USDA Issues New Payment Limitation and Eligibility Rules

On June 2, 2026, the USDA-CCC released its guidance for implementing the payment limitation and payment eligibility provisions in the One Big Beautiful Bill Act (OBBBA), H.R. 1 (Pub. L. 119-21). The updated rule (7 CFR Part 1400) answers several outstanding questions and firms up the implementation time frame. In particular, the guidance assures that all qualified pass-through entities (QPTEs), including partnerships, joint ventures, S corporations and LLCs not taxed as C corporations, are treated the same for both payment limitations and adjusted gross income limitations calculations. The guidance also clarifies that the changes impacting QPTEs apply beginning with crop year 2026. For the 2026 crop year, a farm’s organizational structure as of September 15, 2026, will be used to determine entity type. For future years, the deadline for determining entity type will be June 1.

Payment Limitations

The rule implements the increased payment limitations set forth by the OBBBA. The following chart summarizes the new limitations effective for crop year 2025 (but see inflation adjustments below):

Even for crop year 2025, inflation adjustments apply. The USDA has issued the following chart to show the inflation-adjusted payment limitations for the ARC and PLC programs:

Equitable Treatment of Entities for Payment Limitation Attribution

The OBBBA provided that “qualified pass-through entities,” are to be treated in the same manner that general partnerships and joint ventures have been treated under the payment limitation attribution rules. In implementing this change, the new rule defines qualified pass-through entity (QPTE) as:

• A partnership within the meaning of Subchapter K of chapter 1 of the IRC.
• An S corporation as defined in IRC § 1361(a).
• A limited liability company (LLC) that does not affirmatively elect to be treated as a corporation for federal tax purposes, and
• A joint venture or general partnership

Beginning with program year 2026, a QPTE may be eligible for payments up to the amount of the applicable payment limitation times the number of persons or entities (other than QPTEs) that comprise the ownership of the QPTE. Prior to this change (and through crop year 2025), LLCs, S corporations, and limited partnerships were subject to one payment limitation, regardless of the number of actively engaged members. The following examples illustrate. For purposes of these examples, $155,000 will be used as the payment limitation, even though this limit will increase for inflation.[i]

Example – Crop Year 2025 General Partnership Rules

In crop year 2025, Harvest Partnership is a general partnership made up of Bob and Sue, who each own a 50 percent share. Bob and Sue are both actively engaged in farming. Each partner:

• Contributes capital, land, and/or equipment to the operation AND
• Makes a significant contribution of active personal labor or active personal management (or a combination of both).

Since both partners are actively engaged in farming, and the partnership is a general partnership, each is considered a separate person for payment limitation purposes. Harvest Partnership as a whole is eligible for up to $310,000 in total payments (2 × $155,000) for each program, assuming program eligibility and production justify it, and all recordkeeping and certification requirements are met.

Example – Crop Year 2025 LLC 

Assume it is still crop year 2025 and that Harvest Partnership from the last example is now Harvest LLC, taxed as a partnership. Here, the total payment limitation for the LLC as a whole is $155,000, even though the LLC has two actively engaged members. 

The LLC’s payment limit is split among the owners based on their ownership share. In this case, the payments are shared equally by Bob and Sue.

Example – Crop Year 2026 LLC 

Beginning with the 2026 program year, each member of Harvest, LLC from the last example will be eligible for their own program payment since they are each actively engaged in farming.  

If Harvest LLC qualifies for the maximum payment, the payments made to Bob and Sue could total up to $310,000, adjusted for inflation.

Example – Crop Year 2026 Embedded Entities

Now assume Harvest LLC is owned by two general partnerships, one comprising Bob and his daughter and one comprising Sue and her daughter. All parties are actively engaged in farming. 

Here, the new rule provides that the embedded general partnerships are bypassed and the maximum payment limitation for the LLC is multiplied by four, resulting in a maximum payment limitation of $620,000, adjusted for inflation.

Actively Engaged in Farming

New Rule for QPTEs

The OBBBA did not change the longstanding rule that to be eligible for many program payments, including PLC and ARC, a person or legal entity must be “actively engaged in farming” (7 U.S.C. 1308-1(b)(2)). The new rule, however, clarifies how members of a QPTE entity can meet that test for program years 2026 and later. Generally,

1. There must be a significant contribution of one or more of the following (or a combination thereof) by each member OR the qualified pass-through entity:

• Land
• Capital
• Equipment

AND

2. There must be a significant contribution by each member of one or more of the following or a combination of the two:

• Active Personal Labor
• Active Personal Management

Landowners can be considered actively engaged on owned land even if the above contributions are not being made. For program years 2026 and later, a landowner also includes a member of a QPTE if the QPTE holds title to the land and if documentation shows that if the QPTE dissolves, title reverts to the members.  

The definitions and rules for significant contribution, family members, and active personal management and labor have not changed with the new rule.

Compensated Labor Counts

The new rule for the first time allows owners of QPTEs to include compensated labor or management contributions towards meeting the actively engaged in farming requirement. Previously, work for which the owner was paid a guaranteed payment or salary was not credited when determining whether an owner was actively engaged in farming.  This update provides consistent treatment of owner contributions across all entity types. Specifically, it allows S corporation shareholders (who must be paid a salary) to be treated like other owners of pass-through entities.

Adjusted Gross Income Limit

Certification Only at the Owner Level for QPTEs

Pre-OBBBA law generally required that a person or legal entity was not eligible to receive certain farm program payments and benefits if their average adjusted gross income (AGI) over three years exceeded $900,000. Historically, joint ventures and general partnerships have not certified AGI compliance at the entity level, but only at the owner level. On the other hand, LLCs, S corporations and limited partnerships were required to certify AGI compliance at both the entity and the owner levels. It was unclear from the text of OBBBA whether this approach would change. 

In what is helpful relief for QPTEs, beginning with the 2026 crop year, the new rule states that QPTEs will not be required to certify AGI compliance at the entity level, but only at the owner level. Members, through the fourth level of ownership, other than QPTEs embedded in the ownership structure of other legal entities, remain required to certify compliance. Additionally, entities, other than QPTEs, remain required to certify compliance.

Example - Crop Year 2025 LLC 

Harvest LLC has $1,200,000 in adjusted gross income for program year 2025 (calculated by averaging AGI for 2021, 2022, and 2023). Because the AGI for Harvest LLC exceeds $900,000, it is ineligible for many farm program payments.

Example – Crop Year 2026 LLC

Harvest LLC has $1,200,000 in AGI for program year 2026 (calculated by averaging AGI for 2022, 2023, and 2024). Bob and Sue each have less than $900,000 in AGI. Because AGI certification occurs only at the member level in 2026, Harvest LLC is not ineligible for farm program payments. 

New Exception from Some AGI Requirements

The OBBBA allows individuals or legal entities who derive 75 percent or more of their average gross income from farming, ranching, or silviculture to request an exception from the AGI limit for payments under the following programs:

• Emergency Assistance for Livestock, Honeybees, and Farm-Raised Fish Program (ELAP),
• Livestock Forage Assistance Program (LFP), 
• Livestock Indemnity Program (LIP),
• Tree Assistance Program (TAP),
• Noninsurable Crop Disaster Assistance Program (NAP), and 
• Conservation benefits under Title II of the Agricultural Improvement Act of 2018, Title II of the Agricultural Act of 2014, Title II of the Farm Security and Rural Investment Act of 2002, Title II of the Food, Conservation, and Energy Act of 2008, or Title XII of the Food Security Act of 1985 received on, or after, October 1, 2024

AGI Exception Certification 

This AGI exception can be requested by participants who provide an acceptable certification that at least 75 percent of their average gross income was derived from farming, ranching, or silviculture activities.  Acceptable certifications must be accompanied by a verification statement signed by a licensed CPA, a licensed attorney, or an enrolled agent (EA) authorized to practice before the IRS. 

The rule newly includes enrolled agents as an acceptable third party to complete certifications of income from farming, ranching, or silviculture activities.  However, for individual taxpayers filing joint tax returns, Congress has limited such certifications to an attorney or CPA (7 U.S.C. 1308-3a(a)(3); § 1400.501(a)(2)).  As such, certifications of average AGI for joint tax return filers specifying the manner in which their income would have been declared and reported if they had filed two separate returns continue to be accepted from only a CPA or attorney. 

Definition of Farming

The rule implements the OBBBA’s directive to define farming, ranching, or silviculture activities to include agritourism, direct-to-consumer marketing of agricultural products, and the sale of agricultural equipment owned by the person or legal entity. The rule also adds income from the trade of equipment to this definition. These changes will make it easier for farmers to qualify for the 75 percent AGI exception.

Certifying Entities for the 2026 Program Year

The guidance states that for program year 2026 and later, a farming operation that is an LLC or corporation must provide a certification of their farm operating plan. Certifications must document the entity type as:

• A C corporation or an S corporation
• An LLC pass-through or an LLC that affirmatively elects to be treated as a corporation for federal tax purposes

For program year 2026, a farming operation’s organizational structure as of September 15, 2026, will be used to determine the operation’s entity type. For later years, the organizational structure as of June 1 will be used to determine the entity type.

Final Thoughts

The new rule clarifies that a farming operation wanting to operate as an LLC or an S corporation for legal or tax purposes will not sacrifice farm program payment eligibility. This will allow for more streamlined entity choices and eliminate unnecessary complexity. Entities in place and certified by September 15, 2026, will be recognized for 2026 program year payments. Farms impacted by this guidance should immediately seek legal counsel to ensure their operation is properly structured.

[i] Crop year 2025 ARC and PLC payments should be made in October of 2026.