University of Wisconsin Center for Cooperatives
Journal of Agricultural Cooperation

Title Effects of Federal Taxes on Member Cash Flows From Patronage Refunds
Author(s) Katie A. Junge and Roger G. Ginder
Series Volume 1
Issue Date 1986
Abstract Scheduled changes in Federal Insurance Contribution Act (FICA) tax rates will affect member net cash flow when a patronage refund is received from a cooperative. Cash patronage refunds at the minimum 20 percent level generally required by law will create negative cash flows for patrons in very low tax brackets. Negative cash flows accumulated over the 10-year period 1981-90 may result in opportunity costs to patrons that exceed the value of the refunds. Boards will need to consider one or more of the following strategies to deal with this problem: (1) increased cash patronage refunds, (2) shorter revolving periods, and (3) use of nonqualified written notices of allocation.

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