New Adjusted Gross Income Limits Affect Program Eligibility

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The USDA Farm Service Agency recently made two changes regarding USDA program eligibility. To see the USDA FSA Handbook and Federal Register notice for more details.

This article is the first of two articles covering these eligibility changes. First, recent developments and changes to USDA benefit ceilings based on Adjusted Gross Income (AGI).

Evolution of AGI qualifications. Congress first included an AGI limitation on farm program payments in the 2002 Farm Bill and made several adjustments to recent Farm Bills. Below is a history of AGI limits for farm program payments that has been compiled by the Congressional Research Service.

When considering the applicability of the AGI’s limitations, the rules generally take into account the last three tax years preceding the most immediately preceding full tax year, with one exception noted in the table below. above for Market Facilitation Payments (MFPs).

Passage to the AGI qualifications. Historically, income from wages or dividends received from a legal entity was not considered farm income, but this changed with the latest update of the USDA 5-PL Handbook for Payment Eligibility, the limitation of payments and adjusted gross income.

Since companies provide salaries and dividends, the rules have been updated to include them, meaning that salaries and dividends from the following entity types must now be included to determine if the limits of the AGI for agricultural program payments apply:

  • An interest charge Domestic International Sales Corp. (IC-DISC) materially participating in agricultural, livestock or forestry activity when the dividend comes from agriculture, livestock or forestry.
  • A legal entity “with close participation” materially participating in an agricultural, livestock or forestry activity, defined as owned – directly or indirectly – by five people or less holding more than 50% interests.
  • A legal entity composed entirely of family members when the legal entity is materially involved in agriculture, animal husbandry or forestry.

In this context, material participation is defined as more than 50% of the gross receipts of the legal entity (for each tax year of the three-year period used to complete the average agricultural AGI) from agricultural sources, d ‘breeding or forestry.

It is important to note that the material participation in this context is very different from the taxpayers who determine the material participation for such things as the self-employment tax and the rules on passive activities.

As the rules continue to become more complex, it is more important than ever that agricultural advisors are familiar with not only federal and state income and estate taxes, but also how planning strategies and training are carried out. entities can affect agricultural program payments.

Arezzo is Senior Tax Advisor for Farm Credit East.

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