment
relationship, the terms of the agreement, and the transfer of commodities
should be obtained. There is a presumption that an individual's earnings
record as maintained by SSA is correct as posted. SSA determines whether
the evidence is sufficient to overcome that presumption of correctness.
EFFECTIVE DATE: This policy is effective upon publication of this
Ruling in the Federal Register.
CROSS-REFERENCES: Program Operations Manual System, Part 3, Chapter
021, Subchapter 01; and Chapter 014, Subchapter 02, Section RS
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