Understanding FSA Payment Eligibility Rules Before 2026

Key eligibility requirements, income limitations, and program updates every producer should know before 2026.

Prior to the payment eligibility changes that took effect with the 2026 program year, agricultural producers seeking benefits through USDA Farm Service Agency (FSA) programs were subject to a series of income, participation, and ownership requirements. These rules were designed to help ensure that federal farm program payments were directed to individuals and entities actively engaged in agricultural production.

Understanding these historical rules provides valuable context for producers evaluating how the updated payment limitation provisions may affect their operations and business structures moving forward.

Overview of the Farm Service Agency (FSA)?

The Farm Service Agency (FSA) is an agency within the U.S. Department of Agriculture (USDA) that administers numerous federal agricultural programs intended to support farmers and ranchers. These programs include commodity support programs, disaster assistance, conservation programs, and farm loan programs. FSA is responsible for determining eligibility and administering payments for many of these programs.

To receive benefits through many FSA-administered programs, producers must satisfy specific eligibility requirements established by federal law and USDA regulations.

Adjusted Gross Income (AGI) Requirements

Adjusted Gross Income (AGI) is a financial measure used by USDA when determining eligibility for certain FSA and Natural Resources Conservation Service (NRCS) programs. For individuals, AGI is generally based on the adjusted gross income reported on federal income tax returns. For legal entities, USDA applies comparable income calculations based on the entity's taxable income and organizational structure.

Participants seeking benefits under covered programs are generally required to certify compliance with USDA's AGI requirements and authorize verification through the Internal Revenue Service using Form CCC-941.

The Three-Year Average AGI Rule

Prior to 2026, USDA generally determined eligibility using a producer's average adjusted gross income over a three-year period, rather than relying on income from a single tax year. This approach was intended to account for the fluctuations commonly experienced in agricultural operations and provide a more representative measure of a producer's long-term income.

The three-year averaging method generally required USDA to review the three taxable years preceding the applicable program year. Producers were required to complete Form CCC-941, Average Adjusted Gross Income Certification and Consent to Disclosure of Tax Information, authorizing USDA to verify eligibility.

Example

If a producer experienced an unusually profitable year due to strong commodity prices or a significant asset sale, the three-year averaging method helped reduce the impact of that single year's results on overall program eligibility. Likewise, years with lower profitability were included in the overall average.

The $900,000 AGI Limitation

Under the rules in effect before the 2026 changes, individuals and legal entities were generally ineligible for many FSA program payments if their average AGI exceeded $900,000, unless a specific statutory exception applied. This income limitation served as one of the primary eligibility tests for numerous USDA programs.

As a result, farm operators, partnerships, corporations, and LLCs frequently monitored AGI levels and ensured that annual certifications were completed accurately and on time to preserve eligibility for federal farm program benefits.

Actively Engaged in Farming Requirement

Meeting the AGI limitation alone was not sufficient to qualify for program payments. Producers also had to satisfy USDA's actively engaged in farming requirements. Producers were also required to satisfy USDA's actively engaged in farming requirements. Congress and USDA established these rules to help ensure that payments were directed to individuals and entities making meaningful contributions to a farming operation rather than passive investors.

To be considered actively engaged in farming, a person or legal entity generally had to provide:

A Significant Contribution of Resources

One or more of the following:

·        Capital

·        Land

·        Equipment

A Significant Contribution of Active Involvement

One or more of the following:

·        Active personal labor

·        Active personal management

The contributions generally needed to be significant and subject to risk within the farming operation.

Payment Limitation Rules Before 2026

Before the 2026 rule changes, the treatment of business entities varied depending on their legal structure.

Partnerships and Joint Ventures

General partnerships and joint ventures could often qualify for multiple payment limitations when multiple partners independently satisfied the actively engaged in farming requirements and other applicable eligibility standards.

LLCs and S Corporations

In contrast, farm operations organized as LLCs and S corporations were generally limited to a single payment limitation, regardless of the number of owners actively participating in the operation. This could result in different payment outcomes for operations that were otherwise very similar from a farming standpoint.

Ownership Attribution and Eligibility Requirements

Prior to 2026, producers and entities seeking USDA program payments generally needed to:

·        Maintain accurate ownership records.

·        Report ownership interests in farming entities.

·        Disclose direct and indirect ownership interests in other agricultural operations.

·        Comply with payment attribution requirements.

·        Demonstrate active participation in the farming operation.

·        Complete annual AGI certifications and related eligibility forms. ,

Failure to satisfy these requirements could result in reduced payments or a loss of eligibility for certain USDA program benefits.

Key Takeaway

Prior to the 2026 changes, eligibility for many USDA farm program payments generally rested on three fundamental requirements:

1.     Compliance with the three-year average AGI limitation.

2.     Satisfaction of the actively engaged in farming standards through meaningful contributions of labor, management, land, capital, or equipment.

3.     Compliance with payment limitation and ownership attribution rules, which often treated LLCs and S corporations differently than partnerships and joint ventures.

The 2026 changes largely address the treatment of pass-through entities, but the underlying eligibility framework established by USDA and Congress continues to play a critical role in determining access to farm program benefits. For additional information and the most current guidance regarding FSA payment eligibility, payment limitations, AGI requirements, and actively engaged in farming provisions, producers are encouraged to visit the USDA Farm Service Agency’s Payment Eligibility page.

The information provided on this blog post is for general informational purposes only and is not intended to be accounting, tax, legal, financial, or other professional advice. While we strive to provide accurate and timely information, we make no representations or warranties regarding its completeness or applicability to your specific circumstances. Before making any business, tax, or financial decisions, please consult with a qualified professional advisor.