When is a 1099 Required for Farm Cash Rent?

Farm cash rent is an arrangement where a farmer pays a landowner a fixed amount to cultivate their land. For tenant farmers operating as a business, this raises questions about tax reporting duties, specifically whether these rent payments require issuing a tax form to the landowner.

Determining the 1099 Filing Requirement

The filing requirement for farm rent hinges on “material participation.” The Internal Revenue Service (IRS) requires any person in a trade or business to issue a Form 1099 when they pay $600 or more in a calendar year for rents to an individual, partnership, or LLC. For farm cash rent, this rule applies when the landowner is a passive recipient of income and not actively involved in the farming operation.

Material participation means the landowner is involved in the farming operation in a regular, continuous, and substantial way. A landowner is considered to be materially participating if they regularly take part in making management decisions that contribute to the success of the farm. Participation can also be met if the landowner does any three of the following four activities: pays at least half the direct production costs; furnishes at least half the tools and equipment; advises the tenant periodically; or inspects production activities periodically. When a landowner meets one of these tests, their income is farm income, reported on Schedule F (Form 1040) and subject to self-employment tax, and the tenant does not issue a 1099.

Conversely, if the landowner’s only activity is collecting rent and they do not contribute to the management or labor of the farm, they are not materially participating. Their income is classified as rental income, reported by the landowner on Schedule E (Form 1040). If the total cash rent paid to that non-participating landowner for the year is $600 or more, the tenant must issue a 1099.

Information and Forms for Filing

The proper form for reporting cash rent payments to a landowner is Form 1099-MISC, Miscellaneous Information. The total rent paid for the calendar year is reported in Box 1, “Rents.” Do not use Form 1099-NEC, Nonemployee Compensation, as that form is reserved for payments made to independent contractors for services, not for passive rental income.

To complete the Form 1099-MISC, the tenant farmer needs specific information from the landowner: their full name, address, and Taxpayer Identification Number (TIN). The standard method for collecting this information is to request that the landowner complete and sign an IRS Form W-9, Request for Taxpayer Identification Number and Certification.

The tenant should provide a blank Form W-9 to the landowner well before the payment is made. Once the landowner returns the completed W-9, the tenant uses the information provided to accurately fill out the Form 1099-MISC. Keeping the signed W-9 on file is an important record-keeping practice.

The Filing Process

There are two deadlines to remember. A copy of the Form 1099-MISC (Copy B) must be furnished to the landowner by January 31 of the year following the payments. This allows the landowner adequate time to use the information for their own tax return preparation.

The filing deadlines with the IRS depend on the submission method. If filing by mail, Copy A of the Form 1099-MISC must be sent to the IRS by February 28 with a summary document called Form 1096. If filing electronically, the deadline is extended to March 31. Electronic filing is required for those filing 10 or more information returns.

Failure to file on time can result in penalties, which increase based on how late the form is filed. The penalty starts at $60 per form if filed within 30 days of the due date, increases to $130 if filed more than 30 days late but before August 1, and rises to $330 if filed after August 1 or not at all. The penalty for intentional disregard of filing requirements is significantly higher, with a minimum of $660 per form.