Do you withhold payroll taxes from your farm help’s wages? A recent tax case illustrates the bad things than can happen when a horse business incorrectly calls its farm workers “independent contractors”, and fails to withhold payroll taxes from their wages.
Are your farm workers really independent contractors?
Twin Rivers Farm, Inc., a Tennessee S Corporation, was engaged in the business of raising, training, and showing horses for anticipated sale or lease.
Twin Rivers hired Adam Lopez Morales and Nallhelyo Ruiz (workers) to work on the property where it ran its horse business. Morales and Ruiz lived in a trailer on the property and did not pay rent during the three years at issue in the case.
Morales and Ruiz’s primary job duties included: cleaning stalls, the barn area, the barn offices, the restroom, and the tack room; grooming horses; watering the horses; and moving the horses between pastures. The workers also occasionally fixed fence and mowed. The equipment Morales and Ruiz used to perform their job duties was owned by Twin Rivers.
Twin Rivers paid both workers by check, with Morales receiving $300 per week, and Ruiz receiving $150 per week. With respect to the years at issue, Twin Rivers did not make deposits of employment tax, nor did it file Forms 1099 with respect to the workers.
Over farm owner Diana Militana’s objections, the court found that Morales and Ruiz were employees of the farm and not independent contractors. As a result of the farm's misclassification of the employees, the court found Militana liable for approximately $30,000 in unpaid employment taxes and penalties for a three year period.
Twin Rivers Farm, Inc. v. Commissioner; T.C. Memo 2012-184; Docket No. 14074-10 (July 2, 2012)