House Approves Farm-Related Tax Relief

October 31, 2000

It's now up to the Senate to approve a tax relief bill passed by the House late last week. Among the provisions: producers, as self-employed workers, would be able to take a full deduction on the cost of their health insurance premiums in the next tax year and could invest and save with tax-free withdrawals from interest-bearing accounts, and benefit as well from income-averaging of poor crop years against the bumper crops.

"This taxpayer relief offers producers a way to manage the financial inputs of heath insurance, savings and crop income into next year's farm plan," said House Agriculture Committee Chairman Larry Combest (R-Tx). "They would certainly welcome such a helping hand at tax time."

"The Taxpayer Relief Act of 2000" (H.R. 2614) as adopted by the House on Thursday, contains three provisions helping farmers and ranchers.

After Dec. 31, self-employed individuals may deduct 100% of the costs of health insurance. Recent changes in the tax code provided for a phased-in increase in the allowable deduction that may be taken for the costs of health insurance. However, this measure provides a full deduction beginning in the next tax year.

"FFARM" accounts (Farm, Fishing, and Ranch Risk Management Accounts) are authorized. Eligible producers could deposit up to 20% of taxable income per year into an interest bearing account to be used as a "rainy day" account. Balances in the account must be dispersed within five years of establishing such an account. Although earnings would be taxed in the year they are received, any withdrawal from the account would be treated as coming from the previously taxed earnings received on the account. Deposits in the account also would not be subject to the self-employment tax.

And a problem with income averaging would be corrected in which some farmers or fishermen could be subject to the alternative minimum tax, because good crop year incomes distort the true taxable income of producers financially struggling through poor crop years.