KLA: CRP payments subject to self-employment tax

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A recent decision from the U.S. Tax Court has changed how Conservation Reserve Program (CRP) payments are classified. Previously, it was thought that non-farm landowners and off-farm heirs who were not actively engaged in farming could classify CRP payments as rental income and avoid self-employment taxation. As a result of the ruling, all CRP payments, except those paid to recipients of Social Security or disability benefits, now are subject to the 15.3% self-employment tax. 

Taxpayers who have not reported CRP payments as subject to self-employment tax from previous years do not need to file amended returns until the Internal Revenue Service conducts an audit and asserts additional tax. KLA members should consult their tax preparer to properly classify CRP payment income for the 2013 tax year.

It should be noted, however, this case still is eligible for appeal and could be overturned, but it is uncertain whether a successful appeal could be concluded before the end of the current tax year.

For more information visit www.kla.org.

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