Paul Neiffer: What You Need to Know About CARES

April 1, 2020

Paul Neiffer

The ink from President Trump’s pen in signing the Coronavirus Aid, Relief, and Economic Security (CARES) Act is less than 24 hours old. One of my favorite sayings about any new tax law is “We have the law, now we need the rules.”

We know what the law says now. So, what we’re waiting on is the governmental authorities to set up the rules so we can use the tax advantages of the law. I’ll outline some of the considerations farmers should plan for over the next few months as we start to get some rules.

First, the farmer will need to determine if they should apply for a Paycheck Protection Program (PPP) loan from the Small Business Administration or whether they will take advantage of the payroll tax credit available to them for their share of FICA tax (their share of the wages paid to employees based on 6.2% of cash wages paid). You are not entitled to participate in both of these provisions.

Weigh Your Options

It appears farmers with very little payroll will likely get minimal benefit from either program. PPP’s maximum loan is based upon the average of one month’s payroll costs for a farmer times 2.5. However, if a farmer only incurs $50,000 of payroll costs in a year, the maximum loan available to them is about $10,000. As long as the farmer incurs at least $10,000 of payroll and other related costs by June 30, the loan is forgiven, and it is not taxable income. 

However, if a farmer is starting with spring planting on 5,000 acres of corns and soybeans, do you want to take the time and effort to get a $10,000 loan?

Instead, the farmer may consider taking the credit against its share of FICA tax which may generate tax savings of $3,000 on the same $50,000 payroll. This is much easier to process and does not involve any extra time during spring planting.

Farmers with large payrolls such as dairy and specialty crops will certainly want to take advantage of the PPP loans since they provide immediate cash and their benefit is likely much greater than the payroll tax credit.

One of the beneficial tax provisions is the ability for farmers to carry back farm operating loss back five years instead of two years. This is retroactive to 2018. Also, instead of limiting the loss to 80% of taxable income it is now limited to 100%. These new provisions apply for 2018-2020. 

Farmers should actively review this provision with their tax professional to see if immediate funds can be obtained from the IRS to help with liquidity.