Effect on Sunsetting Tax Provisions for Family Farm Households Revealed

Two recent laws enacted temporary provisions to the Federal tax code: the American Rescue Plan Act (ARPA) and the Tax Cuts and Jobs Act (TCJA).

A new report issued today by USDA’s Economic Research Service, An Analysis of the Effect of Sunsetting Tax Provisions for Family Farm Households, evaluates the impact of these expired and expiring Federal income and estate tax policies on the financial well-being of farm households.

Here are a few findings from the report:

  • The sunsetting of ARPA and TCJA provisions would result in increased taxes for most farm households, with the impact varying by farm size.
  • Because most farms (97.6%) are structured as pass-through entities that are taxed under the individual income tax, the sunsetting provisions revolving around the income tax rates (including changes to the standard deductions and personal exemptions) were estimated to have the largest increase on farm household tax liabilities.
  • The second largest impact was from the qualified business income deduction, which reduces taxable income by 20% of farm income. For farm households with positive farm income, this deduction offers a significant reduction in tax liability. Sunsetting this deduction would increase tax liabilities by $2.2 billion.

For more information, please refer to the full report.