Farmers May Not Automatically Qualify for Refundable Payroll Tax Credit
In our post from a couple of days ago we discussed farmers’ ability to either get a Payroll Protection Program (PPP) loan via the Small Business Administration or receive a refundable payroll tax payment for certain wages paid to their employees.
In our last post we mentioned that we think farmers should automatically qualify for the SBA PPP loan even though they normally do not qualify for other SBA loans. Final details may be released on this subject by the end of the week.
However, on the refundable payroll tax payment, this payment requires the farmer to either be subject to a government shut-down or have revenues in the applicable quarter decrease by more than 50%. Almost all farm operations are considered to be an essential business and currently no shut-down applies to them. Therefore, to qualify for the refundable payroll tax credit they may need to make sure their gross revenues are less than 50% of the gross revenues from the applicable quarter in 2019.
Since the second quarter starts on April 1, farmers who want to take advantage of this program and who are able from a cash-flow standpoint should plan on keeping gross revenues under 50% of the second quarter of 2019.
One option to help with cash flow is to get a CCC loan on the crop. This provides cash but you could wait to cash in the grain until after June 30, 2020. Another option is to lock in grain sales but enter into a deferred payment contract calling for payment after June 30, 2020. We normally use deferred payment contracts to defer income from year-to-year, but in this case, it can defer income from quarter-to-quarter.
Guidance from the IRS on this subject should be released soon, but in the meantime, this is something you need to consider if you plan on taking advantage of the refundable payroll tax credit.
The 50% reduction in revenues requirement does not apply to the opportunity to defer paying the employer FICA tax to the end of 2021 and 2022. But you can’t participate in a PPP loan and get the refundable payroll tax credit. The deferral of payroll taxes owed disappears if the PPP loan is forgiven.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Have you verified that farmeras must have 50% less revenue to qualify for the payroll protection program?