Don’t Be in a Hurry to File Form 943

• January 3, 2021
• Paul Neiffer

The new Stimulus Bill has expanded the Employee Retention Credit (ERC) for 2020 to include farmers that received a PPP loan and has expanded the credit for the first two quarters of 2021.  But the credit details are different for 2020 versus 2021

2020 Details

For the farmer to qualify in 2020 they would need to see a reduction in revenues for any quarter of at least 50% compared to the same quarter in 2019.  They continue to qualify for the credit until their revenues exceed 80% compared to the same quarter in 2019.

Refundable credits are better than a deduction since it is essentially the same as receiving cash.  The negative about this credit is unlike PPP loan forgiveness where the expenses are deductible, the employer will need to reduce their wage deduction by the amount of the credit.

Qualified wages include “cash” compensation paid to non-related party employees of up to $10,000 after March 12, 2020 through December 31, 2020.  This means the commodity wages will not qualify and wages paid to related parties also do not qualify.  Payments for health insurance will also qualify as “wages”.  Wages used in qualifying for PPP loan forgiveness are not allowed in calculating the ERC.

The credit is equal to 50% of wages paid with an annual limit of $5,000 per employee ($10,000 multiplied by 50%).  

You will claim the credit when you file Form 943.  Farmers file Form 943 in January and many of them file it quickly after year-end.  Farmers who had any quarter where revenues were less than 50% of 2019 (for the same quarter) need to wait to file Form 943 to make sure they claim the ERC properly.

Let’s look at an example on how this credit may work:

Janis is a Schedule F farmer and has four employees that each receive $10,000 per quarter in wages.  She received an PPP loan on June 1, 2020 in the amount of $55,000 of which $35,000 related to her employee’s wages.  Her gross receipts for each quarter compared to the same quarter in 2019 is as follows:

• First – 105%
• Second – 47%
• Third – 73%
• Fourth – 87%

Therefore, she will qualify for the ERC in the 2^nd and 3^rd quarter, but not the 1^st or 4^th quarters.  The maximum wages allowed are $40,000 (4 employees at $10,000 per employee).  We would normally have to reduce these wages by the amount of wages used for PPP loan forgiveness (a minimum of $21,000 ($35,000 multiplied by 60%), however since the 24 week period falls into the fourth quarter and at least $21,000 of wages were paid in the fourth quarter during the covered period, we can use the full $40,000 of wages paid.  50% of this amount is $20,000 which can now be claimed on the 2020 Form 943 filed in January 2021.

2021 Details

During the first two quarters of 2021, the credit amount is increased to 70%.  Qualifying wages are limited to $10,000 per quarter (not annual).  Therefore, the maximum per employee credit for 2021 is $14,000 (two quarters of $7,000) up from the $5,000 limit in 2020.  Also, the minimum reduction in revenues compared to the same quarter in 2019 is now reduced to 20% from 50%.  Many farmers should be able to optimize their income in the first and second quarter to keep revenues under this number.  The use of deferred payment contracts that defers payments until after July 1, 2021 is likely the best planning option (if the farmer wants to lock in a cash price).

Example

Assume that Janis has revenues that are less than 80% of the same quarters in 2019 for the first and second quarter and receives an additional PPP loan on March 1, 2021 and her covered period ends on August 15, 2021.  Since payroll paid after June 30, 2021 and by August 15, 2021 exceeds the amount of labor needed to for full loan forgiveness, all $80,000 of wages paid in the first two quarters will qualify for the 70% ERC which results in a total refundable credit of $56,000.  If she did not have enough wages after June 30, 2021 for full forgiveness, any of those wages used in the second or first quarter for forgiveness would reduce the ERC.

One final item for non-farmer employers.  Since this credit is now allowed for employers who received a PPP loan, you may qualify for a credit in the 1^st, 2^nd or 3^rd quarter where you have already filed Form 941.  You are not required to file amended returns for these quarters.  Rather, you are now allowed to claim any of those quarter’s ERC on your 4^th quarter Form 941.  These employers, for sure, need to delay in filing Form 941s until we see how to claim this credit.

In many cases the amount of ERC may far outweigh the PPP loan that a farmer received.  Also, since you can also qualify for the ERC in the first two quarters of 2021, planning to keep your revenues under 80% of the same 2019 quarter’s revenues will allow you to claim the credit.

If a farmer has at least a 20% reduction in revenues for any quarter in 2021 versus 2019, they are entitled to claim the Employee Reduction Credit (ERC) on qualified employee wages.

Qualified wages include “cash” compensation paid to non-related party employees of up to $10,000 in each quarter during 2021 where revenues were at least 20% lower.  This means the commodity wages will not qualify and wages paid to related parties also do not qualify.  Also, if the wages were paid 

The credit is equal to 70% of wages paid in the quarter with a limit of $7,000 per employee per quarter.  

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