Most business owners pay estimated tax four times a year. Farmers who qualify do not have to. Federal law gives them a simpler path: one payment in January, or no estimated payments at all if they file early and pay in full. Here is how the rule works and how to use it well.
Who qualifies: the two-thirds test
You are treated as a farmer for estimated tax purposes if at least two-thirds of your total gross income from all sources comes from farming, in either the current year or the prior year (IRC §6654(i)(2)). For the 2026 tax year, that means at least two-thirds of your gross income for 2025 or 2026 (IRS Form 1040-ES (2026)). The same rules apply to fishermen.
A few points are easy to miss:
- It is a gross income test, not a profit test. The comparison uses income before expenses, so a farm that lost money can still qualify, and a profitable farm can fall short if other income is large.
- Either year works. If your 2025 return met the test, you can generally use the farmer rules for 2026 even if this year’s income mix changes.
- Nonfarm income counts against you. Off-farm wages, interest, dividends, and other nonfarm income all add to total gross income and can pull the farm share below two-thirds.
Gross income from farming generally includes income from operating a farm, ranch, orchard, nursery, or similar operation, rent you receive as a share of the crops, and gains from selling livestock held for draft, breeding, sport, or dairy purposes. IRS Publication 225, the Farmer’s Tax Guide, has the full list, and borderline items deserve a closer look.
Two ways to avoid the penalty
If you qualify, the April, June, and September due dates do not apply to you (IRS estimated tax FAQs). For the 2026 tax year, you have two options (IRS Form 1040-ES (2026)):
- Option 1: One payment by January 15, 2027. Make a single estimated payment of the required amount, then file your return by the regular April deadline.
- Option 2: File and pay by March 1, 2027. File your 2026 Form 1040 and pay all the tax due by March 1, 2027, and no estimated payments are required.
The single payment is the smaller of 66 2/3% of your current-year tax or 100% of your prior-year tax (IRC §6654(i)(1)(C)). Other taxpayers generally need 90% of current-year tax or 100% of prior-year tax, rising to 110% when prior-year AGI was over $150,000 ($75,000 if married filing separately) (IRC §6654(d)(1)). That 110% rule does not apply to qualifying farmers (IRC §6654(i)(1)(C); Form 1040-ES (2026)).
The March 1 option has two parts, filing and paying, and both must be done by that date (IRC §6654(h) and (i)(1)(D)). An extension to file does not move it.
When a due date falls on a weekend or legal holiday, the next business day applies (IRS Tax Topic 416). For the 2025 tax year, March 1, 2026 fell on a Sunday, so the date became March 2 (IRS Instructions for Form 2210-F). For the 2026 tax year, January 15, 2027 is a Friday and March 1, 2027 is a Monday, so both dates stand as written.
Form 2210-F: the farmer’s penalty form
If you miss both options, an underpayment penalty may apply. It works much like interest on the shortfall for the time it went unpaid. Farmers and fishermen figure it on Form 2210-F rather than the standard Form 2210 (IRS Instructions for Form 2210-F).
In many cases you do not need to file the form, because the IRS figures any penalty and sends a bill. The instructions require it in certain situations, such as asking for a waiver. A waiver may be available when the underpayment resulted from a casualty, disaster, or other unusual circumstance, or when you retired after age 62 or became disabled and the underpayment was due to reasonable cause. For federally declared disasters, the IRS generally applies relief automatically (same source).
How California handles farmers
California follows a parallel approach. The 2026 Form 540-ES instructions apply the same two-thirds test to 2025 or 2026 gross income and offer the same two choices: pay all of your estimated tax by January 15, 2027, or file your 2026 California return and pay the total tax due by March 1, 2027 (FTB 2026 Instructions for Form 540-ES).
The required amount is 66 2/3% of current-year tax or 100% of prior-year tax, whichever is less, and California’s 110% prior-year rule does not apply to farmers (same source). Underpayments are figured on Form FTB 5805F, and the farmer payment is a single payment rather than quarterly installments (FTB Instructions for Form 5805F). That matters, because California’s regular schedule asks for 70% of the year’s estimate by June.
Planning points
- Confirm your status in the fall. Run the two-thirds test for both years while there is still time to plan the January payment. One large nonfarm item can change the answer.
- Keep the books current. The March 1 option only works if your return can be finished by then, with reconciled accounts and every Form 1099 and Schedule K-1 in hand. A K-1 from a partnership or S corporation may not arrive in time, and if it might not, the January payment is the safer plan.
- Size the January payment with real numbers. Compare 66 2/3% of a careful estimate of this year’s tax with 100% of last year’s. Paying the smaller amount on time generally avoids the penalty.
- Watch elections that move income between years. If you use the cash method and your practice is to report a crop’s income in the year after harvest, you may be able to elect to report crop insurance proceeds or certain disaster payments for crop damage in the following year (IRC §451(f)). That shifts tax between years, so it belongs in the January estimate.
- Coordinate with income averaging. Farm income averaging on Schedule J spreads elected farm income over the three prior years and may lower tax in a high-income year (IRC §1301; IRS Instructions for Schedule J). Because the January payment is based on the year’s tax, it helps to model averaging before you pay.
- Selling farmland to a farmer? A new election lets a seller of qualified farmland property to a qualified farmer pay the tax on that sale in four equal installments, and IRS Notice 2026-3 provides estimated tax penalty relief for the deferred portion (IRC §1062). The definitions are narrow, so test them carefully.
If you are close to the line or expect to lose farmer status, our estimated tax calculator shows the regular quarterly schedule you would follow instead.
How TreeStar can help
TreeStar works with farms and ranches on tax planning and preparation, bookkeeping, and estimated tax planning. If you would like help confirming whether you qualify, sizing the January payment, or getting the books ready for a March 1 filing, we are glad to walk through it with you.
This article is general information, not advice for your situation. Rules change; confirm current law before acting.
