Inflation Reduction Act Assistance for Distressed Borrowers

Rural Tax Education

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USDA-FSA from the Inflation Reduction Act is providing program payments for debt relief to farmers that are in financial distress. More details and information will be coming out, but here are few items concerning the tax issues around this program.

  • Payments are automatic. There is no need to work with a third-party such as an attorney or an accountant to qualify or sign up for this program. Contact your local FSA office for more information.
  • Recipients will need to file a tax return to comply with IRS regulations. All recipients will need to file a federal income tax return reporting this payment as income, regardless of their current income level, land status, current employment status, and even if they have not filed an income tax return Failure to file a return with the correct income included could result in additional amounts owed to the IRS for interest and penalties.
    • Recipients will receive a Form 1099G from USDA in January/February of 2023.
    • Program Payment recipients must include the amount from the 1099G on their 2022 form 1040: Schedule F subject to both ordinary income tax and self-employment tax.
    • This may result in a tax liability of 10% to 40% or more, from the debt relief program payment that could be owed in federal taxes. For example, if an FSA borrower has a debt-relief program payment of $100,000, this could result in an increase of a federal tax liability of $10,000 to $40,000 or more.
  • In addition to the federal tax liability, individuals may also have a state and local tax liability for the payments. Once program details are known, recipients should consult with their tax professional about the potential tax liability.
  • The settlement may have implications on other tax provisions as well. It may affect the earned income credit, childcare credit, and tax on social security and other benefits.
  • Participants should begin planning now for how to cash-flow the tax implications of this program payment.
  • To learn more about the potential tax implications of USDA program payments please visit www.famers.gov/taxes. This webpage will continue to be updated with resources on the tax consequences of Section 22006 such as fact sheets and informational webinars.

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