In some years, government payments are a significant portion of the farm income reported. Lines 4a and b of the Schedule F are used to report these payments received. Farmers and ranchers use Line 4a to report the total or gross amount of government payments received. Line 4b is used to report the taxable amount if different from the 4a amount reported. Generally, government program payments are taxable and are reported on lines 4a and 4b. One exception is market gain shown on Form CCC-1099-G if the farmer elected to report CCC loan proceeds as income in the year received (more information on this is discussed in the line 5 section).
Government payments are generally made to eligible producers from appropriations under the federal “Farm Bill”. Additionally, some payments are “ad hoc” payments authorized as a legislative or executive response to unusual events such as COVID (CFAP payments) or trade disruptions (MFP payments). Below is a non-inclusive list of typical farm program payments:
- Price loss coverage (PLC) payments
- Agriculture risk coverage (ARC) payments
- Coronavirus Food Assistance Payments (CFAP)
- Market Facilitation Program Payments (MFP)
- Diversion Payments
- Cost-share payments (for conservation or environmental practices)
- Payments which are in-kind such as in the form of materials or services, e.g., fertilizer and lime or grading or building of dams.
These payments are generally reported to the farmer/rancher on a 1099-G, which is illustrated below.
Box 6, Taxable grants, Box 7, Agricultural payments, and Box 9, Market gain are boxes of interest. Typically, the Form 1099-G from USDA has an attachment which itemizes payment types comprising the total found in Box 7.
Example 1. Louisa grows many types of vegetables which she markets to local and regional restaurants and grocery chains. In the current year, she received an ad hoc government payment of $15,000 to assist with a pandemic recovery and to sustain her business. Louisa’s 1099-G Box 7 showed the $15,000 payment. She received an attachment explaining the nature of the program payment. Louisa reports this payment on Schedule F, Lines 4a and 4b.
Example 2. Richard farms corn and soybeans on his 3,000-acre farm. Richard received $20,000 in risk-coverage payments, $10,000 in cost-share payments for a conservation project on his farm, $25,000 in Market Facilitation Program payments, and $15,000 in Conservation Reserve Program payments to divert highly erodible land into permanent cover crops. Thus, Richard’s Box 7, Agriculture Payments, shows $70,000, all of which is subject to tax in the current year and reportable on Schedule F.
Note: While they remain taxable for income tax purposes, CRP Payments made to retired or disabled farmers are not subject to self-employment tax.
State Grants
Not all government payments come as USDA payments. Sometimes states or local jurisdictions provide taxable grants for specific public purposes such as water quality or habitat preservation. When the grant is made to a producer, the state agency will issue a 1099-G. It is important for recipient farmers and ranchers to report this income so that IRS’s matching program can “find” this income as reported on the informational return, the Form 1099-G. States, therefore, typically report such grant income in Box 6, Taxable grants of the 1099-G they issue.
Note: Some commentators suggest reporting state 1099-G income on Schedule F, Line 8, Other Income, however, IRS is more likely to contact the farmer/rancher if the total 1099-G amounts reported on Lines 4a and 4b are less rather than more than USDA’s amount. The income and self-employment tax will be the same regardless of where a state’s 1099-G amount is reported.
Example 3. Susan raises Boer Goats for meat and as breeding stock for sale to other producers. This year, Susan received a state grant from her state’s Natural Resources and Environment Department (NRED), to improve her watering system and keep the goats out of a large creek which provides a source of water to the local community. The state grant was $25,000. Susan receives a 1099-G from NRED. Susan reports this income on her Schedule F, Lines 4a and 4b.
The Center for Agricultural Law and Taxation is a partner of the National Agricultural Law Center (NALC) at the University of Arkansas System Division of Agriculture, which serves as the nation’s leading source of agricultural and food law research and information. This material is provided as part of that partnership and is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.