I’m Self-Employed – Do I Qualify for the Employee Retention Credit?
Most business owners have heard about the Employee Retention Credit (ERC). If you are self-employed, you may be wondering whether you also qualify. After all, the pandemic was hard on you too, and a few thousand (or maybe tens of thousands of dollars) could really help you out.
Here is what you need to know.
What is the Employee Retention Credit?
The ERC is a refundable tax credit for businesses that kept paying their employees while shut down during the pandemic. Businesses that had significant declines in their profits from March 13, 2020 – December 31, 2021, may also be eligible.
What Employers are Eligible for the ERC?
To be eligible for the ERC:
- The employer fully or partially suspended operations due to orders from a governmental authority due to Covid 19. This operations suspension must have occurred during 2020 or the first three quarters of 2021.
- The employer experienced a significant profit decline during 2020 or the first three quarters of 2021.
- The employer qualified as a recovery start-up business in the third or fourth quarters of 2021.
What If You Are Self-Employed?
If you are self-employed, you are not eligible for the Employee Retention Credit.
The ERC is not available to you as your own employee. The Employee Retention Credit would only be available if you have paid employees. The wages you pay your employees are what the IRS uses to determine if you are eligible for the credit and how much the credit will be.
What if You are Self-Employed and Have Already Received the Credit?
Unfortunately, many third-party businesses are encouraging people to apply for and receive the ERC even if they don’t qualify. This has become such a widespread issue that the IRS recently issued a warning to business owners to beware of this scam.
See this article for more on the Employee Retention Credit Scam.
If you are audited, the IRS will determine you were not eligible to receive the credit. They will require you to pay back the full credit you received. You could also be responsible for paying a penalty of either 25% or 75%, plus interest.
Unfortunately, there is nothing you can do to prevent having to pay back the credit if you received it and were not eligible.
However, you may be able to decrease or eliminate any penalties. How can you do this?
The main thing the IRS will look at is whether you “knew or should have known” you were not eligible for the credit. You can avoid the penalty by showing that you relied on a professional’s advice and did not know you were doing anything wrong by claiming the credit.
Do You Need Professional Help?
If you are being audited after receiving the Employee Retention Credit, strongly consider getting legal representation. IRS Audits, and especially audits regarding fraudulent tax returns, have real legal consequences. This isn’t something you should try to handle yourself.
You need to find a qualified tax attorney that you can trust. That attorney will have the knowledge and resources to give you the best possible help in this situation.