Many farmers received a PPP loan based upon using payroll costs including commodity wages paid during 2019. After receiving the loan, they are now trying to determine if “paying” a commodity wage will qualify for loan forgiveness.
The bottom line is NO it will not qualify for forgiveness. Let’s review the reasons why.
The PPP loan cash to the farmer and in return to obtain forgiveness the farmer must “spend” that cash on the following items:
- Payroll costs,
- Interest,
- Rents, and
- Utilities
Also, the farmer is required to spend at least 75% on payroll costs to get full forgiveness.
Commodity wages are paid in commodities not cash. Therefore, commodity wages will not qualify for forgiveness since none of PPP funds were used to pay wages.
Let’s look at an example as to how this will affect a farmer:
Patty obtains a PPP loan of $50,000 based solely on commodity wages that she paid her employees (including herself) in 2019. During the 8 week period, she spends $40,000 on cash payroll costs and $10,000 on interest, rents and utilities. She will qualify for full forgiveness.
However, Patty may elect to simply pay commodity wages of $40,000 instead. In this case, she will qualify for no forgiveness since none of the wages qualify since she did not use any of the PPP proceeds on paying wages. Plus, when you divide zero by 75% you still get zero so none of the other non-payroll costs qualify.
Remember the maximum wages you can pay during the 8 weeks and have it qualify is $15,385. We always recommend paying at least $10,000 of cash wages during each year to maximize the Social Security Tier 1, so make sure to pay cash wages if you want any forgiveness.
Remember that the bank will be reviewing payroll tax records including the Form 943 (which means you may not get forgiveness until January 2021 without additional guidance) and will true up your numbers against the Medicare wages line which would not include commodity wages.
The bottom line is if you want to get forgiveness for sure pay cash wages.
