For many Americans, Social Security makes up a sizable amount of their income in retirement. In 2018, 63 million Americans received approximately $1 trillion in Social Security benefits, with a majority of those funds going to retired workers.¹ However, due to the way in which many farm operators utilize the tax code to adjust their income, many farmers run the risk of not qualifying for Social Security retirement benefits.

What does it take to be eligible for Social Security retirement benefits?

For any individual to qualify for Social Security retirement benefits, they must have earned a minimum amount of either wages or net profit for a given year (or quarter). Individuals earn one credit per quarter in which an annually-set minimum required wage or net profit is achieved. For 2019, the minimum earnings per quarter are $1,360.² Individuals can earn up to four credits per year, making the total minimum earnings equivalent to $5,440 for 2019. To qualify for future benefits under Social Security, an individual must have earned 40 quarters (or 10 years) of wages or net profits. If an individual does not have at least the 40 required earned credits, they will not be able to collect Social Security retirement benefits.

Your farm business structure matters

For those individuals that own and operate a farm as either a C-corporation or as an S-Corporation, it is highly likely they will already be paying themselves wages. Any wages of $1,360 per quarter (or $5,440 per year) will receive their max of four credits for benefit calculations. For those farmers who run their operation through an LLC or are filing their taxes as a sole proprietor under a Schedule F return, credits will be earned on net farm income. Net farm income in excess of $5,440 per year will result in four credits being earned. However, farmers who utilize tax deductions and expenses that result in an income loss for the tax year (reported on a Schedule F IRS tax form) should be aware that this action will result in zero credits being earned for that tax year.

Who pays the Social Security tax is another key issue. Individuals employed by an employer will have 6.2%³ of their pay withheld for Social Security tax and 1.45%4 withheld for Medicare tax, while the employer pays the other half of the total tax. For many farmers, these two taxes will both be paid by the individual, generally referred to as self-employment tax, for a total of 15.3%. It’s important to note that any wages above $132,9005 will not be assessed the 12.4% tax and will only be subject to the additional Medicare taxes. 

Get the most out of your Social Security benefits. Register for one of our online webinars to learn more.

1 I.R.C. § 212

2 I.R.C. § 67

3 I.R.C. § 55

4 Treas. Reg. § 1.404(a)-3(d)

5 I.R.C. Sec. 72(e)(2) 

This material is not a recommendation to buy, sell, hold or rollover any asset, adopt an investment strategy, retain a specific investment manager or use a particular account type. It does not take into account the specific investment objectives, tax and financial condition, or particular needs of any specific person. Investors should work with their financial professional to discuss their specific situation.
Federal income tax laws are complex and subject to change. The information in this paper is based on current interpretations of the law and is not guaranteed. Neither Nationwide, nor its employees, its agents, brokers or registered representatives gives legal or tax advice. You should consult an attorney or competent tax professional for answers to specific tax questions as they apply to your situation.
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Having opportunities to attend leadership institutes, advocate for rural Ohioans on the state and national level, facilitate young ag professionals events, and serve in a variety of leadership positions have helped my skills grow exponentially.
Sara Tallmadge's avatar
Sara Tallmadge

Ashland County Farm Bureau

Growing our Generation
Labor has always been an issue, mainly because we are a seasonal operation. So that's a challenge finding somebody who only wants to work three months out of a year, sometimes up to six months.
Mandy Way's avatar
Mandy Way

Way Farms

Business Solutions
If it wasn't for Farm Bureau, I personally, along with many others, would not have had the opportunity to meet with our representatives face to face in Washington.
Austin Heil's avatar
Austin Heil

Hardin County Farm Bureau

Washington, D.C. Leadership Experience
I was gifted the great opportunity through an Ohio Farm Bureau Foundation Youth Pathways grant to run a series of summer camps here. That really expanded my vision of what ‘grow, maintain, sustain and explain’ could actually be.
Jim Bruner's avatar
Jim Bruner

Mezzacello Urban Farms

Farming for Good
I see the value and need to be engaged in the community I live in, to be a part of the decision-making process and to volunteer with organizations that help make our community better.
Matt Aultman's avatar
Matt Aultman

Darke County Farm Bureau

Leadership development
So many of the issues that OFBF and its members are advocating for are important to all Ohioans. I look at OFBF as an agricultural watchdog advocating for farmers and rural communities across Ohio.
Mary Smallsreed's avatar
Mary Smallsreed

Trumbull County Farm Bureau

Advocacy
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