A tax exclusion allows farmers receiving Social Security to avoid self-employment tax on USDA Conservation Reserve Program payments.
Farmers aged 62 or older who receive Social Security benefits can exclude Conservation Reserve Program (CRP) rental payments from self-employment tax, potentially saving up to $5,650 annually. The exclusion applies only if Social Security benefits are already being claimed when CRP payments are received.
CRP payments are typically subject to the Social Security and Medicare portions of self-employment tax, which can add up significantly for farmers with large contracts. However, this tax break is often overlooked until tax preparers highlight the carve-out. Farmers must still account for active farm profits under the Social Security earnings test before full retirement age.
Claiming Social Security at 62 reduces monthly benefits by 30% compared to waiting until 67, but the tax savings on CRP payments may offset this reduction over time. The exclusion does not prevent benefit withholding if earnings exceed the annual limit.