The Consolidated Appropriations Act of 2021 allocated about $13 billion in funding that will directly benefit the agriculture industry.
Since the inception of the CARES Act, farmers and ranchers were routinely left with more questions than answers when it came to stimulus aid and provisions due to the uniqueness of the industry.
The new act provides much needed clarity on several controversial CARES Act provisions that left farmers and ranchers with more questions than answers.
Here is a summary of the new and updated benefits for farmers and ranchers going into 2021:
Deductibility of covered expenses
Covered expenses used for PPP loan forgiveness are now 100% tax deductible for fiscal or calendar year 2020 tax returns. If farmers or ranchers have already filed fiscal year-end 2020 returns, they may amend to take the deductions. This new guidance will apply to all new and existing PPP loans and the amount of PPP loan forgiveness will be treated as tax-exempt income. Also, the definition of eligible covered expenses has expanded to include, but not limited to, more payroll costs such as vision or dental insurance and operational expenses such as software updates or investments in PPE equipment.
Second draw PPP loans
The program has been extended through March 31, 2021 and a second draw has been added for all who want to apply. Farmers or ranchers can qualify if they show a 25% reduction in gross revenue in any quarter in 2020 vs. same quarter in 2019. The full amount of funds from the first round of PPP must be used up as well.
SE farmers get a retroactive PPP calculation
The original calculation for PPP loan proceeds received by a self-employed farmer or rancher who filed a Schedule F was based off a mix of net SE earnings and wages paid. This limited many Schedule F filers to zero eligibility if they showed a loss in 2019 without any wages paid.
The act adds a new, retroactive provision where a self-employed farmer can apply for more PPP loan money if they show gross revenue greater than $100,000 on their 2019 Schedule F. If the individual meets the new gross revenue threshold and previously received a PPP loan that was under the max amount of $20,833, the lender can recalculate and get the self-employed farmer or rancher more funds to match the max.
Extension of Employee Retention Credit (ERC)
The ERC has been extended through June 30, 2021. For the first two quarters in 2021, the credit has increased from 50% to 70% of qualifying wages per employee, the cap on qualifying wages per employee will now be a $10,000 cap per quarter, the eligibility test percentage decreased from a 50% to a 20% decline in gross receipts when compared to the same quarter in the prior period, and those quarters will be compared to the first two quarters in 2019 to establish whether the taxpayer qualifies for the credit in 2021. The changes are not retroactive past January 1, 2021 so 2020 wages follow the original guidelines under the CARES Act.
Clarification on ERC’s relationship with PPP
New provisions also clarify the relationship between the Employee Retention Credit (ERC) and PPP loan eligibility. Under the CARES Act, the Employee Retention Credit was not available to employers who took advantage of a PPP loan. Under the Consolidated Appropriations Act, employers who took advantage of a PPP loan may still qualify for the Employee Retention Credit for wages that were not part of their covered expenses used for PPP loan forgiveness.
This is a retroactive change that goes back to the inception of the CARES Act. For example, if the farmer or rancher has yet to file for PPP loan forgiveness, it may be wise to advise them not to use only their wages as a covered expense.
Remember, they are only required to apply at least 60% of their loan proceeds to wages. Instead, advise them to use up as much of the 40%-or-less portion of covered expenses like mortgage interest, rent, or utilities to fully maximize the forgiveness and ERC.
Temporary 100% meals deduction
This provision will expire on January 1, 2023. All meals and beverages must be provided by a restaurant and follow the “ordinary and necessary” guidance. All other meals and provisions for farmers and ranchers are still limited to 50% deductibility.
Farm NOL carryback updates
Farmers and ranchers can now waive a prior election to forego the two-year carryback (previously irrevocable) and elect into a five-year carryback for tax years 2018 and 2019 (if the election was claimed in those years). In addition, farmers and ranchers now have the option to retain their two-year carryback election or claim the five-year carryback under the CARES Act provisions through tax year 2020. These two clarifications apply retroactively to the inception of the CARES Act and are now part of Section 2303. IRS guidance to follow on filing timelines and what forms to use.
CFAP #3 - Crop producers
Farmers can apply for additional funds based off a $20/planted acre formula. Row crops producers that grow corn, soybean, wheat, and cotton will receive roughly $5 billion in new aid. Specialty crop producers will be allocated about $225 million based off a crop-loss designation.
CFAP #3 - Livestock producers
Ranchers can apply for another round of supplemental payments based off a flat-rate formula per head of livestock like CFAP #1 and #2. Growers of livestock and poultry are also eligible for an 80% FMV reimbursement on euthanized animals due to pandemic interruptions to processing plants. In total, roughly $3 billion could be spent on livestock and poultry producers.
CFAP #3 - Dairy producers
The USDA will invest about $400 million in purchasing milk from producers to be processed and donated to charitable organizations. Producers could be eligible for another round of increased payments under the Dairy Margin Coverage Program, budgeted at around $470 million. These payments will be available through December 31, 2023.
Investment in rural broadband and telehealth
Farm and ranch families were hit hard by high-speed internet issues pertaining to their children’s remote learning. Families had to foot the bill to upgrade internet speeds so their children could complete their classwork. The Consolidated Appropriations Act will provide relief to eligible families in the form of rebates up to $50/month on broadband bills as well as $75/month if the family resides in a tribal area.
How Wipfli can help
Our specialized agriculture team will continue to process the nearly 5,600 pages of the act and bring you more details as they emerge. If you need help with a PPP loan or other stimulus funding, reach out to us or learn more on our PPP loan web page.