by Megan Roberts, Extension educator
The law notably changes the tax treatment of the Paycheck Protection Program (PPP) with just a few days left in the calendar year. Other parameters of the law of importance to farmers and other small business owners include a second round of PPP loans, new funding for targeted Economic Injury Disaster Loan (EIDL) advances, an infusion of new dollars to the United States Department of Agriculture (USDA), and continuation of several COVID-19 related employee tax credits. Not connected directly to business finances, but likely relevant to many reading this post, the law also includes a second round of Economic Impact Payments (EIPs) and funding for rural broadband and telehealth upgrades.
This article highlights major COVID-19 financial related provisions but does not provide a full comprehensive summary of the 5,593 page law. Rob Holcomb outlines additional tax changes in another blog post here.
Paycheck Protection Program (PPP)
The most time sensitive business planning news from this law affects PPP. For borrowers with employees, PPP expense deductions are now deductible on 2020 tax returns. For Schedule F sole proprietors and self-employed individuals, PPP Round 1 loans may now be based on gross income instead of net income, but only if forgiveness has not yet been received. Pausing on forgiveness until more information is available may be recommended for Schedule F filing sole proprietors.
Let’s dig deeper into PPP the changes. If you were a PPP borrower, the amount of your PPP loan (forgiven or reasonably expected to be forgiven) has been non-taxable gross income since PPP was created in the CARES Act last spring. However, the IRS stepped in this summer and said because income associated with PPP was tax-excluded they would not allow expenses associated with PPP to be deducted on your 2020 federal taxes. This new law usurps the IRS’s interpretation and very clearly states at the federal level PPP expenses are tax deductible (Division N, Title II, Section 276). This is welcome news for many PPP borrowers. With only a few short days left in the calendar year, it is important to adjust your tax planning estimates to include any PPP expenses that were formerly non-deductible.
For sole proprietors without employees, owner’s compensation is non-deductible to begin with, so the new law’s treatment of PPP expenses should not affect your expense deductions. However, a new provision (Division N, Title III, Section 313) allows Schedule F filing sole proprietors, independent contractors, or self-employed individuals to retroactively recalculate their Round 1 PPP loans based on their 2019 gross income, instead of their 2019 net income. However, if the PPP loan has been forgiven, there is an exception. In other words, farmers may not recalculate Round 1 PPP loans that are already forgiven. Farmers and ranchers meeting the new qualifications will also be allowed to use the gross income calculations for PPP loans issued in the future. Annualized maximums remain at $100,000 per employee (Division N, Title II, Section 344). The annualized maximum typically applies to owner's compensation as well, with few exceptions.
Congress funded an additional $284.45 billion (Division N, Title III, Section 323) for a second round (or “second draw”) of PPP for businesses with 300 employees or less with a final covered period date of March 31, 2021 (Division N, Title III, Section 343). The additional PPP funding brings the total appropriation for PPP to approximately $806 billion since the start of the program in April 2020. Farmers and other small business owners are generally eligible for the second round if they experienced “at least a 25 percent reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter ... Applications submitted on or after January 1, 2021 are eligible to utilize the gross receipts from the fourth quarter of 2020.” (Division N, Title III, Section 311).
Additionally, PPP borrowers under $150,000 may use a new simplified forgiveness process, which requires less documentation (Division N, Title III, Section 307). Many farmers fall into this smaller loan category.
Based on the CAC, the Small Business Administration (SBA) will begin issuing new rules and regulations for PPP Round 2 and other PPP changes in the coming weeks.
Economic Injury Disaster Loans (EIDL)
Congress extended the EIDL program and the EIDL Emergency Advances. The EIDL Advance (the grant-like portion of the loan that does need to be paid back) no longer reduces your PPP forgiveness amount (Division N, Title III, Section 333). You may achieve full PPP forgiveness and retain the full amount of your EIDL Advance, if applicable. Congress also replenished the EIDL Advance fund at an additional $20 billion (the EIDL Advance fund previously ran out of money in July) (Division N, Title III, Section 331). The new round of EIDL Advances will be targeted at small businesses experiencing a more than 30% economic loss located within low-income communities, enable a qualifying business to receive the full maximum EIDL Advance amount of $10,000 (Section 331) and extend the program through December 31, 2021 (Section 332). Finally, the law clarifies EIDL Advances, as well as certain loan forgiveness authorized in the CARES Act, are non-taxable income (Section 278).
Nutrition and agricultural relief
Congress allocated an additional $13 billion additional dollars for agricultural ad-hoc financial relief programs in response to COVID-19. Approximately $11 billion of that is earmarked for a supplemental Coronavirus Food Assistance Program payments, e.g. a CFAP 3, and other payments related to farm, ranch, food, timber, and fisheries programs (Division N, Title VII, Section 751). CFAP payments will utilize agricultural production categories developed for CFAP 2, including price trigger crop, flat rate crops and sales production. Poultry and livestock contract growers will be eligible for payments this time. Timber producers are also included. The remainder of the $13 billion total for agriculture, includes specialty crop block grants, local agricultural markets funding, new training programs, dairy buying, adjustments to Dairy Margin Coverage (DMC), and livestock processing upgrades (Division N, Title VII, Sections 752-765). An additional $28 million is explicitly to support existing state department of agriculture farm stress programs (Division N, Title VII, Sections 766). Further announcements from USDA in the coming weeks or months will likely clarify the distribution of this $13 billion allocation.
Furthermore, Division N, Title VII, Section 701-732 expands Covid-19 nutritional assistance programs into 2021. This is funded through an additional multi-billion dollar allocation.
Employee sick leave
March 2020’s Families First Coronavirus Response Act (FFCRA) required most business owners to provide paid COVID-19 related sick leave to employees through December 31, 2020. Farmers were not exempt from providing COVID-19 sick leave to their employees, although many farmers were exempt from providing ten-weeks of expanded paid family medical leave act (FMLA). In return, qualifying business owners could recoup paid COVID-19 sick leave in the form of a dollar-for-dollar tax credit. For sole proprietors and self-employed individuals that need sick or family leave, the law allows for recoupment of an equivalent credit for lost owner’s compensation via their Schedule F or C. In the new law passed December 2020, Congress extends the FFCRA’s paid sick and family leave tax credit for those unable to work due to COVID-19 sickness through March 31, 2021 (Division N, Title II, Section 286). However, the new law did not extend the mandatory requirement to offer the paid leave (note this sentence was added as a clarification on 1/5/2021).
Stimulus checks to individuals
While not specifically related to business management, most Americans, including farmers, can look forward to a second round of COVID-19 stimulus checks. The Treasury will process stimulus checks, also called Economic Impact Payments (EIPs), similarly to the first round that was issued in Spring 2020. The payments are tax credits for 2020 issued as an advance and therefore preemptively based on your 2019 tax returns. “The credit is $600 per taxpayer ($1,200 for married filing jointly), in addition to $600 per qualifying child. The credit phases out starting at $75,000 of modified adjusted gross income ($112,500 for heads of household and $150,000 for married filing jointly) at a rate of $5 per $100 of additional income (Division N, Title II, Section 272-273).” Compared to the payments issued in April, these EIPs are less per each qualifying adult, but slightly higher for each qualifying child.
Rural broadband and telehealth
Funding for broadband focuses on minority, underserved, and rural areas. For example, rural broadband ($1 billion specifically for tribal governments and an additional $300 million for underserved areas including non-tribal rural areas) and telehealth ($250 million) were both funded (Division N, Title IX, Sections 901-906).
Remember, for more information on tax-related provisions of the law, see our companion post covering employee retention credits, net operating loss adjustments, tax credits for extended mandatory employee COVID-19 related sick leave, and other associated provisions. Congress has passed the longest piece of legislation in history, analysis and interpretation of the law will be ongoing. Furthermore, federal agencies will soon begin issuing associated rules and regulations related to the new legislation that will affect our interpretation. More analysis will be added in the coming weeks.
Economic Injury Disaster Loans (EIDL)
Congress extended the EIDL program and the EIDL Emergency Advances. The EIDL Advance (the grant-like portion of the loan that does need to be paid back) no longer reduces your PPP forgiveness amount (Division N, Title III, Section 333). You may achieve full PPP forgiveness and retain the full amount of your EIDL Advance, if applicable. Congress also replenished the EIDL Advance fund at an additional $20 billion (the EIDL Advance fund previously ran out of money in July) (Division N, Title III, Section 331). The new round of EIDL Advances will be targeted at small businesses experiencing a more than 30% economic loss located within low-income communities, enable a qualifying business to receive the full maximum EIDL Advance amount of $10,000 (Section 331) and extend the program through December 31, 2021 (Section 332). Finally, the law clarifies EIDL Advances, as well as certain loan forgiveness authorized in the CARES Act, are non-taxable income (Section 278).
Nutrition and agricultural relief
Congress allocated an additional $13 billion additional dollars for agricultural ad-hoc financial relief programs in response to COVID-19. Approximately $11 billion of that is earmarked for a supplemental Coronavirus Food Assistance Program payments, e.g. a CFAP 3, and other payments related to farm, ranch, food, timber, and fisheries programs (Division N, Title VII, Section 751). CFAP payments will utilize agricultural production categories developed for CFAP 2, including price trigger crop, flat rate crops and sales production. Poultry and livestock contract growers will be eligible for payments this time. Timber producers are also included. The remainder of the $13 billion total for agriculture, includes specialty crop block grants, local agricultural markets funding, new training programs, dairy buying, adjustments to Dairy Margin Coverage (DMC), and livestock processing upgrades (Division N, Title VII, Sections 752-765). An additional $28 million is explicitly to support existing state department of agriculture farm stress programs (Division N, Title VII, Sections 766). Further announcements from USDA in the coming weeks or months will likely clarify the distribution of this $13 billion allocation.
Furthermore, Division N, Title VII, Section 701-732 expands Covid-19 nutritional assistance programs into 2021. This is funded through an additional multi-billion dollar allocation.
Employee sick leave
March 2020’s Families First Coronavirus Response Act (FFCRA) required most business owners to provide paid COVID-19 related sick leave to employees through December 31, 2020. Farmers were not exempt from providing COVID-19 sick leave to their employees, although many farmers were exempt from providing ten-weeks of expanded paid family medical leave act (FMLA). In return, qualifying business owners could recoup paid COVID-19 sick leave in the form of a dollar-for-dollar tax credit. For sole proprietors and self-employed individuals that need sick or family leave, the law allows for recoupment of an equivalent credit for lost owner’s compensation via their Schedule F or C. In the new law passed December 2020, Congress extends the FFCRA’s paid sick and family leave tax credit for those unable to work due to COVID-19 sickness through March 31, 2021 (Division N, Title II, Section 286). However, the new law did not extend the mandatory requirement to offer the paid leave (note this sentence was added as a clarification on 1/5/2021).
Stimulus checks to individuals
While not specifically related to business management, most Americans, including farmers, can look forward to a second round of COVID-19 stimulus checks. The Treasury will process stimulus checks, also called Economic Impact Payments (EIPs), similarly to the first round that was issued in Spring 2020. The payments are tax credits for 2020 issued as an advance and therefore preemptively based on your 2019 tax returns. “The credit is $600 per taxpayer ($1,200 for married filing jointly), in addition to $600 per qualifying child. The credit phases out starting at $75,000 of modified adjusted gross income ($112,500 for heads of household and $150,000 for married filing jointly) at a rate of $5 per $100 of additional income (Division N, Title II, Section 272-273).” Compared to the payments issued in April, these EIPs are less per each qualifying adult, but slightly higher for each qualifying child.
Funding for broadband focuses on minority, underserved, and rural areas. For example, rural broadband ($1 billion specifically for tribal governments and an additional $300 million for underserved areas including non-tribal rural areas) and telehealth ($250 million) were both funded (Division N, Title IX, Sections 901-906).
Remember, for more information on tax-related provisions of the law, see our companion post covering employee retention credits, net operating loss adjustments, tax credits for extended mandatory employee COVID-19 related sick leave, and other associated provisions. Congress has passed the longest piece of legislation in history, analysis and interpretation of the law will be ongoing. Furthermore, federal agencies will soon begin issuing associated rules and regulations related to the new legislation that will affect our interpretation. More analysis will be added in the coming weeks.
Source information used for this post included The House Committee on Appropriation’s
H.R. 133 – Division-by-division summary of COVID-19 relief provisions, as well as the final H.R. 133 text as passed.
H.R. 133 – Division-by-division summary of COVID-19 relief provisions, as well as the final H.R. 133 text as passed.
This information is educational in nature, and is not tax or legal advice.
