Maximizing off-farm jobs: Tax breaks and benefits for farming families
Many farm families rely on off-farm income to supplement their agricultural operations.
According to a 2023 USDA 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 subsidize 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, JD, ChFC, CLU.
“Employer-provided group healthcare coverage is usually cheaper than an equivalent level of individual insurance,” said Schein. “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 (FSAs) and health savings accounts (HSAs) provide additional tax advantages. You can contribute pre-tax dollars to these accounts and then use the money for qualified medical expenses. Most plans cap contributions between $3,000 and $8,000, with higher limits for those over age 55.
“A farmer’s working spouse should fully use the subsidized health coverage from their employer and contribute to any FSA or HSA they qualify for,” Schein said. “This strategy provides affordable insurance for the farmer’s family and reduces taxable income.”
Retirement plan tax savings
Off-farm employment often provides access to retirement plans like 401(k)s or 403(b)s. 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 also provide life insurance and dependent care FSAs. Employer-sponsored group life insurance usually costs less and is easier to obtain than individual policies—an especially important option for farmers with physically demanding work.
“Farming families benefit by adding supplemental life insurance through an employee benefit plan,” Schein said. “It usually costs less than comparable individual coverage and is simpler to get.”
Dependent care FSAs let you set aside up to $5,000 pre-tax to cover childcare for children under 13 or other dependent care. Although restrictions apply, this benefit can significantly reduce costs for families with childcare needs.
Why timing matters in selecting benefits with off-farm jobs
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 above. Get connected to financial specialists who can help protect your farm, family and future by visiting Nationwide.com/YourLand.