by Megan Roberts, Extension educator, Ag Business Management
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| Farm family discusses options |
This post was updated on April 23, 2020 to reflect new legislation and funding. Funding may lapse quickly, so farm businesses should work quickly with their lending professional to access federal loans, as applicable.
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The Minnesota and federal government have recently passed several major economic stimulus acts related to the COVID-19 response. The laws have major financial implications for individuals and businesses, including farmers. The blog post briefly overviews major provisions of the recent federal laws. These laws are especially important to understand if your farm or agribusiness employs workers. If you are a self-employed farmer that does not employ other individuals, funding may still be available to you by using your Schedule C or F earnings to calculate loan amounts. Throughout this blog post links are provided to governmental websites that offer more detailed, up-to-date FAQs related to the quickly evolving interpretations of the laws.
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The Minnesota and federal government have recently passed several major economic stimulus acts related to the COVID-19 response. The laws have major financial implications for individuals and businesses, including farmers. The blog post briefly overviews major provisions of the recent federal laws. These laws are especially important to understand if your farm or agribusiness employs workers. If you are a self-employed farmer that does not employ other individuals, funding may still be available to you by using your Schedule C or F earnings to calculate loan amounts. Throughout this blog post links are provided to governmental websites that offer more detailed, up-to-date FAQs related to the quickly evolving interpretations of the laws.
Families First Act
The Families First Coronavirus Response Act, H.R. 6201,
became law on March 18, 2020. Referred to as the Families First or FFCRA act,
one of the provisions of this law and the subsequent temporary rules enacted by the Department of Labor,
requires employers to offer paid sick leave for specific reasons related to
COVID-19. This immediate requirement to provide sick leave includes farm and agricultural
employers with very limited exceptions. For employers with less than 500 workers, the Internal
Revenue Service will offer a tax credit to reimburse dollar for dollar the
cost of providing the paid sick leave. A major concern had been that employers
would have to wait to recoup the reimbursement, which may cause significant
cash flow concerns, particularly in the case of a small farm employer. However, new guidance
by the Treasury, Labor and IRS explains how employers can retain funds in a
more immediate way be retaining payroll taxes.
CARES Act
The Coronavirus Aid, Relief, and Economic Security Act, H.R. 748,
became law on March 27, 2020. Referred to as the CARES act, this law has both
individual and business related provisions. For individuals, the major
provision of this law is the availability of “economic
impact” payments. The IRS is distributing a financial stimulus check to most individual taxpayers with no action required in nearly all circumstances. Most farmers will qualify for these individual payments.
There are also important business related provisions of
the CARES act. This post highlights three provisions that farm businesses should analyze.
1. The first provision, Section 2302, is a payroll tax deferment option, for employers. The deferment period is between March and the end of December 2020. As written currently, the 50 percent deferrals are due December 31, 2021 and December 31, 2022. This option is only eligible if a farm does not participate in the loan forgiveness options in Section 1102, 1106, or 1109 of the CARES act.
1. The first provision, Section 2302, is a payroll tax deferment option, for employers. The deferment period is between March and the end of December 2020. As written currently, the 50 percent deferrals are due December 31, 2021 and December 31, 2022. This option is only eligible if a farm does not participate in the loan forgiveness options in Section 1102, 1106, or 1109 of the CARES act.
2. The second provision relates to Sections 1102, 1106, and
1109, and is a Small
Business Administration forgivable loan called the Paycheck Protection
Program (PPP). While initial funding of $349 billion ran out less than 14 days after it was authorized, Congress replenished the PPP fund with another appropriation. The Paycheck Protection Program and Health Care Enhancement Act, H.R. 266, became law on April 24, 2020, with Section 101(a)(1) adding an additional $310 billion to the PPP and Section 101(a)(2) providing additional funds for SBA to administer the program. Section 101(d)(2) sets aside specific allocations of the funding to smaller lenders. For farms that finance at smaller independent banks or credit unions this provision may help them better access PPP lending in this round of funding. JULY 2020 UPDATE: Since April, Congress has passed two additional PPP bills, which were signed into law on June 5, 2020 and July 4, 2020 respectively. These bills changed provisions including the percentage needed for payroll, the timeframe of the loan, and the application deadlines. Please see our more recent blog posts for more detailed information.
PPP loans are administered through participating bank and lending institutions with SBA relationships. The Farm Credit system qualifies as a lender for these loans. Businesses must be eligible employers, which generally means less than 500 employees. While farms are not eligible for SBA 7(b) loans, this provision was written for SBA 7(a), which does allow agricultural enterprises to participate. In brief, the loan is for 2.5 times your average monthly payroll cost. According to the SBA, “The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll).” JUNE 2020 UPDATE: The amount needed for full forgiveness is now 60% or more for payroll with the remaining amount for business related mortgage, rent or utilities. Sign up for farmers/business owners with employees began Friday, April 3, 2020.
Self-employed farmers that don't have W2 employees should also look at PPP. Farm businesses that do not have employees at present, but meet the program's definition of "sole proprietors, independent contractors, and self-employed persons" qualify for PPP. In general, the intent would be to help cover self-employment earnings lost due to COVID-19 during the covered time period. Schedule C or Schedule F filings will help you calculate the amount you may be able to recoup through the loan. You must have had positive net income in 2019 and if you made more than $100,000, you must cap your income at $100,000 in the application calculations. Self-employed sign up began Friday, April 10, 2020. The same application is used for self-employed farmers and farmers with employees applying.
Here is a PPP application form.
Your lender is your key contact for PPP; reach out to them for guidance as soon as possible if you plan to participate in this program. The first two CARES act business provisions addressed in this blog are an either/or option, you cannot pick both payroll deferment and PPP.
3. The third provision relates to Economic Injury Disaster Loans (EIDL). While farmers were not eligible in the original CARES act for EIDLs, the April revision specifically makes farms eligible for EIDLs related to COVID-19. In Section 101(b) of the April, 24, 2020 law an extra $10 billion became available for EIDL funds. Section 101(c) explicitly authorizes "agricultural enterprises" as eligible businesses for EIDLs. The emergency advance EIDL provides up to $10,000 in funding to small businesses experiencing revenue loss due to COVID-19. The emergency advance portion of an EIDL does not need to be repaid. If an EIDL "emergency advance" related to COVID-19 is made, it reduces the applicant's PPP loan by an equivalent amount. EIDL advances are designed to be processed quickly, getting needed cash flow to business owners "within three days" of successfully applying. Amounts larger than $10,000 are available through the EIDL program, but currently function more like a typical loan and need to be repaid.
PPP loans are administered through participating bank and lending institutions with SBA relationships. The Farm Credit system qualifies as a lender for these loans. Businesses must be eligible employers, which generally means less than 500 employees. While farms are not eligible for SBA 7(b) loans, this provision was written for SBA 7(a), which does allow agricultural enterprises to participate. In brief, the loan is for 2.5 times your average monthly payroll cost. According to the SBA, “The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll).” JUNE 2020 UPDATE: The amount needed for full forgiveness is now 60% or more for payroll with the remaining amount for business related mortgage, rent or utilities. Sign up for farmers/business owners with employees began Friday, April 3, 2020.
Self-employed farmers that don't have W2 employees should also look at PPP. Farm businesses that do not have employees at present, but meet the program's definition of "sole proprietors, independent contractors, and self-employed persons" qualify for PPP. In general, the intent would be to help cover self-employment earnings lost due to COVID-19 during the covered time period. Schedule C or Schedule F filings will help you calculate the amount you may be able to recoup through the loan. You must have had positive net income in 2019 and if you made more than $100,000, you must cap your income at $100,000 in the application calculations. Self-employed sign up began Friday, April 10, 2020. The same application is used for self-employed farmers and farmers with employees applying.
Here is a PPP application form.
Your lender is your key contact for PPP; reach out to them for guidance as soon as possible if you plan to participate in this program. The first two CARES act business provisions addressed in this blog are an either/or option, you cannot pick both payroll deferment and PPP.
3. The third provision relates to Economic Injury Disaster Loans (EIDL). While farmers were not eligible in the original CARES act for EIDLs, the April revision specifically makes farms eligible for EIDLs related to COVID-19. In Section 101(b) of the April, 24, 2020 law an extra $10 billion became available for EIDL funds. Section 101(c) explicitly authorizes "agricultural enterprises" as eligible businesses for EIDLs. The emergency advance EIDL provides up to $10,000 in funding to small businesses experiencing revenue loss due to COVID-19. The emergency advance portion of an EIDL does not need to be repaid. If an EIDL "emergency advance" related to COVID-19 is made, it reduces the applicant's PPP loan by an equivalent amount. EIDL advances are designed to be processed quickly, getting needed cash flow to business owners "within three days" of successfully applying. Amounts larger than $10,000 are available through the EIDL program, but currently function more like a typical loan and need to be repaid.
Summary
Farm business are eligible for payroll deferment, PPP and EIDL programs from the CARES act, as well as must comply by employer sick leave provisions from the Families First act.
There are many other provisions of these pieces of federal legislation that are not addressed in this blog post, such as temporary loan forgiveness of existing SBA loans and employer retention credits.
There are many other provisions of these pieces of federal legislation that are not addressed in this blog post, such as temporary loan forgiveness of existing SBA loans and employer retention credits.
Information related to delayed tax deadlines has been discussed
in two earlier blog posts. More detailed information regarding the Families First and CARES acts will be addressed in future blog posts.
Caution: This blog is offered as educational information. It does not constitute legal or financial advice. Please contact your lender or tax professional with questions.
