New USDA rules create opportunities, but eligibility still matters

Many producers have spent the summer hearing about one aspect of the U.S. Department of Agriculture’s new payment limitation rules: the possibility of higher payment limits.

For some farm businesses, that attention is warranted. The June 2026 regulations expanded favorable treatment for many LLCs, S corporations and other qualified pass-through entities, creating new opportunities for some operations.

But before producers start calculating potential benefits, advisers say they should take a closer look at the requirements behind them.

“The biggest misconception is that these changes automatically mean increased payments,” said Phil Newendyke, lead farm program services adviser with Pinion. “The opportunities are real, but the underlying eligibility requirements haven’t gone away. Every member must demonstrate that they are actively engaged in farming and that their contributions are significant, documented, and at risk.”

Active engagement remains at the center of the rules

One of the most important concepts in USDA payment eligibility is the requirement that individuals be “actively engaged in farming.”

While the new regulations provide more flexibility for certain business entities and allow compensated labor and management to count toward eligibility requirements, they do not eliminate the need for owners to demonstrate meaningful contributions to the operation.

Those contributions may include labor, management, capital, land, equipment, or a combination of factors. The contributions must also be significant and at risk. For producers, that means ownership alone may not be enough to establish eligibility.

“For some operations, the management and labor requirements may be more important than the payment limitation changes themselves,” Newendyke said. “Many producers are learning that qualifying for additional payments depends on what people actually contribute to the operation, not simply what percentage they own.”

Those requirements are even more important for operations with non-family owners.

Non-family operations may face additional complexity

Many producers are familiar with the active management requirements that have long applied to non-family general partnerships and joint ventures. Under the new regulations, those concepts now apply to additional entity types, including many LLCs, S corporations and limited partnerships.

For non-family operations, only one individual is generally allowed to qualify based solely on management contributions unless USDA approves additional managers because of the size or complexity of the operation. The addition of managers requires documentation and justification to support their role.

As a result, some operations with unrelated owners may need to take a closer look at how labor and management responsibilities are assigned and reported, before rushing into the Farm Service Agency.

The rules may benefit some operations, but they also create new questions for businesses that have never previously been subjected to these requirements. Another costly error is adding non-family members to existing operations if those individuals have not previously farmed. This triggers the substantive change requirement, which presents significant challenges to the non-family member within the farming operation.

Documentation could determine who benefits

A recurring theme in adviser conversations is the importance of accurate recordkeeping.

Farm operating plans (902 form), ownership percentages, management responsibilities, labor contributions, and sources of capital all play a role in determining eligibility. Producers should ensure those records accurately reflect how the operation functions in practice and what is reported to FSA.

That preparation can become particularly important if an operation is selected for an FSA review. In those situations, producers may be asked to support ownership, labor, management, and capital contributions with documentation.

“The farm operating plan submission is only part of the process,” Newendyke said. “The real test comes two to three years later when the operation is selected for an FSA review. That’s why producers should focus on ensuring the way they operate meets the rules, is reflected on the farm operating plan, and maintain records that support the farm operating plan when questions arise in the future.”

According to Newendyke, producers should rightfully focus on the initial farm operating plan submission and process. However, eligibility questions can arise later when USDA reviews supporting documentation tied to program participation.

Rather than viewing the regulations as simply an opportunity for increased payments, producers should view them as a reminder to keep ownership and operational records current and accurate.

Don’t rush into restructuring decisions

The regulations may prompt some producers to revisit their business structures, ownership arrangements, or management assignments.

However, advisers caution against making changes solely to increase potential payment eligibility. Business structures affect far more than USDA programs. Tax planning, succession goals, management authority, liability protection, and family transition considerations should remain part of the discussion.

“Before making changes, producers need to understand how the regulations apply to their operation, review ownership and management responsibilities, and make sure their records accurately reflect how the business actually functions. In many cases, understanding and documenting the existing operation is just as important then making organizational changes.” Newendyke suggests.

Focus on documentation, not just dollars

The June 2026 regulations create new opportunities for many farm businesses. The central message from advisers is to become educated on how and which rules apply to your operation. Producers should proactively focus on understanding the rules, determining where opportunities exist, documenting ownership and contributions, and ensuring their operation can support what is reported to USDA.

The greatest value may not come from major restructuring. It may come from understanding the rules and what changes are necessary to optimize the operations structure for upcoming payments. Often times, an adviser who works in these rules on a daily basis can identify opportunities that benefit your farm operation without significant risk to the legacy you have built.

Editor’s note: Keaton Dugan, a certified public accountant, advises farmers and agribusiness owners on strategic tax planning, succession strategies, and long-term financial sustainability. Whether the goal is to expand operations, transition ownership, or optimize tax structures, Dugan draws on his experience as a trusted adviser and his background working on his family’s multi-generational farm to deliver practical, tailored solutions. Contact him at [email protected].

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