​Why You Can’t Defer Your ERP Payments Until Next Year

If you’re an ag producer who was affected by natural disasters in 2020 and 2021, you’re likely eligible for the government’s Emergency Relief Program payments.

You might wonder if you can defer those payments to 2023 for tax-planning purposes.

Unfortunately, for most ag producers, the answer is no.

But let’s back up and talk a little more about the program and why you can’t defer those payments.

The Extending Government Funding and Delivering Emergency Assistance Act was meant to help producers offset the impacts of natural disasters in ’20 and ’21. There was at least $750 million earmarked for ranchers impacted by droughts or wildfires in those years. To date, the USDA’s sent out almost $7 billion in ERP payments.

The IRS allows the deferral of insurance proceeds received due to destruction or damage to crops under IRC Sec 451(f), but you have to meet certain qualifications to make the election. You’d have to be reporting on the cash method of accounting, which most agricultural taxpayers are.

Also, you’d have to establish that under normal circumstances, the crops would be received as income in the following taxable year after the damages. This means that an ag producer would have claimed more than 50% of the crop income the year after it’s harvested.

Crop insurance proceeds are usually received in the same year as the damage claim. So, the IRS allows the taxpayer to move that income to the next year because that’s when they normally would have sold the crops, had there not been any damages. The deferral moves the income from crop damages to the year after the actual damages occurred, not necessarily the year after they received the payment.

It’s that last piece that keeps most producers from deferring any ERP payments.

Since those payments are for damage that happened in 2020 or 2021, you’re actually receiving the money the year after the damage.

It is possible that some producers later this year get payments for damage that happened in 2022. If that happens, they could defer. But the chance of that happening is really low.

Your best bet is to report any ERP money you received this year and work with a qualified CPA to do tax planning that can reduce your income taxes.

Visit the USDA's website for more information about disaster relief from the government.

And if you have questions about tax planning or other financial matters, let us know.