Correction: The 2025 ARC/PLC Limit Really Is $160,000
We are always willing to admit when we get something wrong
I got this one wrong, and a sharp reader caught it. If you read my post titled “2025 ARC/PLC Limit is Really $150,880,” throw it out. The sequestration cut does not come off the back end of your payment limit. It comes off the front end, and for most of you at the cap it costs you nothing.
Here is the language from subparagraph 6 G of the 1-ARCPLC handbook, and note there are two different rules depending on the year.
For 2019 and prior years: “a sequestration percentage will be applied to the payment amount determined after all reductions have been applied, including payment limitation provisions.”
For 2020 and later years: “a sequestration percentage will be applied to the payment amount determined before any reductions have been applied, including payment limitation provisions. The sequestration amount is reduced from the gross payment amount for the producer receiving the payment as the first step followed by any additional reductions, including payment limitation.”
FSA flipped the order starting with the 2020 crop year. Sequester first, then apply the cap. That is the opposite of what I told you.
The Example
Farmer Bob computes $200,000 of 2025 ARC/PLC before any reductions.
Old way, the way I wrote it: apply the $160,000 limit, then cut 5.7%, check is $150,880.
Correct way: cut 5.7% off the $200,000 first, which gets you to $188,600. Then apply the $160,000 limit. Bob’s check is $160,000.
Bob loses nothing to sequestration. The 5.7% came out of the $40,000 that was going to disappear at the cap anyway.
FSA uses the same math in its own handbook example. An entity computes $147,000 of PLC, sequestration at 5.9% drops it to $138,327, the payment limit applies, and the entity receives $125,000.
Where the Breakeven Sits
Divide $160,000 by 0.943 and you get $169,671. That is your number.
If your gross computed payment is $169,671 or more, you get the full $160,000 and sequestration is a non-event.
If your gross is under that payment limit, you eat the full 5.7%. A farmer with a $150,000 gross payment takes home $141,450.
So, the folks who actually pay for sequestration are the ones below the cap, not the ones above it. I had that backwards.
Two Other Notes
First, the sequestration percentage in the handbook table is keyed to the fiscal year the contract was approved, not the fiscal year the check goes out. It is 6.2% for FY 2019, 5.9% for FY 2020, and 5.7% for FY 2021 through 2030. Either way you land on 5.7% for the 2025 crop.
Thanks to the reader who pushed back on this. Keep doing that.