COVID-19 Resources for Farmers
Deducting Expenses Paid with PPP Loans
In May 2020, the IRS issued Revenue Notice 2020-32, which stated the IRS’s position that expenses paid for with forgiven PPP loans would not be deductible. This was, of course, alarming to many PPP borrowers.
This was evidently against the intent of Congress, as evidenced by a letter sent to Treasury Secretary Steve Mnuchin from Senators Grassley, Neal, and Wyden. The new stimulus Act also reinforces this position as it states, in relevant part:
“(2) no deduction shall be denied or reduced, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion of gross income provided by paragraph (1).”
It should be noted, however, that reports from the Wall Street Journal indicated that at least one GOP aid has stated that these deductions will be subject to some restrictions, however, there does not appear to be any language in the Act to suggest this.
So, PPP borrowers will now be able to deduct expenses paid for with PPP loans.
As a note, S-Corp owners who took PPP loans should contact their accountant or financial advisor to see whether a contribution of money or assets to the S-Corp is necessary before the end of 2020 so all losses can be claimed because you did not receive basis for the PPP loans. Next year, when the loan is forgiven, the S-Corp will get the basis for the loan. This does not apply to loans already forgiven.
Paid Leave Tax Credit
The Families First Coronavirus Response Act (FFCRA or the Act) provides federal tax credits for paid sick leave and family leave required by the Act for employers with 500 or fewer employees. Let’s dive into the specifics below:
Employer Payroll Tax Credits
An employer who pays for “qualified family leave wages” to employees who cannot work due to difficulties related to the Covid-19 pandemic. Payments are “qualified” if an employee is unable to work for any of the following reasons:
- the employee is subject to an isolation or quarantine order;
- the employee has been advised by a healthcare provider to self-quarantine;
- the employee is experiencing symptoms associated with Covid-19 and is attempting to obtain a medical diagnosis;
- the employee is caring for a person described in (1) or (2);
- the employee is caring for their child if the child’s school or childcare facility has been closed due to Covid-19; or
- the employee is undergoing any other considerably related situation as specified by HHS.
Amount of Employer Payroll Tax Credit
The available tax credit is equal to all the qualified payments made, limited to:
- a maximum of $511.00 per day, for a maximum of ten days under situations 1 – 3 above, for a maximum tax credit of $5,100 per employee; or
- up to $200.00 per day if the employee’s leave is to care for a family member, for a maximum of $10,000 per employee.
The employer tax credits can be claimed quarterly and are only allowable against employer payroll taxes, such as an employer’s share of Social Security and Medicare taxes. If the amount of the credit exceeds the employer’s payroll tax liability for a quarter, the employer can treat the excess as an overpayment and claim a refund. Credits claimed by an employer are includable in an employer’s gross income. So, if an employer claims $10,000 of credits has $10,000 of gross income will be able to claim an offsetting deduction for the payment.
Self-Employment Tax Credit
The Act also provides that self-employed people can claim similar tax credits. Self-employed individuals who care for themselves under scenarios 1, 2, and 3 above, can calculate the amount of tax credits they are entitled to by multiplying the number of days that they will be unable to work (max. 10 days) by the lesser of (a) 67% of the taxpayer’s average daily income or (b) $511.
If a self-employed individual is caring for someone described under scenarios 4, 5, or 6, the amount of available tax credit is calculated by multiplying the number of days they are unable to work due to providing care (max. 50 days) by the lesser of a) 67% of the taxpayer’s average daily income or (b) $511.
Employee Payroll Tax
Qualified family leave payments will not be counted as “wages” to employees, and employees who receive such payments will not have to pay payroll taxes on the payments (i.e., Social Security or Medicare).
The credits and exclusions will be available until December 31, 2020.
Economic Injury Disaster Loans (EIDL) Available Now
The Small Business Administration (SBA) is now accepting new applications for Econcomic Injury Distaster Loans (EIDL). Congress approved a $20 billion increase in grant money, and an additional $50 billion for loans.
Who is eligible for an EIDL?
To be eligible for an EIDL, you must be an agriculture or farming related business with fewer than 500 employees.
What is the difference between an EIDL grant and an EIDL loan?
An EIDL grant is a small advance of funds from your EIDL loan that can be forgiven.
|EIDL Grant||EIDL Loan|
|Max amount||$10,000, based on employee count||$2 Million|
|Forgiveness||Yes, if use guidelines are met||No|
|Interest||3.75% for small businesses and 2.75% for non-profits|
|Payback Period||None, if guidelines are met||Maximum 30 Years|
Can I apply for both the Paycheck Protection Program and an EIDL?
Yes, although you cannot use funds from an EIDL for PPP expenses.
How do I apply?
You can apply online through the Small Business Administration. The application takes about ten minutes.
USDA Providing Direct Payments and Bulk Purchasing
U.S. Secretary of Agriculture Sonny Perdue announced the Coronavirus Food Assistance Program (CFAP) on April 18, 2020. The CFAP is meant to assist farmers and ranchers during the coronavirus pandemic by providing $16 billion in direct payments and $3 billion in food purchases.
The direct payments will be directed as follows:
- $9.6 billion the livestock industry
- $5.1 billion for cattle producers
- $2.9 billion for dairy producers
- $1.6 billion for hog producers
- $3.9 billion for row crop farmers
- $2.1 billion for specialty crop farmers
- $500 million for other crops
Producers will receive a single payment based on two calculations: 85% of price losses occurring between Jan. 1 and April 15, 2020, and 30% of expected losses from April 15 through the next two quarters.
The payment limit is $125,000 per commodity with a total limit of $250,000 per individual or entity. Qualified commodities must have experienced a 5% price decrease between January and April. Perdue said that the USDA will calculate payment amounts based on its own internal estimates as well as the University of Missouri’s Food and Agricultural Research Institute’s projections.
How do I sign up for direct payments?
Sign-up for the direct payment program will begin in early May. This post will updated with new information as it is available.
Bulk Food Purchases
The UDSA will, in partnership with local and regional food distributors, purchase $3 billion in produce, meat, and dairy products. The USDA will purchase approximately $100 million of fresh fruits and vegetables, $100 million of meat products, and $100 million of dairy products per month and ship those purchases to food distributors. The food distributors will then assemble the foodstuffs into a box of fresh produce, meat, and dairy products to foodbanks and other organizations providing food to Americans in need.
Which financial assistance option should I choose?
I recommend that farmers use the CCC loans from the FSA instead of PPP bank loans.
Concerns About the Payroll Protection Program
- Lack of Clear Guidance from the SBA regarding PPP. The SBA’s initial guidance on PPP indicated that a self-employed business, including a farm registered as an LLC or partnership,Farm LLC’s, Partnerships, etc.) would receive automatic loan forgiveness based on 8 weeks of their 2019 income. The remainder of any loan could then be forgiven by spending money on interest, rent, and utilities.
Later, however, the SBA’s guidance indicated that the only amount of forgiveness a self-employed business is eligible to receive is any personal self-employment income they would have received in that eight-week period. Essentially, the cost of paying your employees might not be forgiven.
- What income does the SBA look at? It is still unclear whether the SBA will allow farmers to reconcile their Schedule F to show all equipment gains. Since farmers are required to report traded-in farm equipment as a sale and show it as income on Form 4797 (not on Schedule F) and which is not subject to self-employment tax, coupled with full bonus depreciation for new equipment, often reduces Schedule F income to a loss, even though the net income is the same as before the new reporting requirements.
- Funding for the PPP has run out. The funds for PPP have already been expended. Congress is likely to fund another $150 billion to provide additional PPP relief, but that is not a guaranteed solution for farmers.
Paul Neifferdoes a good job at providing examples of where “glitches” might occur with the SBA’s handling of PPP. Find it here.
Benefits of Choosing a CCC Loan
There is still money in the pool that the CCC loans are using. Because the dedicated infrastructure to distribute money to agricultural producers already exists within the FSA, producers will likely have an easier time. Additionally, the FSA is relaxing the loan-making process. This includes:
- Extending the deadline for applicants to complete farm loan applications;
- Preparing Direct Loans documents even if FSA is unable to complete lien and record searches because of closed government buildings. Once those searches are complete, FSA would close the loan; and
- Closing loans if the required lien position on the primary security is perfected, even for loans that require additional security and those lien searches, filings, and recordings cannot be obtained because of closed government buildings.
For more information regarding FSA lending, visit the FSA Website or call your local FSA office.
Coronovarius Aid, Relief, and Economic Security (CARES) Act
The CARES Act contains $9.5 billion in assistance for agriculture producers who have been impacted by COVID-19 along with a $14 billion replenishment to the Commodity Credit Corporation, which funds many of USDA’s programs for farmers.
The itemization of relief is as follows:
$9.5B for dairy, livestock, and local market producers (e.g. farmer’s markets and direct-to-consumer farms).
$14B for CCC loan enhancements.
$10B for Small Business Interruption Loans. These loans are mostly through farm credit institutions, and loan forgiveness is available IF they are used to support your farm’s payroll.
$3M to increase the FSA’s capacity for service and assistance.
$100M for high-speed internet expansion. High-speed is about 10 Mbs and above, which is what is already available to most in Carroll County.
The most important takeaways from the CARES Act are:
- The deadline for farm loan applications has been extended, and the requirements have been relaxed to ensure that closed government buildings don’t halt the loan-making process.
- The FSA will consider loan deferral for financially distressed borrowers.
- The FSA will temporarily suspend loan accelerations and non-judicial foreclosures.
- Guarantee lenders can provide borrowers with emergency advances on lines of credit.
- Farms with 500 or fewer employees may qualify for a guaranteed loan to support their payroll, called the Paycheck Protection Program (PPP).
- SBA Disaster Relief Loans have been expanded, and include a potential $10,000 loan forgiveness element. All states qualify.
- Loan forgiveness or grants are NOT subject to income tax.
Fast FAQ – Paycheck Protection Program
Who qualifies for the Paycheck Protection Program?
Anyone who has fewer than 500 employees, including sole proprietors and independent contractors.
How can I apply for the Payroll Protection Program?
Apply through your local bank. Funds are going quickly, and banks are already putting limits on the number of loan applicants they can take.
Can I apply for the Payroll Protection Program as a self-employed farmer with no employees?
YES – self-employed farmers with no employees are eligible, but (1) availability starts April 9 and (2) Regulations are not finalized for documentation. The expectation is that Schedule F information will be required.
How much can I apply for the Payroll Protection Program?
The maximum amount is 2.5 times the average monthly payroll using the previous 12 months as the averaging data.
What can I use the funds for?
Payroll and payroll-related items, utility payments, mortgage interest, and rent payments.
Do I have to pay this back?
There is a loan forgiveness program if certain requirements are met, including (1) 75% of the loan amount must be used for payroll items and (2) 25% of the loan amount must be used for utilities, interest-only on mortgages, and rent payments. The loan is forgiven by an SBA “buy-back” of your obligation from the bank. You will have to show proof of compliance to the SBA within 8 months of the loan funds being issued by the bank.
What happens if my loan is not forgiven?
Your bank will carry the loan for 12-24 months at 1% interest rate. The bank determines the length of the loan.
Fast FAQ – SBA Disaster Relief Loans
What does this look like?
This is a streamlined process and expanded eligibility for SBA disaster loans. All states qualify. Quick turn-around to receiving funds (pending backlog).
How do I apply?
Go to www.SBA.gov/disaster and follow the instruction for Form 5.
What is in the fine print?
- No personal guarantees required
- Approval should be in three days (but there is currently a significant backlog)
- Initial $10,000 deposited in 7 days (subject to backlog) – If your loan is later declined, you can keep the initial $10K. This is also the GRANT portion of larger loans. The GRANT does not need to be repaid (check the GRANT box when you apply)
- Amount of loan is determined by SBA formula based upon your tax returns
- Purpose of loan (on the application): COVID19
Can I apply for the PPP and the SBA loan?
YES, if you meet the qualifications.
What can I use the money for?
Payroll costs (if you don’t apply for the PPP), meeting increased costs of doing business, rent or mortgage payments, business payments that cannot be made due to loss of revenue.
What can’t I use the money for?
Money cannot be used to expand the business or make improvements to your business or property.
USDA’s farmers.gov primarily provides information on USDA Service Centers and our continued support of farmers and ranchers through the Farm Service Agency, Natural Resources Conservation Service, and other USDA agencies.
Visit usda.gov/coronavirus for answers to frequently asked questions focusing on food safety, access to food, pet safety, and trade and foreign agricultural affairs.
ATTRA Sustainable Agriculture provides a number of resources, including links to private funding organizations, grants, and trusts.
April 7th, 2020 from Farm CPA Today
April 3rd, 2020 from Farm Bureau
March 30th, 2020 from FoodTank
March 26th, 2020 from Feedstuffs
March 26th, 2020 from National Sustainable Agriculture Coalition
March 17th, 2020 from AgWeb.com