ERP Updates
As expected we are already receiving some questions on the new FSA Emergency Relief Program (ERP). This post will go over some of those questions and provide some additional updates.
First, based on the FAQ on the FSA ERP website, you will not qualify for Phase 1 if you did not receive an indemnity payment from crop insurance or NAP in 2020 or 2021. If you believe you still had damage, then that payment will be determined under Phase 2 which may not happen until late 2022 or even 2023 (at least based on how long it took to get Phase 1 started). My example in the post showing no crop insurance payment received would not work based on this FAQ. You would need at least $1 of payment to qualify for ERP.
Also, the premiums that you paid for crop insurance will essentially be “reimbursed” under the ERP program. My original example did not include this. The American Farm Bureau post that came out today has a lot more details on this. I indicate a link to that post at the bottom of this post.
Farmers who received Prevent Plant payments seem to believe they will not qualify for Phase 1. My understanding is that PP payments are still based on the elected coverage, so a payment still should occur. For example, if you elected 60% coverage, the ERP% is now 85%. Phase 1 will recalculate the payment using 85% and then back out the payment you received using 60%. The same calculations show apply to replant and other related payments.
Some readers believe there is an overall payment cap that combines 2020 and 2021 into one payment cap. My reading of the Fact Sheet indicates the only combined payment cap is Phase 1 and Phase 2. It indicates that there is a separate payment cap for both 2020 and 2021. This means a farmer could qualify for up to $250,000 of payments ($125,000 each in 2020 and 2021) assuming they had at least a $125,000 claim in each year (after the 75% payment rate).
The historically underserved farmers and ranchers will be paid 90% of the overall Phase 1 payment calculation instead of 75%. My original wording was they would get an extra 15%. This is technically not correct. The payment amount would be higher than this. As an example, assume this farmer qualifies for an $100,000 payment before the payment percentage. 75% is $75,000. 115% of this is $86,250. The farmer would actually receive $90,000.
Many farmers and ranchers continue to have angst over the extra payment limit assuming your AGI from farming is at least 75% of total AGI. Farmers who show overall losses during this three-year period (we know times were tougher during 2016-2019 plus bonus depreciation, etc.) will not qualify for the increased payment limit. Also, many spouses have income outside of farming which may kick them out of the more than 75% from farming AGI.
However, and this will be something we will need to get clarification from FSA, the rules allow farmers who are over the $900,000 AGI limit to get a letter from their CPA or attorney indicating what their AGI would be if they filed a separate return. This effectively raises the limit to $1.8 million for community property farmers and others that split their income 50/50. There is perhaps a chance that FSA will allow taxpayers in separate property states to calculate their AGI based solely on their separate allocated income as if they had filed a separate tax return for each year.
Here is an example:
Bert and Alana are married farmers living in Iowa. Bert has average farming AGI of $50,000 for both crop years 2020 and 2021. Alana teaches in town and receives wages of $50,000 per year. They also have joint interest and other income of $6,000 per year. As a married couple, Bert’s farming AGI is only 47%, however, if he had filed a separate return for each year, his farming AGI would be 94% and he would qualify for the extra payment limit.
Based on our ability to work up a letter for the AGI limit, it seems that the same rules should apply for calculating the 75% of AGI from farming. We will approach FSA and see if we can get some clarification on this and get it posted. This will not work for community property state farmers and ranchers since all income is split 50/50 in those states.
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.
And so it is clear that this ERP system will not cover all the costs of farmers, another question is how much the percentage of actually approved payments will be, even if they at least cover half or two-thirds of the total costs