The U.S. Department of Agriculture (USDA) has announced significant changes to payment limitation and payment eligibility rules that may increase benefits available to many farming operations beginning with the 2026 program year. These changes could be especially important for farms operating as LLCs, S corporations, partnerships and similar business entities.
KEY CHANGES
Expanded treatment of LLCs and S corporations
Beginning with the 2026 crop year, qualifying LLCs, S corporations, partnerships, joint ventures, and general partnerships will generally be treated the same for USDA payment limitation purposes. Qualifying LLC and S corporation members who meet the “actively engaged in farming” requirements may now help the entity qualify for expanded payment limitations. Previously, many LLCs and S corporations were limited to a single payment limitation.
Increased ARC and PLC payment limits
For the 2025 crop year and beyond, the payment limitation for Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs increases from $125,000 to $155,000. The new limit will also be adjusted annually for inflation.
Adjusted gross income rules
The legislation also makes important changes to USDA’s Average Adjusted Gross Income (AGI) requirements. Historically, producers with average AGI exceeding $900,000 could face limitations on eligibility for certain USDA conservation and disaster assistance programs unless they met specific farming income exceptions. Under the new rules, the definition of farming income has been broadened to better reflect today’s agricultural operations. In addition to traditional farming, ranching, and forestry income, qualifying income may now include:
- Agritourism activities
- Direct-to-consumer sales
- Certain equipment sales associated with the farming operation
As a result, more diversified agricultural operations may qualify for the AGI exception. Producers remain exempt from the $900,000 AGI limitation for conservation and disaster assistance programs if at least 75% of their average gross income is derived from farming, ranching or forestry activities as newly defined.
In addition, qualified pass-through entities are no longer required to certify compliance with the average AGI limitation at the entity level. Instead, AGI compliance is determined at the individual member level, consistent with the rules currently applicable to joint operations.
Changes to active engagement rules
USDA has updated the rules governing labor and management contributions. Members of farm entities may now receive compensation for labor and management contributions while using those same contributions to meet the “actively engaged in farming” requirements. This change creates more consistent treatment across entity types.
Broader definition of farming income
The definition of farming income has been expanded to better reflect modern agricultural operations. Activities such as agritourism, direct-to-consumer sales, and certain equipment sales may now be included when determining whether a producer meets the requirements for the AGI exception.
Important action required
For the 2026 program year only, operations structured as LLCs, S corporations, or other newly qualified pass-through entities must submit updated farm operating plans to the Farm Service Agency (FSA) by September 15, 2026. After 2026, USDA will return to using June 1 as the ownership determination date. After determining your entity’s pass-through status, please contact the FSA listed in your letter.
USDA also recommends that producers with crop insurance or Noninsured Crop Disaster Assistance Program (NAP) coverage consult with their crop insurance agent or local FSA office before restructuring their operation to avoid unintended impacts on current coverage.
What this means for you
These changes may create opportunities for some farming operations to:
- Increase eligibility for USDA program payments
- Reevaluate entity structures without sacrificing USDA benefits
- Improve succession and asset protection planning through LLC or S corporation
structures - Preserve eligibility for certain programs through the expanded farming income
definition - Increase the likelihood of qualifying for USDA conservation and disaster programs
through expanded AGI exception rules for diversified farming operations
This change may be particularly valuable for farms that have expanded into agritourism, retail sales, or other value-added activities while remaining primarily engaged in agricultural production.
We encourage you to review your current farm entity structure and discuss whether these changes may benefit your operation. If you would like assistance in evaluating the tax and business implications of these new rules, please contact our office at 563-556-0123.