Nationwide News: Maximizing tax breaks and benefits for family farms

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Many farm families rely on off-farm income to supplement their agricultural operations. According to a 2023 U.S. Department of Agriculture study, roughly 84% of family farmers rely on other jobs to support their livelihoods. This additional income plays a critical role in stabilizing household finances, providing health insurance benefits and reducing the financial risks associated with farming.

Smart use of off-farm employee benefits can help reduce a farm family’s tax burden. Those benefits include health insurance, retirement savings plans and flexible spending accounts.

Employer-provided health insurance

Many employers offer subsidized health, dental and vision insurance coverage. Those coverage plans offer savings in two main ways. First, such plans normally have lower price tags than similar plans purchased individually. And there are tax savings, according to Nationwide Advanced Consulting Group Technical Director George Schein.

“Employer-provided group healthcare coverage is usually cheaper than an equivalent level of individual insurance,” Schein said. “This means you get better coverage for less money. Even better, these premiums are often deducted pre-tax, lowering your taxable income.”

Tax savings for other health care spending

Flexible spending accounts, or FSAs, and health savings accounts, or HSAs, offer other tax savings. You contribute pre-tax dollars to these accounts, and the money can be used for qualified medical expenses. Plans are normally capped at between $3,000 and $8,000, with those over age 55 eligible for more savings than younger enrollees.

“A farmer’s working spouse should take full advantage of subsidized health coverage offered by their employer and contribute to any FSA and/or HSA for which they may be eligible,” Schein said. “Not only is this a method to provide subsidized insurance for the entire farmer’s family, but it also helps reduce the family’s taxable income.”

Retirement plan tax savings

Off-farm employment often provides access to retirement plans like a 401(k) or a 403(b). Such plans allow for up to $30,000 in annual savings. It’s also invested on a pre-tax basis. This creates major tax advantages for farmers who may have otherwise limited retirement savings options.

“A farmer’s working spouse should maximize this opportunity to make pre-tax contributions into their employer’s retirement savings plan,” Schein said. “Farmers themselves should also make sure to make contributions up to the maximum amount each year into their own IRA. Don’t miss out on this chance to build a nest egg and potentially reduce your current tax bill.”

Other valuable benefits

Many employers offer life insurance and dependent care FSAs. Group life insurance through an employer is often less expensive and easier to obtain than individual policies. 

“Taking advantage of any supplemental life insurance offered through an employee benefit plan is beneficial for a farming family,” Schein said. “Not only because the cost of such coverage is very likely to be cheaper than comparable individual life insurance coverage, but it will also be simpler to get.”

Dependent care FSAs let you set aside up to $5,000 pre-tax to cover childcare expenses for children under 13 or other dependent care. While there are some restrictions on eligible expenses, this can be a significant benefit for families with childcare needs.

Unless there’s a “life change” like a marriage or loss of a family member, employees enroll in employer-offered insurance and savings benefits during a specific time. Make sure you know when that time window begins so you can be prepared to make an informed, timely decision.

“Most employers have an annual open enrollment period for employee benefits, usually during the last quarter of the calendar year,” Schein said. “It is important for farming families to analyze their family’s needs and the employee benefit-related options and opportunities provided by the employer of a working spouse before that open enrollment period ends.”

Always consult with your tax and legal counsel to determine the implications of implementing any of the strategies mentioned. Get connected to financial specialists who can help protect your farm, family and future by visiting Nationwide.com/YourLand.

Visit AgInsightCenter.com for more resources and expert tips to help you run a successful business and maintain the safety of your operation. 

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