2026 FARM PROGRAM UPDATE

Qualified Pass-Through Entities and Husband-Wife Farm Operations

Beginning with the 2026 program year, USDA/FSA will apply expanded payment-limit treatment to qualifying pass-through farm entities. The opportunity can be meaningful, but the result depends on genuine ownership, active engagement, AGI eligibility, attribution rules and timely FSA filings.

THREE POINTS TO KNOW

01 Expanded entity treatment

Partnerships, S corporations, qualifying LLCs and joint ventures may receive per-owner payment-limit treatment.

02 $164,000 ARC/PLC limit

The 2026 ARC/PLC cap is $164,000 per eligible person or legal entity, subject to program and attribution rules.

03 September 15 deadline

For program year 2026, affected entities should update their farm operating plans with the local FSA office by Sept. 15, 2026.

KEY DISTINCTION: QPTE is a USDA/FSA payment-limitation and eligibility concept - not a new federal income-tax entity classification.

What changed for 2026?

A broader group of pass-through farm entities can be treated more like general partnerships and joint ventures for payment-limit purposes.

A QUALIFIED PASS-THROUGH ENTITY INCLUDES

• A partnership, LP, LLP or LLLP within Subchapter K.

• An S corporation.

• An LLC that has not elected to be treated as a C corporation.

• A joint venture or general partnership.

Not included

A C corporation or an LLC that affirmatively elects C-corporation treatment is not a QPTE for this purpose.

FSA entity certifications should accurately identify whether the operation is a C corporation, S corporation, pass-through LLC or LLC taxed as a corporation.

Why the change matters

A QPTE may have a maximum payment capacity equal to the applicable program limit multiplied by the number of first-level eligible owners or non-QPTE legal entities.

PAYMENT-LIMIT FORMULA
PROGRAM LIMIT ×  ELIGIBLE FIRST-LEVEL OWNERS =  POTENTIAL ENTITY CAP

A higher ceiling is not a guaranteed payment.

The USDA program must actually generate a payment. Each owner must also satisfy ownership, active-engagement, AGI and attribution requirements. Payments can be reduced for an owner who has already reached a limitation through another operation.

Illustration: two eligible owners

$164,000  ×  2  =  $328,000 potential ARC/PLC entity-level ceiling for 2026.

Payment limits and AGI eligibility

The expanded entity cap works together with direct attribution and owner-level income eligibility.

2026 ARC/PLC ILLUSTRATIONS

Eligible first-level owners

Calculation

Potential entity cap
1 $164,000 × 1 $164,000
2 $164,000 × 2 $328,000
4 $164,000 × 4 $656,000

AVERAGE AGI RULES

General rule

The $900,000 average adjusted gross income limitation remains relevant for many FSA and NRCS programs. The lookback generally uses three taxable years preceding the immediately preceding tax year.

QPTE owner-level certification

Beginning in 2026, a QPTE generally does not certify the $900,000 AGI limit at the entity level. Its individual members must satisfy the applicable AGI requirements.

75% farming-income exception

For specified conservation and disaster payments, the AGI cap may be waived when at least 75% of average gross income is from farming, ranching or silviculture and the required FSA certification is provided.

Broader farming-income definition

The 2026 rules recognize additional agriculture-related income, including agritourism, direct-to-consumer sales and certain sales or trades of agricultural equipment.

Married filing jointly: FSA generally assigns the joint-return AGI to each spouse unless an acceptable professional certification shows how income would have been reported separately, consistent with the joint return.

Advisor note

Review current versions of Forms CCC-941 and CCC-943 and the local FSA office’s documentation requirements before relying on an AGI exception.

Husband-wife farms: tax and USDA rules are different

A joint federal return does not, by itself, determine ownership or entity status for either system.MARRIED FILING JOINTLY DOES NOT AUTOMATICALLY CREATE A PARTNERSHIP, CREATE A DISREGARDED ENTITY OR COMBINE TWO SPOUSES INTO ONE USDA “PERSON.”

SIDE-BY-SIDE TREATMENT

Issue Federal income tax USDA/FSA program treatment

Joint return A filing status only. Each spouse remains a separate natural person for attribution.

Co-owned unincorporated farmGenerally a partnership unless a qualified joint venture election applies.

A genuine joint venture may be a QPTE.

QJV election

Avoids Form 1065; each spouse reports a share on separate Schedule F and Schedule SE.

Does not eliminate the underlying joint venture for FSA purposes.

Disregarded entity

Typically requires one owner, such as a single-member LLC.

Disregarded status is not required for QPTE treatment.

QUALIFIED JOINT VENTURE REQUIREMENTS

• The only members are spouses who file a joint return.

• Both spouses co-own the business and materially participate.

• Both elect not to be treated as a partnership.

• The business is not held in the name of a state-law entity such as an LLC or limited partnership.

• Income, deductions, gains, losses and credits are divided according to each spouse’s interest.

North Dakota note

North Dakota is not a community-property state. A North Dakota LLC owned by both spouses generally has two members, defaults to partnership tax treatment and cannot use the IRC section 761(f) QJV election while the business is held in the LLC.

Four common husband-wife farm scenarios

The classification depends on actual ownership and operating facts - not merely the tax return filing status.

SCENARIO A

Both spouses co-own and operate without an LLC

• Federal tax: Partnership by default; may elect qualified joint venture treatment if all requirements are met.

• USDA/FSA: Generally a husband-wife joint venture and QPTE if both are genuine owners/members.

SCENARIO B

One spouse owns; the other assists

• Federal tax: Generally a sole proprietorship. The assisting spouse may be an employee depending on the facts.

• USDA/FSA: Joint filing alone does not create a two-member operation; ordinarily only one ownership-based limit.

SCENARIO C

Both spouses own a North Dakota LLC

• Federal tax: Default partnership and Form 1065 unless a corporate election applies.

• USDA/FSA: QPTE if the LLC has not elected C-corporation treatment; an S corporation also qualifies.

SCENARIO D

One spouse owns a single-member LLC

• Federal tax: Generally disregarded unless a corporate election applies.

• USDA/FSA: The entity may be a QPTE, but multiplying by one owner does not increase the payment cap.

FACTS THAT SUPPORT A TWO-OWNER OPERATION
Ownership interest
Sharing profits and losses
Capital or property at risk
Labor or management
FSA operation records
Consistent legal and tax documents

Consistency matters

CCC-902E, crop-insurance shares, leases, FSA-578 acreage reports, bank accounts, production contracts, ownership records and federal tax reporting should tell the same story. FSA makes the final determination from the actual operating facts.

Active engagement: ownership alone is not enough

Each member supporting the expanded payment capacity must satisfy the applicable contribution and risk requirements.

Compensated contributions can count

Beginning in 2026, compensated active personal labor or management - including salary or guaranteed payments - may be used in meeting the actively engaged test for QPTE members, subject to the applicable rules and documentation.

CORE CONTRIBUTION FRAMEWORK

• A significant contribution of capital, equipment, land, active personal labor or active personal management.

• A share of profits and losses commensurate with the contribution.

• A contribution that is at risk.

• Labor or management that is regular, identifiable, documentable and separate from other members’ contributions.

SIGNIFICANT LABOR AND MANAGEMENT BENCHMARKS

ACTIVE PERSONAL LABOR

The smaller of 1,000 hours annually or 50% of the hours required for a comparable operation represented by the member’s share.

ACTIVE PERSONAL MANAGEMENT

At least 25% of total management hours or at least 500 hours annually.

These are general benchmarks. Family-member, landowner, cash-rent tenant and entity-specific rules can alter how the test applies.

SPECIAL RULES TO WATCH

Cash-rent tenant

When the tenant is a QPTE, each member - or the member’s spouse - generally must provide significant active personal labor or management for the member’s share of program payments on cash-rented land.

Land titled in the entity

A QPTE member may be treated as a landowner when the entity holds title and adequate documentation shows that title would revert to members upon dissolution.

2026 filing deadline and documentation

The expanded treatment is only useful when the farm operating plan, ownership records and supporting evidence are complete and consistent.
NOW: Review structure, ownership and crop-insurance/NAP timing.
BEFORE SEPT. 15: Prepare and update the entity farm operating plan.
SEPT. 15, 2026: Program-year deadline and ownership date for 2026 QPTE attribution.
AFTER 2026: FSA generally returns to June 1 for determining entity ownership interests.

FSA FILING AND RECORDS CHECKLIST

• File or update Form CCC-902E with the county FSA office that services the operation.

• Provide Form CCC-901 and separate CCC-902E filings for embedded entities when required.

• Gather articles, bylaws, operating agreements, partnership agreements and evidence of authority.

• Confirm ownership percentages, stock or membership ledgers and capital accounts.

• Retain leases, land titles, equipment records and proof of capital at risk.

• Maintain payroll, guaranteed-payment and labor/management time records.

• Reconcile FSA-578 acreage reports, crop-insurance shares, production contracts and bank records.

• Review CCC-941, CCC-943 and owner-level AGI support.

PRACTICAL FILING POINT

Where to file

CCC-902E is filed with the local USDA/FSA county office that maintains the farm’s records - not with the IRS or the state tax department. Work with the local FSA representative because supporting documents vary with the entity and ownership structure.

Coordinate before restructuring

Producers with crop insurance or NAP coverage should consult the crop-insurance agent or local FSA office before changing the farm structure so the timing does not unintentionally affect existing coverage or program records.

A practical action plan

Use the 2026 changes as a reason to align legal structure, tax reporting, FSA records and the way the farm actually operates.

Classify the operation

Determine whether the farm is a sole proprietorship, partnership, QJV, S corporation, pass-through LLC or non-QPTE corporation.

Confirm bona fide owners

Verify ownership, profit-and-loss sharing, contributions, risk and participation for every person expected to support a payment limit.

Test active engagement

Document labor, management, land, equipment and capital contributions using contemporaneous records.

Project limits and AGI

Model potential program caps, direct attribution, other farm interests and owner-level AGI eligibility.

Update and retain records

File the 2026 farm operating plan by the deadline and maintain consistent legal, tax, crop-insurance and FSA documentation.

OFFICIAL GUIDANCE AND ADDITIONAL READING

• USDA/FSA: USDA Expands Payment Limitation and Payment Eligibility Provisions for Farmers

• USDA/FSA: Payment Limitations

• USDA/FSA: Actively Engaged in Farming

• USDA/FSA: Adjusted Gross Income

• IRS: Married Couples in Business

• IRS: Election for Married Couples - Unincorporated Businesses

IMPORTANT NOTICE

This newsletter provides general information and is not legal, tax or program-eligibility advice. USDA/FSA determines eligibility from the applicable law, regulations, forms and operating facts. Consult the local FSA office, tax advisor and legal counsel before changing ownership or entity structure.