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Federal Tax Issues

Federal tax policy can affect the well-being of farm and rural households and the viability of farm operations. In recent years, Federal income taxes on both farm and nonfarm income accounted for nearly two-thirds of the total Federal tax share for farmers, while Social Security and self-employment taxes represented nearly a third of the total share. These taxes can impact differently based on farm household type. Beyond a farm operation's income, the tax code influences farm management and other decisions, such as capital purchases and dispositions, and farm estate planning. The tax code can also affect eligibility for Federal program payments because they are linked to measures of adjusted gross income.

The Federal tax code also influences the well-being of rural households. Rural households on average have lower incomes than urban households and are more likely to live in poverty. Through refundable tax credits, the tax code assists low-income families, particularly those with children.

USDA, Economic Research Service (ERS) researchers study features of Federal tax law, the effects of Federal taxes on agriculture and the broader rural economy, as well as the impact of significant tax reform and other tax proposals. ERS also conducts research related to the use of the Federal tax system for the delivery or targeting of farm program benefits, including income caps for farm program payment eligibility.

ERS research findings indicate:

  • Using data from USDA's 2023 Agricultural Resource Management Survey (ARMS), ERS estimated the impact of the estate tax for the roughly 41,104 farm estates likely to have been created in 2024. An estimated 407 farm estates—representing about 1percent of all estates—would have been required to file an estate-tax return. After accounting for tax adjustments, deductions, and exemptions, approximately 0.3 percent of farm estates were estimated to owe estate taxes in 2024. For more information, see Federal Estate Taxes.
  • Past ERS research indicates Federal income tax credits—such as the Earned Income and Child Tax credits—have reduced the rural poverty rate by providing an income boost to low- and middle-income rural taxpayers. For more information, see Federal Tax Policies and Low-Income Rural Households (May 2011).
  • Income eligibility caps for farm program payments specified in Farm Bill legislation typically affect only a small number of farm payment recipients each year, and the impact varies by farm type and organizational structure. For more information, see Effects of Reducing the Income Cap on Eligibility for Farm Program Payments (September 2007) and an update to this research in the Amber Waves feature (August 2016) "Farm Bill income cap for program payment eligibility affects few farms."