The United States House of Representatives overwhelmingly passed the Paycheck Protection Program Flexibility Act, 2020 (HR 7010), which amended several provisions of the paycheck protection program. Many of the changes to the House bill provide flexibility in the length of time to repay and re-hire as well as how the loan proceeds are to be spent. The Senate is reviewing its own version of the legislation as well as the House version this week.

As farmers and ranchers looking for loans during the COVID-19 emergency welcome the flexibility that House and Senate bills would provide, unresolved questions remain about rental income, workers H-2A and the availability of additional funds for those excluded from the program.

Proposed changes

The pay threshold

Under current regulations, a PPP loan recipient is required to spend at least 75% of the loan proceeds on personnel costs in order to qualify for full loan forgiveness. The remainder of the loan proceeds can be used for certain employee benefits related to health care, interest on mortgage bonds, rent, utilities, and interest on any other existing debt. If a beneficiary spends less than 75% of the loan proceeds on payroll, the difference between the amount actually spent on payroll and the 75% threshold is not canceled.

For example, suppose a farmer receives a PPP loan of $ 200,000 and spends $ 150,000 on labor costs and the remainder on other eligible costs. In this case, since 75% of the loan was used on labor costs, after the forgiveness request, the farmer’s loan would be reduced to $ 0. The proposed changes to the PPP would not impact this farmer.

Now suppose the farmer spends $ 100,000, or 50% of the loan, on salary costs. Under the current regulations, which are unchanged in the Senate bill, the farmer’s loan would be reduced by $ 150,000 with a remaining loan balance of $ 50,000 ($ 200,000 x 75% – $ 100,000 ). Under the House bill, the farmer’s loan would be reduced by $ 180,000, and the farmer would end up with a loan balance of $ 20,000 ($ 200,000 x 60% – $ 100,000) . For this farmer, the difference between a wage cost threshold of 75% and 60% is $ 30,000.

Loan surrender period

The Senate and House bills would increase the minimum loan term from two years to five years, while keeping the interest rate at 1%. In addition, the two bills would allow businesses requesting loan forgiveness to defer payroll taxes without penalty for two years.

Another change proposed in the two bills is an extension of the time limit for businesses to spend the loan proceeds from the current period from eight weeks to 24 weeks in the House bill and to 16 weeks in the House version. Senate. Current regulations state that in order to obtain forgiveness for a PPP loan, funds must be spent within eight weeks of receiving the qualifying expenditure.

Employee rehired

To deal with the uncertainty that continues to impact small businesses as the country gradually reopens, Senate and House bills would extend the rehiring window from June 30, 2020 to December 31, 2020. This would give companies an additional six months to rehire employees or restore payroll levels without incurring a reduction in the amount remitted.

In addition, both measures provide an exemption from loan cancellation eligibility for employers unable to rehire an employee or replacement if the business is unable to return to the same level due to adherence to guidelines. social distancing or an inability to hire employees of similar qualification.

Outstanding issues

While the House and Senate bills improve the PPP, the measures lack provisions that would make the program more useful to farmers and ranchers.

At the end of April, the IRS ruled that expenses incurred by businesses that are paid with the proceeds of PPP loans are not deductible and therefore taxable. While many believed congressional intent was that the loan cancellation would be tax-free, the legislation did not explicitly state this. Without legislative change, the loan amount and interest on loan assistance will be taxed as income.

Since the details of the PPP were first available, many farmers have called for a more comprehensive definition of “rent”. While rent is understood to relate to a storefront, farmers rent a wide variety of business related items including equipment, land and buildings. It would be useful to clarify that the rent includes all of these business-related elements.

As detailed in the Intel Market, Farmer losses are a barrier to participation in PPP, a large proportion of self-employed farmers report a loss on their income tax return. In fact, according to the most recent data available, in 2017, 37% of farmers reported net losses from farming on their Schedule F. This is important because the participation of farms in PPP is based only on profits (or losses) net of operations, line 34, train Annex F, as of 2019. Dependence on Annex F alone has made many farmers ineligible for PPP benefits. If, in addition to the profits shown in Annex F, if income from the trade in agricultural equipment, livestock, all rental income and in-kind wages such as commodity wages were included in Income calculation, more farmers would be eligible for PPP loans.

Finally, the certainty that all H-2A workers in the United States are considered employees after passing a “place of primary residence” test that includes living in the United States for more than six months would be extremely helpful. Wages paid to H-2A workers represent a considerable expense for non-mechanized products and excluding them runs counter to helping companies with high wage costs.

Summary

As of May 30, 2020, $ 510.2 billion in PPP loans have been approved. This loan value was distributed over 4,475,599 loans. Unfortunately, only $ 7.6 billion of these funds, or 1.5% of that amount. 100, were devoted to agriculture, forestry, fishing and hunting. The changes proposed in the House and Senate bills could make the program more attractive to farmers and ranchers.