Farming Income
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This section includes information about income and expenses derived from farming.
Policy
A self-employed farmer is engaged in a farming activity for the purpose of producing income and has a direct involvement in the farming activity. Income from farming, after reduced by losses incurred, is countable.
When farming self-employment is terminated, farm property (including land, equipment, and supplies) is not countable for the resource determination for 12 months. This period of exclusion begins on the date the self-employment farming stops.
Countable income is used to determine an income budget. (See Income Budgeting to see how FAA determines the income budget.) FAA needs to know about income that is both countable and not countable to determine whether a budgetary unit’s expenses are exceeding their income. (See Income Eligibility for more information about how FAA uses countable and not countable income.)
To be self-employed as a farmer, the participant has to meet any of the following criteria:
●Be engaged in a farming activity for the purpose of producing income
●Have direct involvement in the farming activity
Irregular or unpredictable expenses may occur when producing self-employment income from farming. The participant's statement regarding predictability of farming expenses can be used as verification unless questionable.
NOTE A person who rents his land to another person to raise a crop is not a self-employed farmer.
When budgeting income of a self-employed farmer, the prior 12 months of income is averaged. Unusually low or high earning months are not included in the averaging.
When the participant’s expenses to produce self-employment farming income are irregular, the income and expenses from the prior 12 months may be averaged.
Self-employment income losses from farming may be offset against other countable income. Farming losses occur when costs of producing self-employment income are more than the income. (See Example 1)
To claim losses that exceed the self-employment income, all of the following needs to exist:
●The farmer has to receive or expect to receive $1,000 or more gross annual income from the farming business
●The farmer needs to have direct involvement in the farming activity
Verification
The participant has the primary responsibility for providing verification. (See Participant Responsibilities – Providing Verification for additional policy.)
For NA, all of the following income is required to be verified before eligibility is determined:
●Reported on a new application, during the interview of a new application, or changes reported before the eligibility determination of a new application.
●Changes after an eligibility determination of a new application (e.g., a renewal application, mid approval contact, etc.) and any of the following apply:
The source of the income has changed.
The income is questionable(g) or unclear(g).
The reported income amount has changed by $51 or more.
The previous verification in the case file is more than 59 calendar days old.
For CA, all income is required to be verified before determining eligibility.
Income from farming is offset by business losses incurred.
Examples of verification that can be used for farming include, and are not limited to, any of the following:
●Bookkeeping records
●Business ledgers listing income amounts received and expenses incurred
●Actual receipts
●Contracts for work
●Statements from patrons and companies
●Most recent Internal Revenue Service (IRS) U.S. Individual Income Tax Return (1040) form. Below are common IRS Schedule forms that the participant may provide in addition to the 1040:
Schedule C, Profit or Loss From Business
Schedule E, Supplemental Income and Loss
Schedule F, Profit or Loss from Farming
Schedules B-1, C, D, K, K-1, K-2, K-3, and M-3 of IRS U.S. Return of Partnership Income (1065) form (See Limited Liability Company (LLC) Definition for more information about LLCs.)
NOTE Do not use the most recent IRS 1040 and Schedule forms when the participant indicates it does not accurately reflect the participant's current income.
●Rent or mortgage receipt for business property
●Property tax statements for business property
●Utility costs for business property
●Cleaning cost bills for business property
●Business location and equipment maintenance
●Personal records indicating personnel salaries or costs of outside labor, such as canceled checks and payroll checks
●Participant statement verification can be used for self-employment income when obtaining documented or collateral contact verification may cause harm or undue hardship(g) for the participant or when all of the following occur:
Attempts to obtain the verification from an acceptable source are unsuccessful. This includes documented and collateral contact verification.
The participant’s statement is not questionable(g).
●Participant’s statement for self-employment expenses unless questionable
NOTE When self-employment expenses are not verified, eligibility is determined without the 40% Self-Employment Expense deduction.
Examples
1) John makes wooden pens and sells them at craft fairs, swap meets, and farmers markets. During the summer, he also grows sweet corn and sells the corn at the farmers markets.
John normally makes a profit of $1200 per year from the corn sales, but this year the crop was hit with a pest infestation, and he lost the entire crop. John provided receipts to show that he spent $2400 on seed and other farming expenses. The farming self-employment income for the year is a loss of $2400.
According to John’s tax return, he had income of $30,000 last year from the sale of his pens and he expects this year’s income to be about the same. John provided a gas receipt for proof of his business expenses for the pens.
John, and his wife Jane, are retired and have no additional income.
The pen self-employment income is annualized to identify an income of $2500 per month ($30,000/12). Because John lost $2400 in farming expenses, his farming losses are also annualized and reduce the monthly pen income. The farming expense is calculated as $200 per month ($2400/12). Therefore, John’s monthly income is $2300 per month ($2500-$200).
NOTE John is also eligible for the 40% Self-Employment Deduction for the pen business.
Legal Authorities
AAC R6-12-501 – 503
A.R.S 46-292-P01
7 CFR 273.9(b)(1)(ii)
7 U.S.C 2014 (d)(9)
7 U.S.C. 2014(6)(d)(f)
last revised 10/02/2023