Finally – Some Details on Emergency Relief Program (Old WHIP+)
After almost 8 months, USDA has finally announced some details on relief for growers that have been affected by various weather and related events. Instead of calling it the old Wildfire and Hurricane Indemnity Program (WHIP+), it is now called the Emergency Relief Program (ERP) and is much broader based.
Today, FSA released their fact sheet and other documentation on Phase 1 of the program.
Key details are summarized as follows.
There will be a Phase 1 and Phase 2 payment. Today’s announcement only details the Phase 1 program payment. Phase 2 will cover crop and livestock producers that were not covered under Phase 1. It appears that the program will open next week.
In order to be eligible, you must have a crop that was available for crop insurance or Noninsurance Crop Disaster Assistance (NAP) and subject to qualifying natural disaster event which could be Wildfires, Hurricanes, Floods, Derechos, Excessive heat, Winter storms, Freeze, Smoke exposure, Excessive moisture, Qualifying drought, and related conditions.
Qualifying drought is available if any area within the county in which the loss occurred was rated by the US Drought Monitor as having a drought intensity of:
- D2 (severe drought) for eight consecutive weeks, or
- D3 (extreme drought) or higher level of drought intensity.
FSA will automatically take data in their system and work up an application to be sent to the producer. This data will then need to be verified by the producer. The assumption is that these applications may start going out next week but this has not been verified. The local FSA offices will need to get trained and updated on the program rules.
Payments are calculated by replacing the elected crop insurance coverage level with a new ERP coverage percentage. The total indemnity will then be recalculated using that ERP%. If there is an ERP indemnity based on these new %, then any actual crop insurance payment or NAP payment will be subtracted.
Final payment amount allowed will be the difference for all qualifying acres times 75% and then a payment limit will be applied if applicable.
The payment limit for specialty crops is $125,000. All other crops have another $125,000 payment limit for all of those crops combined. There is no Adjusted Gross Income (AGI) limit, however, if your revenue from farming exceeds 75% of total AGI, then the payment limit bumps to $900,000 for specialty crops and $250,000 for all other crops. Remember if you are a corporation or LLC or other limited entity, then there is only one payment limit. If you are a general partnership or qualified joint venture, then there is no payment limit at the entity level. It is based on the number of partners, etc. Also, if your average AGI is negative you can never qualify for the more than 75% from farming.
If your entity qualifies for the more than 75% from farming, each owner of the entity will likely also need to qualify which in many cases can limit. The Fact Sheet does not quite indicate each owner needs to qualify but this is typically how it is done for other programs. Also, you will need a CPA or attorney prepare the letter to be included with Form FSA-510. Some offices may ask a CPA to sign this form. As a CPA we are unable to file this form, but FSA has provided us with a letter that we can use instead. If you get pushback from the local office on this, please have them take a look at their latest FSA Handbook 6-PL dated April 29, 2022. Paragraph 489 deals with the more than 75% from farming AGI and page 8-73 and 8-74 has the sample letter that a CPA and attorney can prepare.
Average AGI is based on a three-year average. For 2020 crop years, the average is 2016-2018; crop year 2021 is 2017-2019; and crop year 2022 is 2018-2020.
This payment cannot be deferred to 2023. ERP is for damage that occurred in 2020 and 2021. The tax rules only allow you to defer payments received in the year of damage. Since these payments occurred after those years; no deferral is allowed. In the rare case where you receive a 2022 disaster payment under ERP in 2022, then that may be deferrable (as long as you meet the other crop insurance deferral rules).
If you are historically underserved producers, then your payment will be bumped up by an extra 15%. These producers include beginning farmers, socially disadvantaged producers and veteran farmers and ranchers.
You will be required to obtain NAP or crop insurance coverage for the next two available crop years. Crop insurance requires a minimum level of 60% and NAP at the catastrophic level or higher.
WARNING – THE FOLLOWING EXAMPLES ARE BASED ON OUR READING OF THE FACT SHEET. FINAL NUMBERS MAY BE DIFFERENT AND THE DIFFERENCE COULD BE SUBSTANTIAL. WE WILL UPDATE IF THESE CALCULATIONS ARE MATERIALLY DIFFERENT.
Assume a Columbia County, State of Washington wheat producer with an APH of 100 bushels per acre elects 80% RP crop insurance. The final 2021 harvest price was $9.86 per bushel which equals a total guarantee of $788.80. Final harvest yield was 60 bushels for total “harvest” revenue of $591.60. The farmer received $197.20 per acre in 2021 as crop insurance proceeds. Using the 95% ERP factor, total guarantee revenue under ERP is now $936.70. This results in an ERP payment of $345.10 minus the crop insurance payment received equals an ERP payment of $147.90. This is then multiplied by 75% to arrive at the final payment of $111.00 per acre (however final numbers may be lower if the overall payment limit is reached).
If insurance coverage elected is much lower, then the payment per acre can be even greater. As an example, assume the same facts, however, the farmer elected only 60% RP coverage. In this case the ERP% is 85% which results in a payment of $246.50 per acre with no crop insurance payment. This final payment is then multiplied by 75% or a total payment of $185.00 per acre (before any payment limit).
The farmer 80% coverage received a total of $308.20 per acre (197.20 in 2021 plus $111.00 in 2022), whereas the farmer who elected only 60% received $185.00 but the payment received in 2022 will be substantially higher per acre. Farmers with larger acreage may face the overall payment limit which may substantially reduce their overall per acre amount.
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.
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