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Employee Retention Credit for Farmers and Agriculture Operations

By Justine D.

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The government passed the CARES Act, which stands for "Coronavirus Aid, Relief, and Economic Security," and with it, the accompanying ERC (aka "Employee Retention Credit") to incentive companies to retain their workers on the payroll book amid the 2020 COVID-19 pandemic.

While the ERC, or "the credit," is open to all qualifying farming entities regardless of size that pay eligible workers, any farming operation with fewer than 500 people on its payroll must meet extra criteria during parts of 2020 and 2021.

But, it's important to know that the majority of farmers can qualify for the ERC even though they might have participated in the PPP loan program, PPP stands for "Paycheck Protection Program." When they claim ERC-related credits for the years 2020 or 2021, it's possible for them to get tax credits of up to $26,000 for each of their workers who qualified.

So, do farmers qualify for Employee Retention Credit? What you will learn about ERC:

  1. 1
    General Eligibility: Find out if your farm business can get the ERC (Employee Retention Credit) tax credit.
  2. 2
    Qualifying for ERC: Discover how to meet the legal requirements to get the credit in a step-by-step fashion.
  3. 3
    Who's Eligible?: To get the most significant financial benefit, learn which employees are ERC-qualified and eligible.
  4. 4
    General Requirements: Learn the precise requirements your farming operation must meet to get the ERC tax credit.
  5. 5
    Maximize Your Financial Return: Find out how to legally and legitimately use the ERC to receive a per-employee refund of up to $26,000.

Based on the passage of ARPA (American Rescue Plan Act), many more categories of entities are newly eligible for the ERC tax credit. They include colleges, 501(c)(3) organizations, farms, nearly all kinds of businesses, hospitals, and schools. Before that, anyone who received a PPP financial loan and others were brought into the purview of the expanded version of the General Appropriations Act. 

Note: For eligible owners/employers to receive the bonus, at least one of the following criteria must be met during the relevant month of the bonus: 

  •  A government edict or order forced the farm to decrease operations or halt them altogether. The ERC tax credit only applies to quarters when business is halted, and the organization is closed. 
  • The farm operation's income receipts endured a substantial decline.

IRS Notice 2021-20 came out on the first day of March 2021. It explains how business owners can claim the ERC tax credit and how to claim it retroactively even if they received a PPP loan. 

The retroactive claim works like this: Organizations must file a "Request In Rebate" or a Modified Employer Quarterly Tax Return (Form 941-X) for the pertinent quarters of wage payment. In the IRS publication "Q&A No. 57," the IRS offers concrete examples of filing for retroactive credit. 

What is the ERC tax credit? It's available to organizations that wish to keep their workers on the official payroll. Credits amount to half the wages an employer pays (up to a ceiling of $10,000) to workers after the business has experienced a COVID-19-related partial or total stoppage or a business that has suffered a deterioration of gross sales greater than 50%.

Farms of all sizes can apply for the credit if they are eligible. The alternative is to seek financial help from local governments, state governments, or entities that offer Small Business Loans.

Your farming operation must undergo one of two examinations to become eligible. Note that each exam is conducted independently of the other. 

For a calendar quarter: EITHER total employer revenues were less than 50% of those in the corresponding 2019 quarter, OR the farm's operations endured a complete or partial interruption directly related to COVID-19 by government decree.

Note that a business/farm becomes ineligible when its quarter's revenue exceeds 80% of the amount it took during the corresponding quarter in 2019. 

Farmers and ERC: Does My Operation Qualify?


Comparing calendar quarter revenues of 2020 with those of the same quarters in 2019, there's a 50% to 80% qualification range. In other words, if the 2020 quarter has revenues less than 50% of the same 2019 quarter, you can qualify for the ERC credit for farmers. However, once a given quarter's revenues hit 80% of the corresponding 2019 quarter's revenues, then eligibility stops.

Likewise, other qualifying criteria are that the farm in question must have either suffered a forced closing to stop the spread of the virus or endured a revenue decline of at least 20% compared to the corresponding 2019 quarter.

New farm operations can use their first 2020 quarter as a general reference point if there are no 2019 quarters to compare.

Generally, the credit amount reaches a maximum of $10,000 but is based on 50% of qualified workers' wages. The credit is intended to compensate for payments owners made from March 13, 2020, until the end of that year. However, on average, different pay criteria for farm operations employed more than 100 workers throughout 2019.

  1. If the number of workers on average during 2019 was below 100: The ERC tax credit is based on total payments to all workers regardless of whether or not they were engaged in work. It would make no difference if the workers took other paid jobs. The farm owner still gets the ERC payment. 
  2. If the number of workers on average during 2019 was above 100: The credit is only paid based on the employees who did not perform work during 2019.

In each circumstance, above or below 100 workers, "wages" are defined as direct pay and benefits like healthcare coverage.

Farm owners could receive instant payment of the credit to them if they lessened the payroll tax amount they took out of the workers' pay.

Other Requirements to Consider


There are several qualifying requirements for your farm to be accepted to the ERC program, but they vary from year to year. For example:

  • During 2020, for at least one calendar quarter, the farming operation must have suffered a total or partial halting of its everyday operations due to COVID-19.
  • During that same quarter, you must have experienced a significant revenue decline.

For 2021, there was a change in the qualifying criteria. Namely, the government imposed the 10% standard on gross receipts and total work hours. If less than 10% was affected, you can't claim the ERC for that year.

Farmers Employee Retention Credit Qualification Standards


Overall

The overall goal of the ERC (Employee Retention Credit) is to help companies like farms when they need funds to continue paying their workers. The tax credit is refundable and equals 50% of an owner's employee earnings.

Generally, farm operations qualify for the credit if they had a quarter in 2020 where gross income was less than 50% of a corresponding quarter in 2019 or if the company's operations were partly or fully stopped due to government mandates related to COVID-19.

There are additional ways for businesses to obtain relief, namely the ARPA, American Rescue Plan Act, an adjusted version of the original ERC that applies to 2021.

Common Questions about ERC and PPP

The most common question about ERC is: "Can my business get the ERC tax credit if I previously got money via the PPP (Paycheck Protection Act)?" The answer is yes.

For eligible owners, the 2020 credit hits a maximum of $5,000 per employee, but that number rises to $14,000 for 2021.

Here's an example of a farming operation with 50 workers. The 2020 and 2021 credits might be $250,000 in the first year (50 workers x $5,000 each) and $700,000 in the second year (50 workers x $14,000). The amounts are substantial, and claiming the credit can majorly affect the company that receives it.

When considering the PPP financing stimulus, companies can have any number of workers and remain fully eligible for ERC's tax credit. Note that the ERC is not restricted to small farm operations.

Your farm could be eligible for the ERC tax credit if:

Your farm could be eligible for the ERC tax credit if:

  • The farm's operations were substantially stopped for a given quarter based on an official government directive related to COVID-19. The stoppage must directly result from restricted meetings, travel activities, commerce, etc.
  • Operational income substantially declines when comparing the years 2019 and 2020.
  • The ERC wasn't available to you because you were a state or federal entity under the first version of the CARES Act.

Note that on Jan. 1, 2021, the government adjusted the ERC eligibility criteria to bring in government businesses and tax-exempt 501(c)(3) non-profit corporations offering hospital, health, or medical treatment.

Additional Eligibility Factors for Consideration


Farm owners can qualify for the ERC tax credit based on several circumstances and scenarios unavailable to other business owners. Consider all the possibilities listed below under individual headings:

1. Disruptions To The Primary Supply Chain

US farmers experienced delays of all types and rising price levels for many goods and services, primarily due to factors like slow container shipments from China, domestic manufacturing shutdowns, or clogged rail distribution points.

The substantial amount of lost time had a negative impact on owners. Reasons for the delays included packing materials, extra parts, machine parts, various inputs, and numerous categories of supplies. The end result was late harvests or none at all.

To add pain to the situation, farm businesses sometimes couldn't even sell their goods due to high fuel costs, port delays, and railroad sluggishness.

2. Delays Related To the Shipping Of Goods

During the COVID pandemic, the entire transport sector suffered from equipment shortages, lessened capacity, labor shortages, and freight congestion. Indeed, upward 70% of transported freight moves via railroads and trucks.

The farm supply chain also suffered from a low supply of shipping containers and higher shipping expenses.

3. Delays Related To Imports

On the US West Coast, especially in California, imports were so voluminous that they stressed the receiving terminals on the ports. The result was extra charges, cancellations of deliveries, and generally slow shipping times. Unfortunately, many containers left US shores with no contents, contrary to the standard procedure.

4. Export-Related Delays

Surcharges and all-time high shipping expenses also hindered farmers' access to containers for export. The impact was that ranchers and farm owners needed help to fill international contracts. That led to vast financial losses for ag exporters.

US cargo congestion, insufficient shipping containers, and many canceled bookings also caused seagoing freight shortfalls. In fact, during the height of the pandemic, inequitable trade practices became common. They included freighters that refused to export goods, unreasonably high detention costs, high rates for ocean carriers, and demurrage charges that were inordinately high.

5. Factors Regarding Inland Waterways

US farmers experienced delays of all types and rising price levels for many goods and services, primarily due to factors like slow container shipments from China, domestic manufacturing shutdowns, or clogged rail distribution points.

The substantial amount of lost time had a negative impact on owners. Reasons for the delays included packing materials, extra parts, machine parts, various inputs, and numerous categories of supplies. The end result was late harvests or none at all.

To add pain to the situation, farm businesses sometimes couldn't even sell their goods due to high fuel costs, port delays, and railroad sluggishness.

6. Relevant Supply Shortages

What else could give a farm eligibility for the ERC tax credit? The answer is supply-chain interruptions or shortages that were caused by the government and impacted business.

In addition to labor shortfalls resulting from border closures, many farms suffered from the non-availability of truck drivers and related kinds of workers, like warehouse employees. Other factors that can help farmers achieve ERC eligibility include microchip shortages, not enough fertilizer, or a lack of shipping pallets.

7. Agricultural Fertilizer Products

In farming and related ag businesses, there was a chain-reaction effect resulting from the COVID era's increase in natural gas prices by 100%. There was also a rise in the cost of producing the essential nitrogen fertilizer substance ammonia. International demand for all kinds of fertilizer hit US supplies hard. The same is true for anhydrous ammonia freight cost increases at the same time.

8. Chemical Products 

China produces and exports most of the world's glufosinate, dicamba, and other essential farm inputs. That country's transport slowdown of container ships caused massive delivery delays to US farms for those crucial goods.

9. Farm Workers Who Are Migrants 

One other way for farms to qualify for the ERC tax credit is related to migrant workers, whose COVID travel hindrances caused labor shortages for thousands of US-based farms.

During the two years of the pandemic, farm owners had limited access to skilled employees. The situation also affected processing plants connected to farming operations. Farmers were hamstrung in many cases when there were not enough federal food-safety inspectors during 2020 and 2021.

The upshot was that many supply-chain entities, as well as farm owners, could not staff processing, production, warehousing, or transport jobs when they needed those workers the most.

10. Various Farming Supplies

US farmers experienced delays of all types and rising price levels for many goods and services, primarily due to factors like slow container shipments from China, domestic manufacturing shutdowns, or clogged rail distribution points.

The substantial amount of lost time had a negative impact on owners. Reasons for the delays included packing materials, extra parts, machine parts, various inputs, and numerous categories of supplies. The end result was late harvests or none at all.

To add pain to the situation, farm businesses sometimes couldn't even sell their goods due to high fuel costs, port delays, and railroad sluggishness.

Which Workers Are Eligible for ERC Tax Credits?


What payments qualify for the ERC tax credit? Basically, there's a definition of what a "qualified salary" is by law. Earnings that are officially "qualified" for the credit include not just direct pay but also health plan expenses during a relevant calendar quarter, namely a quarter when farm operations were halted. 

However, it is important to note that "qualified" is based on two things: the number of workers and the farm's size. 

For example, suppose a farm experienced financial distress but continued to pay workers and cover their healthcare costs after their jobs were terminated. In that case, owners of farms with more than 100 workers can get ERC payments for all amounts paid to workers during the 30 days immediately before the financial distress began. 

Based on our understanding at this point in time, you stand a good chance of receiving the ERC tax credit payment, based on the updated 2021 information, if you meet the following criteria: 

  • Your farm was operative prior to Feb. 16, 2020
  • Your farm operation EITHER had fewer than 501 workers who were W2 status OR your operation is considered to be "severely distressed"
  • A total or partial shutdown by the government impacted your farming operation AND/OR in the qualifying quarter, your operation, based on the GRT (gross-receipts-test), suffered a loss of 20% or greater

Note that your operation can still meet the definition of being "severely distressed" as long as your loss during the applicable period is 90% or greater. This is true even if your total workforce includes more than 500 people. 

Summary


Suppose you operated an active farm during 2020 or 2021, and the dollar income declined or was substantially disrupted compared to the total from 2019. In that case, you could qualify for ERC, the Employee Retention Credit. To incentivize farm owners and owners of other kinds of businesses to retain workers during the COVID-19 pandemic, the Employee Retention Credit was enacted and put into place.

Recently, several adjustments have expanded the number of entities to which the ERC applies. Learn more about farmers and ERC and determine whether your farm business can get a unique financial incentive from the IRS. The goal of the credit is to provide financial compensation to farm operators who were monetarily impacted by expenses that resulted from COVID-19.

We hope you enjoyed this Employee Retention Credit Agriculture guide. If you have not claimed or filed for ERC yet, we recommend you get in touch with an ERC professional. Below are 3 recommendations of the top ERC firms available. 

Each company has a proven track record of successful filing and refunds, excellent customer support, verified customer reviews, and specialize in ERC. ERC Specialists takes the #1 position but they are only slightly better than the other two options.

We are confident in recommending these providers perform an ERC analysis for you, but always remember to do your research on a company if you consider hiring them.

4.6/5

4.3 of 5 stars

The company specializes in ERC tax refunds and has long experience obtaining the maximum amounts for clients. The team at ERC Specialists has a deep understanding of the ERC program's workings as well as the field of payroll taxation. Their application is fast and simple, and it removes the guessing factor from applying for ERC tax refunds. 

Pros

  • The application process is simple and fast
  • You get no-cost analysis to see whether you will qualify
  • There are substantial discounts for upfront fee payment

Cons

  • It can take a while to get help via telephone

Note: ERC specialists uses a back office partner firm called LINQQS. When you click the link to start an ERC evaluation, you will see a LINQQS qualification form.

4.3/5

4.3 of 5 stars

Omega Accounting Solutions is the best ERC company on the list. They offer bridge loans, which make up for their potentially year-long processing time for customer refunds. They've already helped more than 2,000 clients and have excellent reviews online

Pros

  • File and prepare all amended tax documents
  • Application is fully secure and simple
  • There are ERC bridge loans that provide instant cash flow

Cons

  • Their client fees are not available on the website
4.1/5

4.1 of 5 stars

Besides offering their customers a fast and simple way to claim ERC tax money, ERC Today's team charges no fees to find out if you qualify for a refund in the first place. They work fast to get your paperwork to the IRS. The client portal is safe to use, and there is dedicated customer support available. Those are just some of the reasons this company receives uniformly high marks from its many clients.

Pros

  • Customer support includes dedicated reps for each customer
  • The application process is totally streamlined
  • You can get a no-cost analysis to find out whether you qualify

Cons

  • Pricing is not transparent

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