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

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 proposal aims to estimate the share of farms that are eligible for the “farm optional method” (FOM) of paying self-employment tax, and the proportion of operators who also workoff-farm and may have other covered income, as a first step towards examining the role of the farm optional method in contributing to retirement security. This research will assemble a new database and perform visualization and spatial analysis.