Your CRP Payments May Not Be Subject to SE Taxes
For many years the IRS battled with taxpayers regarding whether Conservation Reserve Program (CRP) payments received by retired taxpayers were subject to self-employment taxes. The taxpayers argued that once a farmer is retired, the payments are simply rent payments and not subject to these taxes.
The IRS countered that the payments are still subject to SE tax in many cases. This argument went on for many years with various court cases deciding the issue one way or the other.
Congress finally decided to stop part of the argument by passing a law a couple of years ago that stated if a farmer is collecting social security payments, then all CRP payments are exempt from self-employment tax. This is true even if the farmer is still actively farming. This law is in effect for any payments received after December 31, 2007.
When you prepare your form SE to show your income subject to self-employment taxes, you will back out these payments in arriving at your net SE earnings.
The argument is still alive regarding receiving CRP after a farmer retires and before they start collecting social security benefits.
If this situation applies to you, make sure to discuss it with your tax advisor.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
What about CRP income that is earned by an S corp which only rents out farmland and also collects CRP income. Will that CRP income be subject to SE tax while the land rent is not.