JSIT21-02: Income Volatility and Social Security: Understanding Farm Losses and their Implications

Abstract

Farm and ranch operators in the United States are an economically vulnerable group. Many family-owned farms without younger family members interested in farming face difficult retirement decisions. In addition, unlike other categories of self-employed individuals, farmers have more discretion over whether and when to pay Social Security taxes due to the “farm optional method” (FOM) of self-employment taxes. The FOM allows farmers who have negative or very small profits to opt-in and pay self-employment taxes when they typically would have little to no self-employment tax liability. By opting to use the FOM, these farmers can accrue quarters of Social Security-covered work that contributes towards eligibility for Old Age, Survivors and Disability Insurance (OASDI). This research longitudinally links two decades of USDA Agricultural Census Data on the share of farms in a county that incur losses and the share of farm owners in a county working off-farm. With a newly formed dataset, I find that the average share of farms in a county that incur losses is between 50% and 55%. In addition, the average share of farm owners in a county who report working at least one-day off-farm is between 53% and 64%. Using this data I am then able to create upper and lower bounds on the share of farms in each county in each survey wave that may have been eligible to use FOM when filing their self-employment taxes.