Are USDA payments taxable?

This is a summary of IRS publications, not tax advice. Tax treatment depends on your accounting method, your entity and the facts of your operation. Ask your tax preparer before you file. Report an error

A few rules can change when or whether a payment is taxed: an election to report some crop insurance and federal crop disaster payments a year later, an exclusion for some conservation cost-share payments used for capital improvements, and special rules for livestock sold early because of drought. Each one has conditions. Your tax preparer is the right person to decide which apply to you.

Payment by payment

Disaster payments are a common point of confusion. Pub 225 does describe tax-free "qualified disaster relief payments," but those cover personal, family, living and home-repair expenses after a federally declared disaster, and the IRS says payments to businesses generally don't qualify. USDA farm disaster payments are usually treated as farm income.

How are FBA and SDRP payments reported?

The IRS hasn’t named them. Pub 225 and the Form 1099-G instructions don’t mention the Farmer Bridge Assistance program (FBA) or the Supplemental Disaster Relief Program (SDRP), and we found no IRS or FSA tax guidance on either as of November 4, 2026. Other one-time programs, such as ELRP and ECAP, aren’t listed by name in Pub 225 either. Here is what the IRS does say:

• Most government program payments are income. That general rule in Pub 225 is the starting point.
• Box 7 of Form 1099-G is for USDA agricultural subsidy payments. That is the box to check on your form, though the instructions don’t list these two programs.
• Federal crop disaster payments are treated as crop insurance proceeds. That is what opens the one-year deferral described below. The IRS hasn’t said whether an SDRP payment counts.

Bring the 1099-G and the FSA payment letter to a tax preparer. Ask: “How should my FBA or SDRP payment be reported, and does the one-year deferral apply?”

Tax dates for 2026 payments

These dates are for calendar-year filers. The 1099-G can arrive after January 15, so if you make the estimated payment, work from your own payment records. If you sold extra livestock because of drought in 2026, read the drought livestock tax guide before you file, because those elections are made on the return.

Crop insurance: The one-year deferral election

If you get crop insurance proceeds in the same year the crop was damaged, you may be able to report them the following year instead. Pub 225 lists three conditions:

1. You use the cash method of accounting.
2. You receive the proceeds in the same tax year the crops are damaged.
3. You can show that under your normal business practice you would have included more than 50% of the income from the damaged crops in a later tax year.

Two limits matter for many operations. For revenue policies, only the part of the payment caused by yield loss can be deferred, not the part caused by a price decline. And proceeds from weather policies can't be deferred if the payment is based on rainfall amounts rather than physical damage to a crop. PRF (Pasture, Rangeland, Forage) is a rainfall index policy, so ask your preparer how that rule applies to a PRF indemnity before assuming it can be deferred.

The election is made with a statement attached to your return citing section 451(f) and Regulations section 1.451-6, listing the crops, the cause and date of damage, and each payment by carrier. One election covers all crops in a single farming business. Pub 225 lists everything the statement must include.

Conservation cost-share: The Section 126 exclusion

Some cost-share payments for capital improvements can be left out of income, in part or in full. The exclusion applies only to the part of a payment that meets all three tests in Pub 225:

1. It paid for a capital expense, not something you could deduct in the year you paid it.
2. It doesn't substantially increase your annual income from the property. An increase is substantial if it is more than the greater of 10% of the average annual income from the affected property, or $2.50 times the number of affected acres.
3. The Secretary of Agriculture certified the payment as primarily for conserving soil and water, protecting the environment, improving forests or providing wildlife habitat.

Pub 225 lists the qualifying federal programs. EQIP and CRP are on that list, along with the Wetlands Reserve Program, the Emergency Watershed Protection Program and others, plus approved state programs. Ask your NRCS or FSA office whether a specific payment carries the certification.

The exclusion has trade-offs. An excluded amount is not part of your basis, so you can't depreciate the part of the improvement it paid for. If you sell the property within 20 years, some or all of the excluded amount can be taxed as ordinary income (reported on Form 4797). You can also elect not to exclude. The exclusion math uses present values and Pub 225 itself says you may need a tax advisor for it.

Pub 225's own example: an improvement costing $500,000, of which USDA paid $490,000 and the owner paid $10,000. The value of the cost-sharing improvement is $15,000 and the excludable portion is $1,550. Income included: $15,000 − $10,000 − $1,550 = $3,450. Basis increase: $500,000 − $490,000 + $3,450 = $13,450.

Self-employment tax

• CRP annual rental and incentive payments go on Schedule F and add to earnings subject to self-employment tax. People receiving Social Security retirement or disability benefits may exclude CRP payments when figuring self-employment tax (see the Schedule SE instructions).
• Payments that replace farm income, including DMC payments, count as self-employment earnings, even in a year you aren't actively farming, if they relate to your farm business.
• A landowner who rents land out generally doesn't count rent as self-employment income. But farm rentals, including commodity program payments to a landowner, are included if the lease says the landowner will materially participate and the landowner does.

Common mistakes

Reporting a landlord's share as their own. USDA reports a payment to the person whose ID number is on record. If part of it belongs to someone else, such as a landlord, Pub 225 says to report the full amount on Schedule F line 4a, put only your share as taxable on line 4b, and file a Form 1099-G as a nominee to show the actual recipient.

Assuming a disaster payment is tax-free. Farm disaster payments are generally farm income. The tax-free disaster relief rule is for personal and household expenses.

Missing withholding. You can ask for federal income tax withholding on CCC loans and on crop disaster payments with Form W-4V. That can make a large payment easier to manage at filing time.

Waiting until April on drought sales. Livestock sold early because of drought can have special timing rules. See Drought Livestock Sales: Tax Deferral Rules.

What to do

If you received a 1099-G or CCC-1099-G and don't recognize the amount: Ask your FSA county office for a payment history for the year. Say: "Can I get a list of the program payments reported on my CCC-1099-G?"

If your 1099-G or CCC-1099-G hasn’t arrived after February 1: Contact your local USDA Service Center and ask for a copy of your FSA/CCC form.

If you had crop or livestock insurance losses this year: Before you file, ask your preparer: "Do any of my indemnities qualify for the section 451(f) deferral?" Bring the dates of damage and each payment.

If you received EQIP or other cost-share for fencing, water or other improvements: Ask your preparer whether the section 126 exclusion makes sense for you, or whether including the payment and depreciating the full cost works out better.

If you sold more cattle than usual because of drought: Read the drought livestock tax guide and take your sale records to your preparer before filing.

The payment and the tax are separate decisions. FSA and NRCS decide what you receive; your preparer decides how it is reported.

• Drought livestock sales: one-year deferral and replacement period rules
• Disaster assistance: LIP, LFP, ELAP and more
• EQIP guide
• Livestock insurance: LRP and PRF

Sources

• Agricultural program payments, CRP, crop insurance and crop disaster payments, the deferral election, feed assistance, marketing assistance loans, the cost-sharing exclusion and its example, nominee reporting, self-employment earnings (DMC, CRP, landlord payments), qualified disaster relief payments and Form W-4V: IRS Publication 225 (2025), Farmer's Tax Guide, for use in preparing 2025 returns
• Box 7 agriculture payments and CCC loan reporting: IRS Instructions for Form 1099-G
• Box 9 crop insurance proceeds: IRS Instructions for Forms 1099-MISC and 1099-NEC
• Farmers’ January 15 estimated payment, the March 1 file-and-pay option and the two-thirds test: IRS Publication 505 (2026), Tax Withholding and Estimated Tax
• January 31 recipient date for Form 1099-G and the next-business-day rule: IRS Publication 1099 (2026)
• Where to ask about FSA/CCC 1099 forms: farmers.gov/taxes
• Form CCC-1099-G: IRS Instructions for Schedule F (Form 1040) (2025); the form’s title is from FSA Notice FI-3394

IRS pages checked November 4, 2026; Schedule F instructions checked November 12, 2026. Pub 225 is revised each year; the version for 2026 returns may change some details.

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