USDA Expands Payment Eligibility for LLCs and S Corporations

By Robert Moore

Farmers who operate through an LLC, S corporation, or certain other business entities are affected by significant changes in USDA payment eligibility rules. Beginning with the 2026 crop year, qualifying business entities will receive more favorable treatment for purposes of USDA payment limitations. The changes give farmers greater flexibility to use business entities for liability protection and other business purposes without unnecessarily limiting access to USDA farm programs.

LLCs and S corporations now receive pass-through treatment

Historically, the way a farm was structured could significantly affect its eligibility for USDA program payments. An operation conducted as an LLC or S corporation were subject to a single payment limitation at the entity level, even if multiple owners were actively involved in the farming operation.

Under the new rules, beginning with the 2026 crop year, qualifying LLCs and S corporations may receive multiple payment limitations. Each member of a qualifying pass-through entity who meets the applicable requirements for being actively engaged in farming can help qualify the entity for expanded payments.

This is an important change for farms that have used, or are considering using, an LLC or S corporation for business purposes. Farmers now have a greater ability to obtain the liability protection and organizational benefits of an entity while still having multiple qualifying members considered for USDA payment eligibility. Keep in mind that simply owning an interest in an LLC or S corporation is not enough. Members must satisfy the requirements for being actively engaged in farming, including making the required capital contributions and being actively involved in the farming operation.

Before making any changes solely for FSA programs, farmers should be sure to discuss the potential change with their attorney, accountant and crop insurance agent.  Changes to business entities can have tax, estate planning and crop insurance coverage ramifications.  Consulting with this team of advisors will help ensure that the correct decision is made for the business structure of the farming operation.

LLCs and S corporations must update their Farm Operating Plans for 2026

There is a special rule for the first year of these changes.  For program year 2026 only, farms operating as an LLC, S corporation, or another newly qualifying pass-through entity must file an updated Farm Operating Plan with FSA by September 15, 2026.  This deadline is particularly important because FSA needs current information regarding the ownership and structure of the entity and the contributions of its members. A farm that has been operating as an LLC or S corporation should not assume that its existing information on file with FSA is sufficient under the new rules. Farmers operating through one of these entities should contact their local FSA county office as soon as possible to determine what updates are needed. After 2026, FSA will generally return to using June 1 as the date for determining ownership interests in an entity.

Members can be paid wages or management compensation without being disqualified

Another important change addresses a concern that has existed for members of farm entities who contribute labor or management to the operation. Under the updated rules, members of an entity may receive compensation for their labor and management contributions and still use those same contributions to help qualify as actively engaged in farming. In other words, being paid wages or other compensation for work performed for the entity does not, by itself, prevent that member from using the labor or management contribution to satisfy the actively engaged in farming requirements.

This change provides more consistent treatment among different types of business entities. It is particularly important for LLCs and S corporations that compensate members or shareholders for the work they perform in the farming operation. Under previous programs, a farm had to choose between compensating an owner for labor or management and having that owner’s contribution recognized for payment eligibility purposes.

ARC and PLC payment limit increases

The new provisions also increase the payment limitation for the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs. Beginning with the 2025 crop year, the payment limitation increased from $125,000 to $155,000. The limitation will be adjusted annually for inflation going forward.

More Information

For more information on the new payment limitation rules, be sure to join The National Agricultural Law Center’s webinar titled Payment Limitations, Eligibility, & Ag Tax Considerations.  The webinar will be held on September 16 at noon.  The webinar is free but registration is required.  Registration is available here.