What to Know About Taxes on USDA Disaster Grant Payments

This fact sheet provides general information about the potential tax treatment of USDA disaster grant funds. It is not legal or tax advice. Individual circumstances vary, and you should consult a qualified tax professional for personalized guidance.

Know That These Funds Are Generally Taxable

• USDA disaster grant funds are typically considered taxable income under federal law, unless specifically excluded by statute.
• You may receive a Form 1099-G from the USDA if your total payments exceed $600 during the year.
• They must generally be reported when you file your federal and Virginia state income taxes. Farmers generally report these funds as income on Schedule F or the applicable business income schedule.

Understanding the Impact for You

Receiving grant funds may increase your total taxable income for the year. This may affect:

• Your total tax liability (how much tax you owe).
• Your marginal tax bracket (only income above each bracket threshold is taxed at the higher rate).
• Eligibility for certain credits, deductions, or income-based programs.

Planning Ahead

• Keep thorough records. Save all award letters, correspondence, and your Form 1099-G.
• Set aside money for taxes. Consider reserving a portion of your grant for both federal and state taxes.
• Make quarterly estimated tax payments. Because no taxes are withheld from USDA grant funds, you may need to make estimated payments to the IRS and the Virginia Department of Taxation directly throughout the year to avoid penalties.
• Consult a tax professional. Each situation is unique, and professional advice ensures accuracy.
• Use reliable tools. Reputable tax software or online calculators can help estimate your tax obligation.

Virginia Contacts and Resources

Virginia Department of Taxation website: tax.virginia.gov

Individual income tax payment options: tax.virginia.gov/individual-income-tax-payment-options

General tax information for individuals: tax.virginia.gov/individuals

Disclaimer: This information is provided by Virginia Cooperative Extension for educational purposes only. This document is intended to help producers understand the general tax reporting requirements related to USDA disaster grant funds. It should not be considered legal, accounting, or tax advice. Tax laws and interpretations may change, and individual situations vary. Always consult a qualified professional before making a tax decision.