Farmers will face increases in both income taxes and estate taxes after 2025 if Congress fails to extend expiring provisions of the 2017 Tax Cuts and Jobs Act, according to an analysis by USDA’s Economic Research Service.
The provisions scheduled to sunset in 2025 include a higher exemption from estate taxes and several provisions that lower federal income taxes, including reductions in personal tax rates, and an increase in the child tax credit.
Expiration of the personal income tax provisions would increase the total tax liability of farm households by $4.5 billion.
“While large and very large farms would experience the largest increase in estimated income tax liability, the largest percentage increases would occur for farm households with moderate sales,” the USDA economists found.
For very large farms, the average income tax increase would be 5.4%, or $27,588.
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Large and very large farms are classified as those with at least $1 million and at least $5 million in gross cash farm income, respectively.
The expiration of the TCJA’s enhancements to the child tax credit would mean that only 26.8% of farm households would get it, down from 35.9%, and the average benefit would be lowered to $1,331, the analysis said.
The expiration of a 20% deduction on qualified business income, sometimes known as Section 199A, would increase taxes for about 45% of all farm households, or about $2,454 on average. Taxes on large farms would be increased by an average $11,858, or 8.5%. Very large farms would owe on average $87,219 more, an increase of 14.1%, according to the analysis.
The deduction is intended to keep small business owners on par with corporations, which had their tax rates slashed in the TCJA.
Significant farm estates also could be hit by taxes if the doubled TCJA exemption is allowed to expire after 2025. The exemption was also adjusted for inflation, making it $13.6 million for 2024, compared to $5.4 million in 2017 before the TCJA was enacted.
An estimated 1% of farm estates would owe taxes, if the higher exemption expires, compared to 0.3% now. Some 7.3% of large farm estates and 8.5% of very large farm estates would owe estate taxes.
Because more of an estate’s value would be exposed to taxation if the TCJA exemption rate expires, the average tax rate for taxable estates would increase from 14.6% to 14.7% of an estate’s total value, the analysis found.
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