He Replaced a $25,000 Alfalfa Crop With a $25,000 Water Lease. Social Security Counted Only the Crop as Earnings.

A $25,000 alfalfa crop counts as self-employment earnings for Social Security, while a properly structured passive water lease may be excluded entirely.

In 2026, farmers claiming Social Security before full retirement age face a $1 benefit cut for every $2 earned above $24,480.

Passive lease income avoids the earnings test but also won't build the Social Security earnings record, potentially missing a stronger benefit calculation year.

Picture a farmer in the arid West who has grown alfalfa on the same ground for decades. Water gets tighter, hay prices swing, and a buyer offers him another use for one field: leave it fallow and lease the water right instead. The alfalfa might have produced $25,000. The water agreement pays roughly the same.

For a farmer approaching Social Security, however, equal checks can produce very different results. One comes from operating the farm. Assume the other is structured as a genuine passive property lease requiring no farming, management or other services from him. Social Security can count the first as earnings and leave the second outside the earnings test.

When he raises and sells alfalfa through his farm, the proceeds belong in the farming business. The IRS directs farmers to report sales of crops they raise on Schedule F, with the resulting net self-employment earnings flowing into the Social Security system. That matters twice. Covered self-employment earnings can build his Social Security record, which uses the highest 35 years of earnings to calculate retirement benefits. If he has already claimed before full retirement age (FRA), the same earnings can also count against the retirement earnings test.

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In 2026, someone under FRA for the entire year can earn $24,480 before Social Security withholds $1 in benefits for every $2 above the limit. The $25,000 alfalfa figure is gross revenue, not the amount Social Security ultimately counts. Farm expenses come out first, and the remaining net profit can feed both his earnings record and the retirement earnings test.