The Consolidation Appropriation Act passed late in December 2020 provided farmers with several options regarding being eligible for an increase to their original Paycheck Protection Program (PPP) loan or perhaps qualifying for a second PPP loan. As of early January, formal guidance has not yet been received from the Small Business Administration.
Changes to 2020 PPP Loan
If you received a PPP loan in 2020 based on your Schedule F net farm income and that amount was less than a profit of $100,000, you will be eligible to get a loan increase. The new rules say if you have gross income of at least $100,000, then you qualify for the maximum loan amount of $20,833 based on your earnings. Any PPP loan you received based on employee payroll costs will not change.
Assume your 2019 Schedule F showed net income of $20,000 and you received a PPP loan of $4,167. If your gross income is at least $100,000, you qualify for a new PPP loan of $16,666.
New 2021 PPP Loan
Even though you might have received a PPP loan in 2020, you will qualify for an additional PPP loan in 2021 if you had any quarter in 2020 where gross receipts were lower than the same quarter in 2019 by at least 25%.
The amount of the loan can be the same as your 2020 loan (subject to an upward revision if the 2020 changes apply) or you can elect to use your trailing 12 months of labor costs, as long as that amount is greater.
Assume your average 2019 payroll was $20,000, but your average trailing twelve months of payroll for the period ended January 2021 is $30,000. You can elect to use the $30,000, which increases your PPP loan by $20,833.
What are Gross Receipts?
Gross receipts typically include all income reported on Schedule F plus all net gains reported on sale of farm equipment or other farm property. You would reduce your gross receipts by any hedging losses.
You need to review this on a quarter- by-quarter basis to determine if you had a 25% or more reduction.
Change to Deduction Loan Forgiveness Expenses
Finally, we did see a welcome change from Congress. They have finally specified all expenses related to PPP loan forgiveness are 100% deductible.
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Paul Neiffer is a tax principal with CLA and author of the blog, The Farm CPA. He grew up on a farm in central Washington and still resides in the state.
