H-2A WORKERS AND TAXES What H-2A Employers Need to Know By Jason Resnick, Senior Vice President and General Counsel
Understanding the tax treatment of H-2A agricultural workers can be a source of confusion for employers, even those who have participated in the H-2A program for years. Federal and state tax rules governing H-2A employees differ in significant ways from those that apply to domestic workers—and not all obligations fall on the employer. With spring planting underway and tax season upon us, now is a good time to revisit what you’re responsible for and how best to remain compliant. Federal Taxes: Exemptions, Not Exceptions At the federal level, employers can breathe a small sigh of relief. The rules governing H-2A workers are fairly consistent and largely exemption-based: Federal Income Tax : H-2A workers are not subject to mandatory federal income tax withholding. That said, employers can withhold income tax if both the worker and employer agree to it. This arrangement should be clearly documented using IRS Form W-4. Absent this agreement, no withholding is required, but workers are still expected to file a U.S. federal income tax return if they meet the income thresholds for filing. Social Security and Medicare (FICA): Wages paid to H-2A workers for labor performed under their seasonal ag worker visa are exempt from Social Security and Medicare taxes. This is a significant savings for both employers and employees, as neither side contributes. Federal Unemployment Tax (FUTA): Employers do not pay FUTA for H-2A workers. The law specifically excludes them from this tax, further reducing the payroll tax burden associated with hiring these workers. State-Level Obligations Vary While federal exemptions are relatively straightforward, state-level tax obligations vary depending on the jurisdiction. States have their own rules. For example, here’s how it works in California: State Income Tax: Similar to federal law, California does not require income tax withholding for H-2A workers unless there is a mutual agreement to do so. H-2A employers should ensure that any such agreements are in writing to avoid misunderstandings. State Unemployment Insurance (UI): Unlike FUTA, employers are required to pay into California’s UI system for H-2A workers. This requirement often comes as a surprise and is a common compliance gap. Washington and other states may have similar obligations, so H-2A employers operating outside California should confirm requirements with their state labor or employment tax agency. State Disability and Other Payroll Taxes: In most cases, H-2A workers are also exempt from other state payroll taxes, such as California’s State Disability Insurance (SDI), unless the state specifically mandates otherwise.
Filing Obligations for H-2A Workers Even though employers are generally not required to withhold federal or state income taxes from H-2A wages, workers themselves are still legally obligated to file U.S. income tax returns if they exceed certain income thresholds. Most H-2A workers are considered nonresident aliens for tax purposes, which means they typically file Form 1040-NR. Employers can play a helpful role by: • Informing workers of their filing obligations. • Providing timely and accurate Forms W-2. • Clarifying that while taxes may not have been withheld, the income is still reportable. Practical Steps for Compliance 1. Know Your State’s Rules: States vary in their treatment of H-2A wages. Be sure to consult your tax advisor or state agency regarding unemployment and other payroll tax obligations. 2. Educate Your Payroll Team: Misclassifying H-2A wages or mistakenly applying FICA or FUTA taxes can result in unnecessary payments—or worse, audits and penalties. 3. Document Withholding Agreements: If you agree to withhold federal or state income tax for an H-2A worker, get it in writing. Use IRS Form W-4 as a basis and retain copies for your records. 4. Coordinate with Tax Professionals: Your accountant or tax advisor can help you understand nuanced state rules and ensure your payroll systems are set up correctly. Final Thoughts With the growing reliance on the H-2A program, ensuring compliance with tax obligations—both federal and state—is more important than ever. While the rules offer several exemptions, they are not blanket exclusions. Each state may impose unique responsibilities, especially with respect to unemployment insurance taxes. Employers who understand these rules and communicate them clearly to workers will avoid costly mistakes and create a more transparent and predictable working environment. As always, consult with your legal or tax advisors to tailor your compliance strategy to the jurisdictions in which you operate. For additional guidance or to discover how your Western Growers membership can help you access the H-2A program at exclusive member pricing, contact the Western Growers H-2A Services team at H2A@wga.com.
6 Western Grower & Shipper | www.wga.com May | June 2025
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