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Can You Defer Crop Insurance Payments? What Farmers Need to Know

  • Writer: Bjorn Swanson
    Bjorn Swanson
  • Jun 18
  • 3 min read

Crop insurance continues to be one of the most important risk management tools available to producers. It helps offset losses from drought, low yields, and market shifts—and in some years, it can generate significant payments. But how those proceeds are handled on your tax return isn’t always straightforward.

Many farmers have heard that crop insurance income can be deferred to the following year. That’s partially true. The IRS allows for deferral under specific circumstances—but the rules are strict, and misunderstanding them can create both tax complications and missed planning opportunities.

Below is a summary of what you need to know if you’re considering deferring crop insurance income.


The IRS Allows Deferral—But Only If Three Conditions Are Met

To legally defer crop insurance income to the following year, the IRS requires that all three of the following criteria be satisfied:

  1. The payment must be received in the same year the crop loss occurred.

  2. The payment must be due to an actual production (yield) loss—not a price decline.

  3. You must have a consistent practice of selling that crop in the year following harvest (more than 50% of the time).

Additionally, the election to defer is crop-specific—you must defer all proceeds related to a qualifying crop or none at all. You cannot selectively defer just a portion of the proceeds.


Breaking Down the Requirements

1. Payment Received in the Year of the Loss

The insurance proceeds must be paid in the same calendar year that the crop loss occurred. If the payment is received in the following year, it cannot be deferred, regardless of when the loss happened.

Common pitfalls:

  • SCO and ECO payments are almost always issued the year after the loss and are not eligible for deferral.

  • Malt Barley Endorsement (MBE) claims and other endorsements may also be delayed.

  • Late-adjusted claims can disqualify an otherwise deferrable payment if the payment crosses into the following year.


2. Actual Production Loss Required

Only payments tied to actual yield losses can be deferred. Payments due solely to price drops, area-wide triggers, or index-based programs generally do not qualify.

Coverage Type

Deferrable?

Yield Protection (YP)

✅ Yes

Revenue Protection (RP)

⚠️ Sometimes – if tied to yield loss, not price

Supplemental Coverage Option (SCO)

❌ No

Enhanced Coverage Option (ECO)

❌ No

Pasture, Rangeland, Forage (PRF)

❌ No

Malt Barley Endorsement (MBE)

⚠️ Likely No

Forage

✅ Yes

 

📣 Tip: With RP policies, it’s important to understand whether the trigger was a drop in yield or price—or both. Only the portion related to yield is potentially deferrable.

3. Historical Practice of Selling After Harvest

To defer crop insurance income, you must be able to demonstrate a consistent practice of selling that crop in the year after harvest. A single instance is not enough—you must show that this is your typical marketing pattern.

The IRS also requires that you attach a statement to your tax return affirming this practice. This is a simple but essential step, and failure to include it may invalidate your election.


Why Defer Crop Insurance Income?

Deferring crop insurance income can be a strategic tax move, especially in years when:

  • You’ve already sold a significant portion of your crop early, pushing income higher than usual.

  • Insurance payments compensate for yield losses that forced early settlements.

  • You want to spread income more evenly across multiple tax years to reduce your overall tax burden.

When used appropriately, deferral can help replicate the timing of income as if the crop had reached market normally—providing valuable flexibility in years with volatility.


Timing Matters—So Does Planning

Fall is an ideal time to evaluate whether crop insurance income may qualify for deferral and whether electing to do so aligns with your overall tax strategy.

If you’ve had a loss year, are expecting insurance proceeds, or have received payment already, it’s worth reviewing:

  • The type of policy you hold.

  • When the claim was paid.

  • How you’ve historically marketed the affected crop.

⚠️ Important Reminder: When you meet with your tax preparer, be sure to bring your claim payment summary showing both the gross payment and any premium credits. These are essential to determine deferral eligibility and properly account for the proceeds on your return. A 1099 alone may not provide enough detail.

Need Guidance? Let’s Talk

Our ag-focused tax team has deep experience in both crop insurance and tax law. We can help you assess your eligibility to defer crop insurance income and incorporate it into your broader year-end planning strategy.


To schedule a tax planning consultation, contact:

Swanson Agency

📞 406-469-2276

Serving Montana farmers since 1933.

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