H-2A employers now benefit from tax credit

Help comes for those paying sick and family leave wages for foreign farm workers.
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Clarke

The Internal Revenue Service (IRS) made a rare pivot just weeks into the new tax season, allowing H-2A employers to become eligible for the Families First Coronavirus Response Act (FFCRA) tax credit.

The IRS updated its position on Jan. 28, allowing employers who pay wages to H-2A workers — foreign workers who come to the U.S. to temporarily fill seasonal agricultural jobs such as planting, cultivating, or harvesting — some relief after it had been determined that there is a shortage in the U.S. labor pool. 

The FFCRA was signed into law in March 2020 by former President Donald Trump in response to the deadly coronavirus. It provides small and midsize employers refundable tax credits that reimburse them, dollar-for-dollar, for the cost of providing paid sick and family leave wages to their employees for leave related to COVID-19, according to the IRS.

Kimberly Clarke, an immigration attorney at Varnum, said the FFCRA was designed to give up to two weeks of paid leave to individuals who were either off being tested for COVID-19 or off quarantining because of exposure to someone who had COVID-19.

It was a reimbursement opportunity for employers, so they didn’t have to pay employees paid sick leave purely out of pocket without the ability to recoup those funds. However, H-2A employers were initially excluded — unbeknownst to them.

“Employers were operating under the assumption that these wages would be a part of what could be forgiven under the employment tax credit,” Clarke said. “So, during COVID there were lots of dollars paid to H-2A workers with the anticipation that they would be covered under the tax credit. I think the (negative impact of the tax credit exemption on employers) was raised to the IRS and then the IRS reconsidered.”

The reversal on the FFCRA tax credit for H-2A workers is significant because they are generally exempt from paying U.S. Social Security and Medicare taxes on compensation paid to them for services performed in connection with the H-2A visa. Additionally, employers are not required to withhold U.S. federal income tax from compensation paid to an H-2A agricultural worker. Employers can withhold federal income tax if both the H-2A agricultural worker and the employer agree to withhold, according to the IRS.

Nevertheless, H-2A agricultural workers may owe U.S. federal income tax when he or she files a U.S. individual income tax return for the year.

According to Rural Migrant News, H-2A workers are in the U.S. for an average of six months, so the 275,000 H-2A jobs certified by the U.S. Department of Labor were equivalent to 137,700 full-time jobs in 2020. H-2A workers filled 16% of the average employment in U.S. crop agriculture in 2020.

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