What impact do the changes in the new federal stimulus bill have on farmers?
Bradley Zwilling and Evie Hanson | Daily Farmdoc
On December 27, 2020, the 2021 Consolidated Finance Law (CAA) was promulgated. Many elements of this bill affected farmers.
These included changes to the Paycheck Protection Program (PPP), Advance Grants for Economic Disaster Lending (EIDL) and Credit for Employee Retention (ERC), as well as additions or changes. extensions to other Agricultural Service Agency (FSA) programs. We’ll give an overview of the changes to the first three elements of this article.
For all of these programs, we only explain new changes or additions. The rules of origin for PPP loans, EIDL advances and ERC still apply and were not explicitly changed in CAA 2021.
Changes to the 2020 PPP Loan, EIDL and ERC
With this legislation, covered business expenses (such as mortgage interest, employee salaries, rent, and utilities) that are paid with the proceeds of the PPP loan are now deductible on the tax return (they were not initially deductible). In addition, EIDL advance grants are no longer taxable and do not reduce the cancellation of PPP loans.
Thus, before CAA 2021, a person who had a PPP loan and an EIDL Advance grant, had to reduce the amount of the PPP loan that could be canceled by EIDL Advance. Now the full PPP loan amount will be canceled no matter.
In addition, there is now a simplified PPP remittance process for PPP loans under $ 150,000. For this type of remittance, documentation will not need to be submitted to the lender, but will still need to be collected and retained by the borrower.
Finally, in the CARES (Coronavirus Aid, Relief, and Economic Security) law of 2020, farmers and businesses could only choose the ERC or a PPP loan. CAA 2021 gave farmers and businesses the opportunity to retroactively participate in both. The only limitation to this change was that borrowers cannot use the same salaries to calculate ERC and PPP loans.
One of the novelties of the CAA is the New Farmer PPP Loan. A unique feature for agricultural borrowers is that they calculate their PPP loan amount based on their gross receipts 2019 Annex F (Annex for reporting agricultural income and expenses). This calculation is capped at $ 100,000 in gross receipts, which will allow up to a maximum of $ 20,833 in P3 loans.
This applies to farmers who did not take out a PPP loan the first time due to missed deadline, lack of funds, or a negative 2019 Schedule F. Also, if this is the first time you took out a PPP loan, but could receive a loan with these new arrangements, consider reapplying as there may be additional PPP loan products for your farm. You will need to contact your lender to see if you qualify.
If your 2020 loan was canceled before December 27, 2020, you are not eligible to reapply for a higher amount.
PPP second draw
For those who have received a PPP 2020 loan, you may be eligible to receive a PPP Second Draw loan in 2021. To be eligible, any business must show a 25% drop in gross revenue by comparing each quarter of 2020 to each quarter of 2019. The same rules apply for the calculation of the loan amount as in the agricultural PPP. For farmers, the PPP loan amount from the second draw will likely be equal to what you received for your 2020 PPP loan.
Employee retention credit (ERC)
With CAA 2021, you can now apply for an ERC and a PPP loan, but the same salaries cannot be used for both stimulus payments. This applies retroactively to 2020 as well as to 2021. For 2020, the rules apply to salaries paid from March 12, 2020 to December 31, 2020.
Also for 2020, employers must show a 50% drop in gross revenue in any quarter from 2019 to 2020. In quarters that show a 50% reduction, the employer is eligible for the ERC. However, eligibility ends in any quarter after the first quarter of 2020 where gross revenue is greater than 80% from 2019. The maximum ERC in 2020 is $ 5,000 per employee per year and it will be claimed on Form 943.
January 1, 2021 to June 30, 2021 is the period for which the ECR calculation applies in 2021. For 2021, borrowers can receive a maximum of $ 7,000 per employee per quarter. To be eligible for the ERC, you must have had a 20% reduction in your gross receipts in a quarter to be eligible for the 2021 credit. The ERC is claimed on Form 943.
With all of these changes that were enacted under CAA 2021 at the end of the year, careful consideration and application to your farm operation needs to be analyzed. Be sure to work with your lender and tax preparer to see if any of these arrangements are available for your farm operation. Good record keeping, communication with your trusted advisors and updating on various topics are the keys to a successful operation.
The material used in this article is from material compiled as part of a group effort including members of the National Association of Farm Business Analysis Specialists (NAFBAS) and the Illinois Farm Business Farm Management (FBFM) Association Economic Stimulus Team (EST).