Where to Report 1099-PATR on Schedule F: Lines 3a and 3b

Report your 1099-PATR on Schedule F using Lines 3a and 3b: Line 3a shows the total cooperative distributions you received for the year, and Line 3b shows only the portion that is taxable farm income. Two boxes on the form do not touch Schedule F at all: Box 4 (backup withholding) goes on your Form 1040 as a tax payment, and Box 6 (the Section 199A(g) deduction) is claimed on Form 8995-A.¹²

What Goes on Line 3a

Line 3a is the total. Add Boxes 1, 2, 3, and 5 from every 1099-PATR you received and enter the sum:

Box 1, patronage dividends — your share of co-op earnings distributed in cash, qualified written notices of allocation, or other property based on the business you did with the co-op.³
Box 2, nonpatronage distributions from tax-exempt Section 521 cooperatives.⁴
Box 3, per-unit retain allocations based on the quantity or value of products you marketed through the co-op or supplies you bought from it.⁴
Box 5, amounts from redeemed nonqualified written notices of allocation or nonqualified per-unit retain certificates the co-op previously issued instead of cash.²

If a patronage dividend was paid to you in property rather than cash, use the property’s fair market value. Cash advances from a marketing cooperative also belong on Line 3a.¹

What Goes on Line 3b

Line 3b is the taxable portion of what you just entered on Line 3a. For many farmers, the two lines are identical because every co-op distribution ties to business supplies or marketed crops that produce ordinary income. If nothing in your distributions falls into an excluded category, put the same number on both lines.

Three categories stay on Line 3a for reporting but come out of Line 3b:¹

Personal or family purchases. A patronage dividend tied to personal fuel, household supplies, or groceries is a rebate on personal spending, not farm income. Exclude it from Line 3b.
Capital assets. A dividend tied to a capital-asset purchase such as land reduces the asset’s cost basis rather than showing up as current income.⁵
Depreciable property. A dividend on depreciable farm equipment you bought through the co-op reduces the equipment’s depreciable basis as of the first day of the tax year you receive the dividend, and depreciation for the remaining useful life is recalculated from the lower basis.⁵

How the Basis Adjustment Works

Say you bought an implement through the cooperative for $2,900. After a year of depreciation, the co-op pays you a $300 patronage dividend tied to that purchase. Reduce the implement’s remaining depreciable basis by $300 and spread the lower basis over the remaining useful life. If a dividend ever exceeds the adjusted basis of the asset, the excess becomes ordinary income that year. Keeping purchase records that link specific dividends to specific equipment is the only way to handle this correctly.

Nonqualified Notices: When They Become Taxable

Cooperatives sometimes pay dividends not in cash but in nonqualified written notices of allocation. You do not include a nonqualified notice in income when you first receive it. It becomes taxable when the co-op redeems it for cash or you sell or dispose of it, and even then the same three exclusions apply — amounts tied to personal items, capital assets, or depreciable property adjust basis instead of appearing in income.² When a nonqualified notice is redeemed, the cooperative reports the amount in Box 5, and that amount joins your other distributions on Line 3a.

Box 4: Backup Withholding Goes on Form 1040

Federal income tax withheld from your cooperative distributions appears in Box 4. Do not enter it on Schedule F. Report it on Form 1040, Line 25b, along with federal income tax withheld from your other Forms 1099. It reduces the tax you owe or increases your refund like any other withholding.

Box 6: The Section 199A(g) Deduction Is Claimed Elsewhere

Box 6 shows the domestic production deduction your specified agricultural or horticultural cooperative is passing through to you. It does not belong on Schedule F. The IRS instructions are explicit: do not reduce the amounts in Box 1 or Box 3 by the Box 6 amount.²

Claim the deduction on Form 8995-A, which handles the qualified business income deduction. Starting with the 2024 tax year, Form 8903 is no longer used for this purpose. The passed-through Section 199A(g) deduction cannot exceed 9% of the qualified payments the co-op reported in Box 7 of your 1099-PATR, and only eligible taxpayers can claim it; C corporations that are not themselves specified cooperatives are excluded.⁴

Why the Split Between 3a and 3b Matters

Getting the two lines wrong cuts both ways. Overstate Line 3b and you inflate your taxable farm income. Understate it and the IRS matches its 1099-PATR data against your return and flags the gap.

The penalty for underreporting is a 20% accuracy-related charge on the portion of your underpayment caused by negligence or a substantial understatement of tax. For most individuals, a substantial understatement means your reported tax was off by at least 10% of the correct amount or $5,000, whichever is greater. If you claimed a Section 199A qualified business income deduction on your return, the threshold drops to 5% of the correct tax or $5,000.⁶

The most common mistake is leaving Box 5 redemptions off Line 3a because the farmer forgot that nonqualified notices become taxable when they are redeemed. Reporting the full Line 3a amount and making careful, documented exclusions on Line 3b is easier than answering an IRS notice after filing.

1
Internal Revenue Service. 2025 Instructions for Schedule F (Form 1040)
2
Internal Revenue Service. Instructions for Form 1099-PATR (Rev. April 2025)
3
Internal Revenue Service. About Form 1099-PATR, Taxable Distributions Received From Cooperatives
4
Internal Revenue Service. Instructions for Form 1099-PATR (04/2025)
5
eCFR. 26 CFR Part 1 – Tax Treatment by Patrons of Patronage Dividends
6
Internal Revenue Service. Accuracy-Related Penalty