Custom hire (machine work) income and expenses relate to farm-related services performed using machinery for others in connection with agricultural operations. These rules are reported under Schedule F (Form 1040) when the activity is part of a farming trade or business, and under Schedule C (Form 1040) when the activity rises to a separate non-farm service business.
Reporting Custom Hire Income
- Schedule F (Form 1040), Part I – Other Income (Line 7 in 2025 layout)
- Report income received from custom hire (machine work) when it is incidental to or part of the farming business.
- Income may include cash, property, or services received in exchange for farm-related machine work.
- Amounts reported on information returns (e.g., Form 1099-MISC or Form 1099-NEC) are included in gross farm income.
- Schedule C (Form 1040)
- Use Schedule C if the custom hire activity is conducted as a separate trade or business not connected to farming operations.
Reporting Custom Hire Expenses
Schedule F, Line 13 – Custom Hire (Machine Work Expense)
- Deduct amounts paid to contractors or operators who performed machine work for your farm.
- This includes expenses where the operator provided both equipment and labor.
- Only expenses directly related to farming operations are deductible.
Key Classification Rules
- Custom hire income belongs on Schedule F only when it is part of the farming activity.
- If the activity is operated as an independent service business, it must be reported on Schedule C.
- Proper classification depends on the nature, continuity, and integration of the activity with farming operations, not a fixed “incidental” test.
Self-Employment Tax Treatment
- Income reported on Schedule F is generally subject to self-employment tax (Schedule SE) unless specifically excluded by law.
- Schedule C income is also generally subject to self-employment tax if it arises from a trade or business.
Information Reporting
- Forms such as 1099-MISC or 1099-NEC are informational only and do not determine the schedule line placement.
- All income must be included in gross receipts regardless of withholding status.
Additional Notes
- Wages paid for farm labor are deductible separately and are not part of custom hire expenses.
- Payments unrelated to farming operations or personal household services are not deductible farm expenses.
- No separate “Line 42” exists on Schedule F for custom hire income classification.
Source:
Publication 225 - Farmer's Tax Guide (2025)
Schedule F (Form 1040) - Profit or Loss from Farming (2025)
Disclaimer: Always verify details with the current year’s Federal or State Department of Revenue Forms and Instructions. For complex tax situations, consult a CPA or tax attorney.