USDA Making Payments for Thousands of Borrowers with Delinquent FSA Direct or Guaranteed Loans
Section 22006 of the Inflation Reduction Act appropriated $3.1 billion to the USDA to provide payments to distressed farm loan borrowers for the cost of loans or loan modifications administered by Farm Service Agency (FSA).
Delinquent Loan Payments
On October 18, 2022, the USDA announced that it had already provided nearly $800 million in assistance to distressed borrowers to help cure delinquencies and resolve uncollectable farm loan debts. These farm loan payments were automatically made on behalf of the following groups:
- Approximately 11,000 borrowers who were, as of September 30, 2022, 60 or more days delinquent on their FSA direct or guaranteed loan ($600 million).
- Approximately 2,100 borrowers who still had debt remaining after losing their farm to a foreclosure action on an FSA direct or guaranteed loan ($200 million).
For the 11,000 delinquent borrowers, the payment assistance was sufficient to make the loans current and to cover the next annual installment due. For guaranteed borrowers, the payment assistance was equal to the amount the borrower was delinquent, as reported in the most recent report from their lender, which may require an accounting reconciliation. For the 2,100 borrowers who had been through foreclosure, the payment assistance was sufficient to fully resolve the remaining debt.
Disaster Set-Aside Payments
USDA also announced that it has begun a process to provide $66 million to direct loan borrowers who used disaster set-aside as an option in response to the COVID-19 pandemic. In March 2020, FSA expanded the disaster set-aside loan provision to allow borrowers impacted by the pandemic to set aside their next payment. Up to 7,000 borrowers will automatically receive a payment equal to their remaining set-side balance due.
USDA also announced that the FSA will next begin working one-on-one with borrowers with more complex cases and producers with cashflow difficulties. FSA will conduct a manual review to help about 1,600 borrowers facing bankruptcy or foreclosure to cure account delinquencies or to cover their next installment payment. $330 million is allocated for this assistance. FSA will contact direct borrowers or guaranteed borrowers’ lenders in the coming weeks.
USDA stated that the FSA is also using existing loan servicing procedures to determine whether borrowers have sufficient cash flow to make their next loan installment payments. Through this procedure, qualifying borrowers will be able to request that FSA make their next installment payment. USDA estimates that up to 14,000 borrowers may qualify for a total cost of $175 million. FSA will directly notify direct loan borrowers of the process to initiate this review.
These Payments are Taxable Income
It is important to note that borrowers receiving any of the loan payments described above will likely incur tax liability on those payments. FSA will report the payments on IRS Form 1099-G, and the payments will be subject to federal and state federal income taxes, just like any other farm program payment. These payments will generally be subject to self-employment tax as well. Loan recipients should work with a trusted tax advisor to understand their associated tax obligations and determine if there are ways to mitigate their liability.
For more information, contact FSA at your local USDA Service Center or visit https://www.farmers.gov/inflation-reduction-investments/assistance. USDA will announce how the remainder of the $3.1 billion will be used in subsequent phases.
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