ERC Credit for Farmers: Agriculture Business Tax Refund

BusinessTaxesERTC
8 min read

Via legislation passed in the American Rescue Plan, most farmers can claim the Employee Retention Credit even if they had a Paycheck Protection Program (PPP) loan. They can receive tax credit amounts up to a fixed dollar amount of $26,000 per eligible farm employee when claiming ERC credits for the 2020 or 2021 tax year.

How to Qualify

ERTC eligibility requires that a farm employer qualifies via either a significant loss in revenue or via a government restriction order that had a nominal impact on normal business operations. Shutdown orders, however, are not restricted to the farm property and can include those which affected their ag supply chain.

Eligible Employees

For a farming operation to request a tax refund, they must have retained non-related employees during the Covid-19 pandemic, along with having paid their payroll tax in the tax years beginning in 2020 or 2021. Unfortunately, this excludes all foreign farm workers on H-2A visas who only pay taxes in their home countries.

Gross Receipts Test

Farming businesses and agricultural corporations can be considered ERC-eligible employers if they experienced a significant decline in gross receipts when comparing the same calendar quarter to 2019.

  • Q2, Q3, or Q4 in 2020: 50% reduction in comparison to 2019 totals
  • Q1. Q2. or Q3 in 2021: 20% reduction in comparison to 2019 totals
  • Q4 in 2021: Claims from September to December only apply to recovery startup businesses

Governmental Order

If your farm or agriculture business received a government to fully or partially suspend business operations, then you’re likely to pass the suspended operations test and qualify for the ERC. For ERTC purposes, shutdown orders for all applicable quarters must have either restricted access to your business location or forced your business into reducing operations when compared to 2019.

ERC Quiz Questions

Nominal Portion

In regards to a partial suspension of farming operations, the government shutdown order must have affected a nominal portion of your agriculture business, which could be your farmer’s market or a specific crop you could not bring to yield. Modifications made to farming operations in response to a direct government mandate, or critical materials not being available from your ag supply chain are also valid reasons for ERTC eligibility.

Nominal Effect

Whether claiming the ERC for either 2020 or 2021, the nominal effect is measured against the same quarter in 2019.

  • Gross Receipts: Loss of 10% or more of the company’s total receipts in a quarter, when compared to the same quarter in 2019
  • Working Hours: Service hours performed within a specific portion of the business comprising 10% or more of the company’s total service hours for that quarter (when compared to 2019)

How to Claim

If you own a farm or pay full-time employees at your farm, you may be eligible to receive Employee Retention Credits of up to $26,000 per farm employee.

ERTC eligible wages have a maximum limit of $10,000 per year in 2020 and $10,000 per quarter in 2021. A refund can be claimed on up to 50% of qualified wages paid to W2 employees in 2020 ($5,000 per year maximum), and up to 70% in 2021 ($7,000 per quarter, $21,000 yearly maximum).

Wage claims can include health care expenses, but farm owners cannot double-dip wages with those already used for Paycheck Protection Program loan forgiveness or any other employee tax credit. 

Qualified Wages

A farm owner or agriculture corporation can only claim wages paid to non-related W2 employees whose taxes they withheld and filed via Form 943. Aside from eligible wages paid to W2 employees, farm owners can include health plan expenses paid to Form W-2 employees in qualified wages paid.

Ineligible Wages

Wages paid to 1099 contractors who pay their own taxes and H-2A laborers who are tax-exempt, must be excluded from your ERC calculation.

There is no double-dipping of the same wages used for another payroll tax credit or refund either, and they must be deducted from your totals before filing. Among others, all wages used in the following tax programs must be excluded from ERC computation.

  1. PPP Loan Forgiveness
  2. Farm Workforce Retention Credit
  3. COBRA Premium Assistance Credit
  4. Work Opportunity Tax Credit
  5. Paid Family and Sick Leave Credit

H2A Workers

Wages paid to foreign agricultural workers are not eligible for an ERC refund, as they are exempt from paying U.S. Social Security and Medicare taxes for services performed in connection with their H-2A visa. This holds true whether the migrant workers are resident aliens or nonresident aliens.

1099 Contractors

Wages paid to 1099 employees who worked on the farm, or who held subcontracted jobs paid by farm owners are also ineligible for an employee retention credit refund.

Supply Chain Issues

Whether it was backlogged ports delaying the arrival of containers from China, congestion at railroad hubs, or slowdowns at American manufacturing plants, farmers and ranchers saw rising prices and mounting delays. The time lost due to machinery, spare parts, packaging material, inputs, and other supplies affected many farmers’ ability to properly harvest crops.

When adding along with port or rail yard delays, and raised fuel prices, many ag businesses were also left without reliable and affordable transport to market their commodities.

Shipping Delays

More than 70% of all freight movement occurs on trucking and rail. Throughout the pandemic, the transportation sector has experienced, labor and equipment shortages and constrained capacity, and congestion.

There were also not enough shipping containers or container chassis to go around either, which also severely affect the agricultural supply chain along with increasing shipping costs across the board.

Import Delays

Import volumes overloaded marine terminals, particularly in California and the West Coast. This has caused shipping delays, canceled bookings, and surcharges. Many containers also left the U.S. empty rather than being filled and returned with agricultural products, as is normal practice.

Export Delays

Accessibility to export containers has been further limited by record shipping costs and harmful surcharges. These factors combined limited the ability of farmers and ranchers to fulfill overseas contracts, resulting in large losses for agricultural exports.

Canceled vessel bookings, shipping container shortages, and bottlenecks of cargo ships at U.S. ports also created ocean freight infrastructure shortfalls. High ocean carrier rates, unreasonable demurrage and detention charge, freighters declining to carry export cargo, and other unfair trade practices were commonplace during the pandemic.

Inland Waterways

More than half of the grains and oilseeds exported by the United States transit across the Mississippi River System, while close to one-third move through the Columbia-Snake River System in the Pacific Northwest. Any pandemic-related shipping delays on either waterway or through the Texas Gulf could be enough to have your farm qualify for the ERC.

Shortages

Farm Harvesting Equipment Shortage
Farm Harvesting Equipment Shortage

As long as any shortage in a farm’s supply chain was caused by governmental orders and had a nominal effect on normal business operations, this alone could make a farm eligible for the employee retention tax credit, even if it turned a profit.

Beyond farm labor shortages due to the closing of borders, minimal availability of truck drivers and other logistic workers, as well as warehouse labor could have produced a nominal effect. Shortages in fertilizer, shipping pallets, or tractor microchips could also make your ag business ERTC eligible.

Fertilizer

The cost doubling of natural gas during Covid-19 produced a ripple effect in the ag industry, as it also increased the cost of ammonia production – the building block for all nitrogen fertilizers. The global demand for fertilizer also heavily limited supply within the United States, as did freight rates increases for anhydrous ammonia.

Chemical

Most dicamba and nearly all glufosinate, along with many product components needed to produce farm crops, are produced in China. where container exports experienced severe transportation delays along the way to farms in the USA.

Migrant Workers

Farm Migrant Worker Shortage
Farm Migrant Worker Shortage

Many American farmers were denied access to their migrant workers due to travel restrictions related to Covid-19 which can make an agriculture business eligible to file for an Employee Retention Tax Credit.

Labor shortages on farms, and in processing facilities often reduced the available skilled workforce during the pandemic. Federal food safety inspector shortages also limited products that can be sold and shipped which could easily have affected a farm’s bottom line.

Being unable to fill open positions throughout the production, transportation, warehousing, and processing phases of the agriculture supply chain.

Farm Supplies

Resin shortages from chemical plant closures created a backlog in the plastic production industry which limited farmer access to essential plastic limed the ag supply chain for baler twine, net wrap, silage bags, drainage equipment, and more.

Dairy farmers in particular, as well as other ag industries that relied on plastic packaging, were greatly impacted by supply and demand. . Same for those ag businesses that required shipping pallets which were hard to come by.

Equipment and Parts

A microchip shortage contributed to long wait times for farmers interested in upgrading their equipment. Increased demand for equipment combined with part manufacturing shortages also created difficulty for farmers to conduct repairs and seasonal maintenance. 

FAQ

Below you’ll find answers to our most frequently asked questions about for the employee retention credit for farmers and ag businesses.

1 min read

Yes, any farm or ag business can qualify for the employee retention tax credits as filed Form 943s for withholding taxes from W2 employees. Farm owners who experienced a significant loss in gross revenue or a nominal impact on normal business operations due to a government order can get ERC qualified, even if shutdown orders only affected their ag supply chain.

1 min read

To claim an employee retention tax credit refund, an agriculture business or farm owner must have paid W2 employees during covid-19 and filed a Form 943 for all eligible quarters. After determining their qualified wages paid through their accountant or ERC Specialist, farmers must then file a Form 943-x to request of refund of tax paid in 2020 and 2021.