All About REAP Tax Credits

We recently interviewed Joel Semke, REAP coordinator for the Pennsylvania Department of Agriculture and State Conservation Commission.

Details on Pennsylvania’s 2020-21 Resource Enhancement and Protection (REAP) program were recently announced. Joel discussed REAP and program changes for this year.

Let’s begin with the basics of REAP. Could you share with us the background of REAP and how farmers utilize the program?
REAP was started back in 2007 and helps fund water quality conservation practices on Pennsylvania farms to reduce pollution runoff, including nitrogen, phosphorus and sediment runoff. Over the course of the past 13 years, more than 2,500 farmers across the state have been awarded REAP credits for a variety of conservation practices.

Farmers are reimbursed in the form of PA income tax credits, which are based on the cost of implementing those projects that reduce pollution runoff and also enhance farm productivity. The tax credits are used to pay the PA income taxes, dollar-for-dollar. Farmers have up to 15 years to use the tax credits from the date of issuance. So if you want to think about it like a debit account at the Department of Revenue, farmers draw on those credits to pay their PA income tax bill. Whatever they don't use one year rolls over to the following year.

Farmers can also sell those credits. They must wait one calendar year, but then they're allowed to sell whatever's left and turn it into cash. About 35 to 40% of farmers who use the program end up selling credits. 

REAP is a first-come, first-serve program. Farmers are not ranked based on geography or other factors, unlike some programs with NRCS or Chesapeake Bay. 

In order to be eligible for REAP, farmers must be in compliance with PA Clean Streams Law. That means having up-to-date Ag E&S (Erosion & Sediment) plans or conservation plans on all their acres. It means having up-to-date manure plans for their operation as well. If a farmer does not have these necessary plans completed, the cost of getting those plans is eligible for REAP credits at 75% of the cost. When REAP was established back in 2007, some of the primary goals were to increase compliance with Clean Streams Law by having these plans, in addition to increasing no-till farming, cover cropping and other important practices. 

Common practices that are eligible for REAP include no-till equipment (planters and drills), cover crops, waste storages, improved barn yards, precision ag equipment, stream practices and much more.

Farmers can apply for these projects after they're done or they can apply for projects that are proposed. If a farmer is thinking about buying a no-till planter next year, they can apply today. If they're eligible, credits will be reserved for those applicants and then awarded once the project is complete. 

Reimbursement rates range from 50% for equipment and cover crops to 75% for plans and projects that involve animal concentration areas (like an improved barnyard or streambank fencing) which are high priority practices for the state. 

One other important aspect of REAP that I want to mention is the program's ability to work in conjunction with other funding sources. Farmers are often very familiar with NRCS funding, the Chesapeake Bay Program or Growing Greener. They can use REAP in addition to those other programs. So for example, if a farmer has a big project on the farm such as a waste storage facility or barnyard improvement, they might be working with NRCS to fund those practices. Often NRCS will cover a good portion of that, but the farmer is still left with significant of out-of-pocket costs. Those farmers can apply to REAP and whittle down their final cost. 

Now that we have a basic understanding of REAP, could you share any specific details and changes to REAP for this upcoming year?
There have been a number of changes to the REAP program, mostly stemming from the PA Farm Bill that Governor Wolf signed in July 2019. Because of that initiative we have been able to revamp REAP and add some things that farmers had been asking for over the years. 

Some of the biggest changes include:

• The total amount of REAP funding was increased
• Farmers can use REAP credits on a jointly filed PA return for all income from the family farm
• The maximum amount of credits that a farmer or a farm operation can receive was raised 

For 2020, the commission implemented a 90% reimbursement rate for a select list of practices in any watershed with a TMDL. That might sound complicated, but really much of the state is covered by the Chesapeake Bay TMDL (Total Maximum Daily Load). In addition, there are smaller watersheds scattered throughout the state that have TMDLs too. Operations inside those watersheds are eligible for 90% credit on forested riparian buffers and buffer maintenance, livestock exclusion from streams and associated practices (such as stream crossings, fence, off-stream waterers) and soil health tests. It’s important to know that regardless of what watershed you are in, soil health tests qualify for up to 75% back.

This year, we also added some cover crop equipment to the list of eligible practices including spinners on the back of combines and roller/crimpers. Those are the new additions for 2020, but you can always look at our guidelines for the full list of everything that's available for REAP credits.

Is there anything else you’d like to share about REAP?

We're currently accepting applications. The application packet and a lot of other relevant information it can be found on the PA Department of Agriculture website. If farmers prefer a mailed copy of the application, please contact me at the contact information below. 

I manage the REAP program for the state, so if you have any questions I welcome you to contact me. Also, your local county conservation district is a great resource with the REAP program and can assist farmers with the application process.

Remember, REAP is first-come, first-serve. If you are interested in applying, do so sooner rather than later. I can’t accurately predict how long our funding for any given year is going to last. Typically, funding is available until December, but I can't guarantee that.  As discussed, you can apply for projects that you think you're going to do, not just projects that you just finished.

Please contact me at (717) 705-4032 or jsemke@pa.gov.