USDA has finalized new payment-limit rules that will give many farm operations organized as LLCs, S corporations and other pass-through entities a clearer path to receiving farm program payments.
The final rule went into effect June 2 and will begin with the 2026 crop year. Under the new guidance, each equal owner who is actively engaged in farming may qualify for a separate payment limit, rather than the entity being treated as a single recipient.
“We know under the old rules, if you’re an S corporation or an LLC, you were subject to one payment limit, whether you had five owners, one owner didn’t matter, you had one payment limit,” says Farm CPA Paul Neiffer. “Now we’re going to have payment limits based on the number of owners. If you have three owners, you’re going to have three payment limits.”
The change implements provisions in the One Big Beautiful Bill Act and updates long-standing Farm Service Agency rules that had capped many entity-based operations at a single payment limit. USDA’s current payment-limit materials show Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) payments are subject to a $155,000 annual limit beginning in program year 2025.
“I think USDA finally realized if you’re going to allow additional payment limits for an S corporation, those S corporations, under tax law, are required to pay salaries, and so that was going to be a conflict,” Neiffer says. “They finally said, ‘Hey, we don’t care if you’re getting paid salary. So we don’t have to worry about that anymore and that was really good news in the new rules.’”
Long-Awaited Change
Neiffer says the final rule is “long overdue” and gave USDA an A to A-plus rating for how it carried out the policy change, adding farmers have been pushing for the update for 15 to 20 years.
The rules remove a major concern for farms organized as entities, Neiffer explains: No Adjusted Gross Income (AGI) testing at the entity level. Instead, the focus is on each owner, with the payment limit applied at the owner level and tied to active engagement in the farming operation.
The updated guidance also lets members and owners be paid through salaries or guaranteed payments for their services without jeopardizing eligibility under the new rules. That is a shift from the old system, where labor or management payments could reduce or eliminate benefits for some operations.
“The old rules were subject to AGI limits,” Neiffer says. “If their income was over $900,000, they didn’t get any payment, whether there were four owners or one owner. Well, this says just because general partnerships don’t have payment limits, we’re going to extend that to S corporations and LLCs, so we don’t have to worry about payment limits anymore for those entities. We just drop down to the individual owners, the person with a Social Security number. If they’re under $900,000, then they get the payment limit.”
Take Action Soon
Farmers have until Sept. 15 to ensure their ownership and structure information is current with their local FSA office so the new rules can be applied.
“We have plenty of time to get your organization updated,” Neiffer adds. “If you want to switch from a C corporation to an S corporation or if you want to switch from a general partnership over to an LLC, as long as that’s all done by Sept. 15th, you’ll be in time for the 2026 crops.”
USDA is awaiting some final FSA handbooks with additional implementation details, he says. The agency estimates the rule change will increase federal farm support by a little more than $500 million over 10 years, or about $50 million a year. Neiffer calls that a small amount for USDA but meaningful money for farmers.
“For USDA, that’s a rounding error, that’s petty cash, basically, for them. But for farmers, an extra $50 million, that’s gonna help out,” he says.
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