How do patronage refunds benefit your Farm Credit association?

Patronage refunds can help Farm Credit reduce its tax expense and maintain a strong capital position. This helps the entire membership because an association with a strong capital position is better able to offer competitive interest rates, ensure a constant supply of credit and provide for the retirement of member equity held in the form of allocated surplus.

Unlike other corporations where profits are taxed twice, when earned by the corporation and when distributed to owners as dividends, a cooperative's profits are taxed only once when they are distributed as a patronage refund.

Farm Credit is allowed a tax deduction for the amount of net income that it distributes in the form of a qualified patronage refund. Therefore, to effectively manage the association's tax expense and maintain a strong capital position, the board of directors may elect to distribute taxable earnings to members as a qualified patronage refund. A qualified patronage refund is one in which at least 20 percent is paid in cash and the remainder in stock or qualified allocated surplus.