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Extension > Agriculture > Agricultural Business Management > Agricultural taxation > Prevented planting: Crop insurance options and insurance indemnity payment tax considerations

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Prevented planting: Crop insurance options and insurance indemnity payment tax considerations

David Bau, Rob Holcomb; Extension educators
Robert Craven, Kent D. Olson; Extension economists,
May 2018

Heavy spring rains resulting in flooded fields can delay or prevent planting or drown out already planted crops for many farmers in Minnesota.

USDA's Risk Management Agency (RMA) defines prevented planting as a failure to plant an insured crop with the proper equipment by the final planting date designated in the insurance policy's actuarial documents or during the late planting period, if applicable, due to an insured cause of loss that is general to the surrounding area and that prevents other producers from planting acreage with similar characteristics. If farmers have federal crop insurance and have not been able to plant by a given crop's final planting date or have drowned out areas in fields, they do have options.

For most of Minnesota, the final planting date for corn is May 31. For northern counties it is May 25. The final planting date for soybeans in Minnesota is June 10. The late planting period extends for 25 days after the crop's final planting date.

Additional RMA information on final planting dates for specific crops throughout Minnesota and other crop insurance information can be found at the USDA Risk Management Agency website.

Eligibility for a prevented planting payment is determined on a case-by-case basis. An insured cause of loss must have occurred within the insurance period on eligible acreage. To be eligible, acreage must be normally physically available for planting, must have been planted in at least 1 of the 4 most recent years and must meet all other applicable policy provisions.

In order to be eligible for a prevented planting payment, the area that was prevented from being planted must be at least the lesser of 20 acres or 20% of the insurable crop acres in the unit. The acreage that was prevented from being planted does not need to be contiguous.

The prevented planting guarantee for soybeans is 60 percent and for corn is 55 percent of the production guarantee for timely planted acreage (higher payment guarantees are available if purchased by sales closing date, subject to certain provisions). You can find the percentages for other crops on the RMA website at Prevented Planting Factor Changes for 2018.

For both yield and revenue protection, prevented planting payments are based upon projected price. There is no prevented planting coverage for Group Risk Plan, Group Risk Income Protection or for policies insured at the Catastrophic Risk Protection coverage level.

Notice of prevented planting

Farmers are required to provide a notice that they are prevented from planting an insured crop. The notice has to be given within 72 hours:

  1. After the final planting date, if you do not intend to plant the insured crop during the late planting period or if a late planting period is not available; OR
  2. During the late planting period if you determine that you will not be able to plant the insured crop.

Crop and insurance options

If a farmer is prevented from planting by the final planting date and meets all the criteria of their insurance policy, they have choices available to them. The farmer may:

For example, if your Actual Production History is 180 bu./acre and you elected 75% coverage and chose Revenue Protection, your guarantee would be:180 X 75% = 135 X $3.96 = $534.60. Your prevented planting indemnity would be $534.60 X 55% = $294.03. If you plant a second crop after the late planting period, you will receive only 35% of the prevented planting indemnity. The projected prices for 2018 are $3.96 for corn and $10.16 for soybeans.

Payment reductions may not apply

If you meet the double-cropping requirements of your policy, the 65 percent payment reduction does not apply to a prevented planting payment for the first insured crop when:

  1. A second crop is planted; OR
  2. A cover crop is hayed, grazed or otherwise harvested.

The double-cropping requirements specified in the policy are:

  1. The practice of planting two or more crops for harvest in the same year on the same acreage is generally recognized by agricultural experts (including organic agricultural experts) for the area;
  2. The second or additional crops are customarily planted after the first insured crop for harvest on the same acreage in the same year in the area;
  3. Additional coverage insurance offered under the authority of the Federal Crop Insurance Act is available in the county on the two or more crops that are double-cropped; and
  4. You provide records showing the number of acres double-cropped in 2 of the last 4 years that the first insured crop was planted.

How to proceed

The first step for farmers is to contact their crop insurance agent and review their policy and options before making a decision.

Keep good records from the beginning. Good documentation is key to receiving prevented planting payments. Work with your crop insurance agent to determine the documentation needed.

Additional resources

Farmers and their advisers can use a worksheet developed by Iowa State University and adapted for Minnesota by Robert Craven and Kent Olson, U of MN Extension economists, to evaluate their options when prevented from planting. The worksheet also helps in the evaluation of whether to replant or not. The worksheet template is available online (XLSX).

Additional information and details regarding federal crop insurance rules and guidelines can be found on USDA's RMA website.

For agronomic information related to crops, late planting and the effect on yields, late planting rates and maturities, cover crops, etc. go to the University of Minnesota Extension Crops website. Search the early summer hail and flooding page for fact sheets specific to your situation.

Tax treatment of disaster and crop insurance indemnity payments

Any crop insurance proceeds you receive need to be included as income on your tax return. You generally include that income in the year received. Crop insurance includes the crop disaster payments received from the federal government as the result of destruction or damage to crops, or the inability to plant crops, because of drought, flood, or any other natural disaster.

You can postpone reporting crop insurance proceeds as income until the following year the damage occurred if you meet all the following conditions:

  1. You use the cash method of accounting;
  2. You receive the crop insurance proceeds in the same year the crops are damaged; AND.
  3. You can show that under normal business practice you would have included income from the damaged crops in any tax year following the year the damage occurred.

Typically, deferral of crop insurance proceeds is considered an “all or none” option. For example, if a producer receives a payment for prevented plant on 40 acres of corn and also receives a payment for hail damage to a separate 80 acres of corn, all crop insurance proceeds must be either deferred or kept in the same tax year as the loss.

Crop insurance payments received as a result of crop damage or destruction are eligible for deferral. Payments from revenue policies are not eligible for deferral. An insurance payment received from a prevented planting policy does qualify for crop insurance deferral (assuming the taxpayer meets all other requirements for deferral). Note: This information piece is offered as educational information only and is not intended to be tax, legal or financial advice. For questions specific to your farm business or individual situation, consult with your crop insurance agent and tax preparer.

Note: This information piece is offered as educational information only and is not intended to be tax, legal or financial advice. For questions specific to your farm business or individual situation, consult with your crop insurance agent and tax preparer.

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