Then the commodity should be given to the employee and marketed by the employee at the employee's discretion. Failure to give the employee full discretion in the handling and sale of commodities may cause wages paid in commodities not to be considered exempt from Social Security tax during an audit by a taxing agency. Often employers compensate employees in commodities to avoid paying Social Security tax. Not paying Social Security taxes may give greater current spending income to an employee and lower the employer's cost of hiring, but it may also jeopardize the disability and retirement income of the employee. Social Security benefits are based on contributions made by employees during their working years.
Lower contributions means lower benefits upon retirement or disability.
Employees should be aware of the impact reduced Social Security contributions may have on their retirement and disability benefits. With the Social Security tax savings from wages paid in commodity or produce, the employee may be able to purchase disability insurance or fund a retirement account that will more than offset losses in Social Security benefits. Farm Assets Giving an employee the use of farm assets such as pasture for personal animals, or the use of farm shop and tools can provide a benefit to the employee with little or no increase in cost to the employer. If the use of a farm asset by an employee for personal use is a real cost to the employer, the value of the benefit must be included in the employee's gross income. Personal use of farm vehicles is considered to cost the employer and therefore the value of providing that benefit is considered taxable income of the employee.