Agricultural labor

[Belgarath]

A farm has certain employees who are required to live in farm-provided housing, as they are essentially "on-call" 24 hours per day. This is NOT included in W-2 wages - and this appears legitimate, based upon a cursory scan of the IRS Publications 15 and 51.

The plan uses W-2 for the definition of compensation. We've got a CPA (who I think is wrong) who is claiming that this housing - valued at "x" dollars, SHOULD be included for plan compensation purposes. CPA is basing this on the fairly standard wording in the prototype definition of W-2 compensation which, in the final sentence, says that "Compensation must be determined without regard to any rules in Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2))."

While it is an interesting argument, I don't agree with the CPA. I think this is intended only to include wages paid for agricultural labor, and NOT housing which is not included as reportable under IRC 6041, 6051, and 6052. Anyone agree with the CPA?

[ETA Consulting LLC]

While it is an interesting argument, I don't agree with the CPA. I think this is intended only to include wages paid for agricultural labor, and NOT housing which is not included as reportable under IRC 6041, 6051, and 6052. Anyone agree with the CPA?

I do. I see your position, but believe you have just identified one of the major differences between withholding wages and W-2. Operationally, I look at Withholding wages as the amounts reflected on the final "pay stub" of the year. These would represent amounts that were paid (or imputed) and had income tax withheld at that time. By the time the employee receives the W-2 at the end of January, the value of the housing would've been calculated and included as taxable income (even though nothing was withheld from those amounts). Keep in mind that this isn't intended to be technically accurate, but merely to attempt to illustrate a major difference between withholding pay and W-2. If you apply this method to your participant, you can clearly see where your position differs from the CPA's position.

Good Luck!

[Belgarath]

Thanks for the reply. I must admit to being confused. Since the housing is not subject to withholding, and is not reported on the W-2, I'm having trouble getting to including this for plan comp purposes.

To give the full W-2 definition in the document:

Information required to be reported under Code Sections 6041, 6051 and 6052 (Wages, tips, and other compensation as reported on Form W-2). Compensation means wages, within the meaning of Code Section 3401(a), and all other payments of compensation to an Employee by the Employer (in the course of the Employer's trade or business) for which the Employer is required to furnish the Employee a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Compensation must be determined without regard to any rules in Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)).

So, can you elaborate a bit? Assume for the moment that this housing is neither reported to the employee nor taxable, in any form. Do you still believe it is compensation for plan purposes?

Now, suppose that while not reportable on the W-2 itself, it is in fact taxable income. Same answer as above, or a defferent answer?

Thanks.

[ETA Consulting LLC]

and is not reported on the W-2,

Thanks.

Okay, I recant everything I said. If it's not reported on the W-2, how could the CPA conclude it is W-2 compensation?

Good Luck!