Late in the afternoon on Friday, March 27th, the United States House of Representatives passed the $2 trillion federal relief package called Coronavirus Aid, Relief, and Economic Security Act ("CARES"). This bill was passed first in the Senate on Wednesday, March 25th. While there are many important provisions, this article is focusing on the critical relief resources available to farmers and landowners.
The most talked-about relief item in the federal relief bill is the direct payments to American taxpayers. These payments are available to all Americans regardless of occupation, including farmers, and regardless of job status. However, income phase-out limits begin at $75,000 of Adjusted Gross Income (AGI) for a single filer and $150,000 AGI for a married couple filing jointly. These one-time payments are $1,200 per adult and $300 per child. For example, a married couple who have three kids and earn less than the $150,000 phase-out limit would be entitled to a one-time payment of $3,300.
The IRS will be handling the processing of these payments and will look at either your 2019 tax return (if filed) or 2018 tax return to determine eligibility. This presents taxpayers with a small but valuable tax planning opportunity: if your income in 2018 was above the $75,000/$150,000 thresholds, but your 2019 income was below the threshold, taxpayers should go ahead and file their 2019 tax return to ensure eligibility. Likewise, because 2019 tax returns are not due until July 15th, 2020, taxpayers with 2019 income above the threshold should delay filing their 2019 return until payments have been processed. This provision is vitally important and will help individual farmers and workers at agribusinesses and farming operations.
For small business employers, including farming businesses, relief loans have been made available through the federal relief bill. Most small businesses with less than 500 employees in one location will find that they are eligible. The 500-employee cap is adjusted higher for specific business industries. These loans are provided through the Small Business Administration (SBA), and applications can be made directly with most commercial banks and financial institutions. Eligible small businesses, including farms and farming operations, can apply for a loan of up to 2.5 times their average monthly payroll (with a maximum loan of $10 million). The portion of these loans used on rent, payroll, mortgage, and utilities by the company in the first eight weeks will be forgiven by the Federal government. This goal of these loans is to keep people employed and businesses alive. Therefore, the government will not require companies to repay the portion of the loan used on eligible expenditures (rent, payroll, mortgage, & utilities). The loan forgiveness provision should make these loans very attractive to agribusinesses and small farming operations.
Please note that additional guidance is going to be released by individual agencies receiving funding in the next few weeks. The federal relief act does provide additional funding for the Department of Agriculture and the Commodity Credit Corporation. The Office of the Secretary of the Department of Agriculture received $9.5 billion to "provide support for agricultural produces impacted by coronavirus, including producers of specialty crops, producers that supply local food systems, including farmers markets, restaurants, and schools, and livestock producers, including dairy producers." As mentioned, the "CARES" act was recently passed, and additional guidance will be provided on how these funds will be passed along to farmers impacted by COVID-19.
The federal relief act also provides $14 billion in funding for the Commodity Credit Corporation (CCC) Fund. These funds allow the Department of Agriculture to determine how to best assist farmers who have been negatively impacted by falling commodity prices as a result of COVID-19. There has been much uncertainty within the industry as to whether farmers would receive Market Facilitation Program (MFP) payments in 2020. In January 2020, Secretary of Agriculture Sonny Perdue discussed MFP payments when he said, "(Producers) shouldn't expect a 2020 MFP because they told us all along they'd rather have trade, not aid, and that's what the president has delivered." However, in light of the additional CCC funding and the impact of COVID-19, there could be additional MFP payments made for 2020.
After the passage of the federal relief act, Secretary of Agriculture Sonny Perdue issued the following statement:
"The passage of the Coronavirus response legislation will provide much needed relief to Americans across this country, especially workers and small-business owners who have been impacted by COVID-19. President Trump has made the safety and security of the American people a top priority during this national emergency, and this bill will help make Americans more financially secure. At USDA we will deliver relief assistance to farmers and ranchers as quickly as possible. Americans across the nation are stepping up to the challenges facing them during these uncertain times. At USDA we are doing our part to ensure those who need help will get it, whether it's through nutrition assistance, ensuring the food supply chain is safe and secure, or through new flexibilities with our Rural Development loan programs."
One of the main provisions in the "CARES" Act is increased unemployment benefits. While unemployment benefits are generally state-regulated, the Federal government is directing the following changes to be made at the state level. Congress extended the length of unemployment benefits from 26 weeks to 39 weeks, increased unemployment benefits by $600 per week for the first four months of benefits, and allows for unemployment to be claimed by freelancers, independent contractors, and non-traditional workers who would not otherwise qualify. Many farmers and business owners are concerned that employees who are laid off will receive unemployment benefits in excess of their previous wages and will be unwilling to return to their previous role. However, it's important to note the $600 increase in unemployment is only for the first four months. Also, to be eligible for unemployment, a worker must be unemployed through "no fault of their own." If an employee quits working, they are traditionally not eligible for unemployment. Business owners and employers should do everything possible to keep employees on the payroll. The previously mentioned small business loan forgiveness program should be consulted and considered before taking steps to reduce payroll.
Employers are also allowed to defer payroll tax payments (for Medicare and Social Security) for the remainder of 2020. The deferred amount is then paid in 2021 and 2022 (half due on December 31st of each year). One final significant benefit to employers is the Employee Retention Credit. This credit applies for 2020 only and allows employers to take a credit against employment taxes equal to 50% of qualified wages for each employee. Employers are eligible if their business was forced to close because of a government mandate, or their company has a decline in revenue of 50% or more in a given quarter of 2020 compared to the same quarter in 2019. Employers who qualify through the revenue test are eligible for the credit for wages paid during those quarters until the business has a quarter where revenue is 80% or more of what it was in the same quarter of 2019.
One final provision the federal relief bill applicable to both taxpayers and employers is the ability to take withdrawals from qualified retirement plans without paying the 10% additional penalty. Previously, taxpayers who were not 59 ½ years of age or older were forced to pay a 10% penalty on any withdrawals (in addition to any applicable tax). However, Congress has waived this clause to allow individuals and employee-owners the ability to receive cash as needed. The maximum amount that can be withdrawn while avoiding this penalty is $100,000. Further, taxpayers can now take out a loan against their qualified retirement plan of up to $100,000 (up from $50,000).
In summary, the "CARES" act is going to continue to evolve as detailed guidance is released by each agency that received funding. While the impact on trade and on the USD value is uncertain, the "CARES" bill should provide stability to our economy and financial markets. Individuals and businesses can benefit from understanding the different provisions and financial assistance options that are available.
This article should not be construed as, and should not be relied upon as legal or tax advice.
Tyler Davis is a CPA who works for SVN Saunders Ralston Dantzler real estate as an asset manager and advisor. SVN Saunders Ralston Dantzler was founded by Dean Saunders in 1996 and is a leading agricultural land brokerage based in Lakeland, FL. Tyler also owns his own CPA Firm, Tyler Davis CPA, where he provides tax preparation, writing, consulting, and research services. Tyler can be contacted at firstname.lastname@example.org.