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Bar News - February 15, 2017

Setting Things Right: NHBA Legal Services Program Helps Farm Workers Recoup Tax Refunds

THE DETAILS: Agricultural Workers and Federal Income Taxes
By Barbara Heggie

The predicaments of the Jamaican farm workers who are receiving help from the Pro Bono Program’s Low-Income Taxpayer Project (LITP) arose out of decades of misunderstanding about how – or even whether – H-2A agricultural workers should be taxed.

By raising awareness about their plight and about efforts to assist them, the LITP hopes to generate interest among tax attorneys in assisting disadvantaged taxpayers.

Until 2011, most people thought these workers were exempt from federal income taxes. This is not true, however, although they are exempt from employment taxes. There was little guidance from the IRS, other than a deeply-buried web page giving employers the incorrect advice to issue 1099s to their H-2A employees, rather than W-2s. In late 2011, the IRS revised this directive; employers are now told to issue W-2s to these workers, as they would to any employee, and withhold federal income tax, if the worker agrees.

As a result, more H-2A workers are now filing tax returns. Unfortunately, many of the workers are filing as single, nonresident aliens on Form 1040-NR, the most disadvantageous filing status possible, without realizing they’re entitled to far better treatment under the Internal Revenue Code and the US-Jamaica tax treaties. Specifically, those H-2A workers who come repeatedly to this country for many months at a time are entitled to file as resident aliens. And, if the spouse of an H-2A worker has a Social Security number or an Individual Taxpayer Identification Number (ITIN), the spouse may elect to be treated as a resident alien based on the worker’s status. As a result, the couple may file jointly on a Form 1040. This, in turn, allows them to claim two personal exemptions and the standard deduction. (Per treaty provisions, however, they may not claim any children for the dependency exemption, child tax credit, or earned income tax credit.)

Here is how this plays out on a tax return. As is true for our Jamaican clients, many married, resident-alien H-2A workers have about 10 percent of their wages withheld for federal income taxes. Their spouses have little or no income, and the total household income is generally between $15,000 and $25,000 per year. If such a worker files as a single, nonresident alien, only the first $4,050 of income will be tax-free, because nonresidents are not entitled to claim the standard deduction, with few exceptions. Filing as a single, resident alien would gain the standard deduction, making the first $10,350 tax-free. And filing jointly would double that, to $20,700 in tax-free earnings. Thus, if a married, resident-alien H-2A worker earned $20,000 and had $2,000 in federal payroll deductions, the full $2,000 would be due as a refund if the worker filed jointly and the spouse had no earnings. The same worker filing as a single, nonresident alien would have only about $400 refunded.

The sticking point is that most H-2A spouses do not have Social Security numbers or ITINs. Most don’t qualify for a Social Security number, but all are eligible for an ITIN in this circumstance. The ITIN application process includes submission of documents proving identity, nationality, and marriage – a time-consuming, cumbersome process, but one that’s worth thousands of dollars. None of our clients has shown the slightest hesitation about undertaking the effort. The LITP’s crew of volunteers is currently helping them through this process, in addition to preparing the amended returns.

Fortunately, it is possible to amend disadvantageously-prepared returns to joint filings and collect the available refunds, but only for the three most recent years prior to the current filing year. Consequently, anyone who doesn’t file an amended return by the April filing deadline this year will lose out on the chance of a refund for 2013. Because the amended returns must be submitted with a completed ITIN application and all of its required documentation, there’s little time to lose.

Attorneys interested in helping with this or other efforts of the LITP can get in touch with me by email.

Barbara Heggie

Barbara Heggie is the coordinator of the LITP and one of its two part-time staff attorneys. She thanks Robert Wunderle, Michael Guare, Ellen Kreitmeier, for their assistance and support of the LITP’s farm worker initiative.

University of New Hampshire School of Law student Carly Barnicle-Cengher had always been curious about practicing tax law. So when Barbara Heggie, staff attorney and coordinator of the Pro Bono Program’s Low-Income Taxpayer Project (LITP) at the NH Bar Association, came to UNH Law looking for volunteers, she jumped at the chance.

Before she knew it, Barnicle-Cengher found herself in the middle of Applecrest Farm Orchards in Hampton Falls last autumn discussing the finer points of whether the Jamaican farm worker before her needed to count his pregnant goat as one or more assets. However, it wasn’t long before they got to the crux of what the project team was looking for.

Heggie had discovered from discussions with tax attorneys in Maine that, for at least the past several years, immigrant farm workers across the country had essentially been paying more than their required share of taxes due to disadvantageously prepared tax returns. When Heggie heard about this, she agreed to check out whether that applied to the numerous Jamaican migrant laborers who work at apple orchards in New Hampshire. It did. So, with the help of her LITP colleague, staff attorney Kerstin Cornell, Heggie launched a special effort to assist New Nampshire farm workers.

“There were more people that this applied to than we were able to help,” Barnicle-Cengher said of the orchard meeting that included herself, another law student volunteer Will Reddington, and four attorneys – John Fisher, a Pro Bono volunteer; Mike Guare, attorney from Pine Tree Legal Services in Maine; Cornell; and Heggie. “We each did the intake for two people, but there were probably 20 workers there. It was difficult to say no to some people. But I felt good that at least I was able to help the two that I did.”

Without help, it appears that many of these workers will continue to miss out on refunds that in some cases could have a substantial impact on their quality of life.

Guare, a legal aid attorney in Maine who heads a farm worker project covering part of New England, had informed Heggie about the details of the tax issue (see sidebar). He helped Heggie identify potential clients and set up the orchard meeting.

“We determined ahead of time that we could take on eight clients,” said Heggie. “I chose whom to help based on the size of the family and the amount of household income. I wanted to help people who would be most likely to see a big refund for a large family. One client has a family of six and will see about $6,000 total in refunds for 2013, 2014, and 2015. This [amount] is huge in rural Jamaica, where most of our clients live.”

Heggie explains that for years, many married foreign agricultural workers here in the US on H-2A visas have had their tax returns prepared in a “grossly disadvantageous” way, which generally did not take their Jamaican spouses into account.

“They did this despite the workers’ actual marital status and despite the fact that their long contracts qualify them – and their wives – to file as ‘married filing jointly,’ as resident aliens,” Heggie said, adding that, so far as she knows, all the H-2A workers in New Hampshire are men.

Bob Wunderle, director at La Posada Tax Clinic in Twin Falls, Idaho, and a leading expert on H-2A issues in the low-income taxpayer clinic community, was able to provide some context for this. He said that for 70 years, almost all H-2A visa guest workers and their employers believed that their wages were exempt from all US taxes, but they weren’t. The only guidance available from the IRS as to the treatment of H-2A wages was on the website, and that information, Wunderle said, was almost impossible to find.

“On that page,” Wunderle said, “employers were told to issue Forms 1099-Misc for H-2A wages. In September 2011, the web page was changed to tell employers that workers should get a W-2, starting in 2011, and that workers were still exempt from [federal income tax withholding (FITW)], but could voluntarily request FITW.”

That technical change to the IRS website was designed to clarify the workers’ tax liability and the employers’ option to withhold or not, but it did not represent any law change, according to the IRS.

To this day, Wunderle said, some H-2A workers are still learning that they must file tax returns. He added that although the IRS’s position is that it is everyone’s personal responsibility to know about US income taxes, enforcement is inconsistent and penalty abatements are hard to get.

“Workers are caught between the cost of paying back taxes, interest and penalties, and the cost of representation to challenge the penalties or seek relief,” he said.

Furthermore, he said, the manner of enforcement against preparers has almost no deterrent effect whatsoever. “Only a handful of bad preparers are prosecuted, and it takes about five years from the IRS investigation until prosecution, and even then, publicity of the prosecution is often lacking,” Wunderle said.

When it comes to the farmworkers in Maine and New Hampshire, and for many across the country, the sticky wicket in the process is that, in order for the farm worker – or his tax preparer – to check the “married filing jointly” box on the worker’s taxes, the worker’s wife must have an Individual Taxpayer Identification Number (ITIN). To get an ITIN, the worker or the preparer has to complete an application and submit identifying documents, such as a passport, birth certificate, and a marriage license (or certified copies) for the spouse.

“It’s a hassle and a half,” said Heggie, “but it’s completely doable, and it appears the vast majority of the workers were never told of the option.”

Heggie said one of her clients has an incorrect tax liability of more than $3,000 on the books for 2008, because his employer mistakenly filed a 1099 for him, rather than a W-2. He didn’t file a tax return, and the IRS concluded that he owed self-employment tax. Because of this, she said, he’s had no refunds for the past few years, when he did file tax returns – not even the few hundred dollars he’d expect from his single filing status.

“It may take some effort and a lot of time,” she said, “but I can make that liability go away completely. He doesn’t owe any of it.”

John Fisher, a limited-active-status attorney assisting clients through the Pro Bono Program, said even getting back $1,000 – which seems to be the average – is worth the effort for a worker who typically only grosses about $20,000 per year. Fisher is hoping that as the LITP’s farm worker effort continues, the volunteers will be able to help even more people.

“Once you get [the process] down, it becomes almost cookie-cutter,” Fisher said. “We’re simply making right what the law allows. It’s the right thing to do in that sense. Yeah, we’re going to be losing a little bit of tax revenue, but it’s tax revenue we really shouldn’t be taking from these people anyway.”

Heggie said the farm worker initiative was made possible thanks to the approval of the Pro Bono Governing Policy Board, under which the LITP operates.

“The fact that the LITP is within Pro Bono means that we can turn to volunteers on our panel and ask for help,” said Heggie. “We’ve been blessed with tremendous generosity from four tax professionals so far, as well as the two law student interns.”

In addition to Fisher, the volunteers were attorney and CPA Richard Maloney, CPA Jessica Parasco, and attorney Ashley Spina.

Melanie Plenda is a freelance writer based in Keene, NH.

If you are in doubt about the status of any meeting, please call the Bar Center at 603-224-6942 before you head out.

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