More ERC Info
It has been a while since I went a full week without doing a post. Last week I was traveling all week (and won’t be home until the 23rd) and am finally getting caught up a bit.
I have gotten several emails regarding the Employee Retention Credit (ERC) and thought I would go over some details in this post as follows:
- If your gross receipts for the 4th quarter of 2020 were less than 80% of the same quarter in 2019, then you qualify for the ERC in the first quarter of 2021 even if your gross receipts did not go down by at least 20%.
- However, you then do not automatically qualify for the ERC in the second quarter. Either the first or second quarter needed to have at least a 20% reduction in gross receipts to qualify for quarter two. You can’t attribute the 2020 quarter 4 to the second quarter of 2021.
- Remember, that the ERC is no longer available for the fourth quarter of 2021 for almost all farmers.
- If you are a Schedule F farmer, you must include all gross receipts including interest, dividends, wages, and any other income when you calculate that number.
- If your gross receipts meet the reduction requirement, you automatically qualify for that quarter and the next quarter even if you do not have wages in one of those quarters.
- You have to pay cash wages to get a credit. Commodity wages do not count.
- You must follow your income tax method of accounting which means when you “report” the income as gross receipts, not necessarily if you receive cash. For example, assume you trade-in farm equipment that generates a $100,000 gain. You report that as gross receipts even though you did not get any cash.
- If you elect out of the installment method on deferred payment contracts, the gross receipt is at the time of sale, not when cash is received.
- If you received a PPP loan and used wages to get PPP loan forgiveness, you cannot take those wages and use them for the ERC.
- It is difficult for a farmer to qualify for the ERC based on a “partial shut-down”. If you are relying on a partial shut-down to get the ERC credit realize that if the credit is large enough it is likely to be audited and documentation showing how you arrived at the partial shut-down is required.
- You will be required to reduce your expenses on Schedule F in 2021 even though you may not receive the cash until 2022.
I am sure there are other questions that we did not answer here. If so, please let me know and I will do another post on those questions. Remember to claim this credit on your Form 943 due January 31, 2022.
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.
Can you post your source documentation for the bullet item “If you are a Schedule F farmer, you must include all gross receipts including interest, dividends, wages, and any other income when you calculate that number.”
I have not seen this interpretation in my research, and it seems odd to combine a wife’s wage- that works at an eye clinic- to her farmer husbands gross farm income in determining ERC eligibility.
If you are correct on this – I am now annoyed at the thought of getting her wage income on a quarterly basis for 2019 through 2021…