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Good and Bad News on Farm PPP Loans

Paul Neiffer

January 8, 2021

The SBA issued two new Interim Final Rules (IFR) on Thursday January 7, 2021 and for the first time finally addresses PPP loans for farmers, but albeit with certain mistakes on the SBA’s part. This post deals with the first set of IFR’s which concerns the first round of PPP loans that was initiated by the CARES Act. It details the calculation of the allowed PPP loan for Schedule F farmers. There is both good and bad news in the IFR.

First, the good news. A Schedule F farmer who showed less than $100,000 of net profits on line 34 of Schedule F and had no employees was originally limited to a PPP loan based upon its net profits. The Economic Aid Act signed into law on December 27, 2020 changed the calculation from using line 34 net profits to using line 9 gross income with certain modifications if you have employees.

If you have no employees, the farmer simply looks at line 9. If line 9 is greater than $100,000, then the farmer will qualify for the full $20,833 allowed maximum PPP loan based on earnings. If the farmer received a PPP loan less than this amount, they may request a recalculation of their loan based upon gross income with the original lender and will receive an increased loan amount. The farmer ignores any gains reported on Form 4797 from selling or trading farm assets.


Sue Smith showed Schedule F net profits of $13,200 on her 2019 return which was used to obtain a PPP loan of $2,750. Her gross income reported on line 9 was $895,000. She can now reapply with her lender to increase the loan to $20,833 since line 9 is greater than $100,000.

However, it is uncertain whether the farmer originally needed to have applied for a PPP loan in order to increase the first round PPP loan amount. If the farmer had a net loss and therefore was unable to apply for a PPP loan, they may be precluded from obtaining an “original” PPP loan based on these new rules. The IFR language states that “a farmer or rancher who received a PPP loan before December 27, 2020 may request a recalculation of the maximum loan amount based on the formula described above regarding gross income, if doing so would result in a larger covered loan amount and may receive an increase in its PPP loan based on the recalculation.” Therefore, it seems you needed to have a loan in place to get an increase and in order to qualify for a second round of PPP loans you needed to receive and spend a first PPP loan. We need clarification on this.

If the Schedule F farmer has employees, it gets a little more complicated. The maximum loan amount is determined as follows:

  • SE Income: The amount of gross income on line 9 minus the sum of (1) line 15 employee benefits, (2) line 22 labor, (3) line 23 pension and profit-sharing plans, and (4) line 37. We think line 37 is in error since that line refers to gross receipts assuming the farmer is an accrual basis farmer. The line likely should be line 29 taxes and only the amount of SUTA taxes on those employee wages. They will need to fix this. If this amount is greater than $100,000, it is limited to $100,000.


  • Employee Payroll Costs: Based on 2019 or 2020 IRS 941 Taxable Medicare Wages from each quarter. As you can see, they still don’t understand farmers since a farm does not file Form 941, but rather a Form 943. Now the bad news is that they are referring specifically to Medicare wages, therefore commodity wages will not qualify for a PPP loan based on this IFR. Many farmers originally received a PPP loan using commodity wages; therefore, when applying for forgiveness, these wages may not be allowed for forgiveness and the farmer will have to pay it back.


  • Other “Employee Payroll Costs”: 2019 or 2020 employee group health, life, disability, vision and dental insurance, employer contributions for employee retirement contributions and state and local taxes assessed on the employer (almost exclusively state unemployment taxes (SUTA)).

You divide the totals by 12 and multiply by 2.5 to arrive at the amount of loan you can receive. If your original loan was less than this amount, you can ask for your lender to recalculate and receive an increase. If you included commodity wages in your first PPP loan, then you may have to repay that part of the PPP loan.


Assume Sue Smith also paid her employees $50,000 of cash wages and $50,000 of commodity wages in 2019. The SUTA taxes on the cash wages was $1,500 and Sue did not make any group insurance or retirement plan payments. Her SE earnings is $895,000 minus $100,000 minus $1,500 (we assume you still include the commodity wages in this calculation) which equals $793,500 which is greater than $100,000, therefore final SE earnings is $100,000. She adds in the cash wages of $50,000 and SUTA tax of $1,500 to arrive at $151,500. Her allowed PPP loan amount is $31,562. She originally received a PPP loan of $23,895 ($2,750 for her earnings plus $21,145 for payroll costs including commodity wages). She can have the lender increase the loan to $31,562 or an increase of $7,667.


Let’s assume that Sue only paid commodity wages in 2019. In this case, her loan is limited to $20,833 (her SE earnings) and when she applies for forgiveness, she will still owe $3,062 (assuming that commodity wages are not allowed).

The bottom line is that SBA has provided guidance, but still leaves some holes for us to figure out. We will keep you posted.



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