When are Wages From a Family Corporation Considered Farm Income

We respond to a question from a reader on when wages are considered farm income

Photo by Jakob Cotton on Unsplash

FSA started to consider wages and dividends including IC-DISC dividends paid from a qualifying farm corporation or entity as farm income. This has been helpful for many farmers to qualify for an extra payment limit when their farm income needs to be more than 75% of total average income or AGI.

Here is the wording from FSA on this income:

“Beginning in program year 2020, wages or dividends received from a “closely held” corporation, an IC-DISC or a legal entity comprised entirely of family members may be considered farm income when the legal entity is “materially participating” in farming, ranching, or forestry activities. “Materially participating” means more than 50 percent of the legal entity’s gross receipts for each tax year are derived from farming, ranching, or forestry sources. A representative must attach a certification to form CCC-943 attesting that the legal entity “materially participates” in a farm, ranch, or forestry activity.”

The question that we got from a reader is whether the person needs to be an owner of the entity in order to have their wages qualify as farm income.