Self-Employed Employee Retention Credit (A 2022 Guide)

When businesses’ earnings declined or they had to close their doors as a result of COVID, the government granted an employee retention credit (ERC) to those who kept their staff. Unfortunately, the self-employed were not eligible for this worthwhile credit. Nevertheless, the government now offers a very comparable tax credit to those who work for themselves.

For self-employed people in 2020 and 2021 who were unable to work owing to COVID, COVID tax credits are refundable tax credits to make up for missed income. You can apply for these credits retroactively. But they won’t be accessible for 2022 unless the government modifies the tax laws for this year.

Who is eligible for these credits and how to apply for them are covered in this tutorial. Continue reading for more information if you are a self-employed person who lost income due to illness. Providing care for a loved one, or taking care of your child as a result of COVID-related school or daycare closures.

How to Be Eligible for the Self-Employed Employee Retention Credit

The employee retention credit was created to commend employers for keeping on staff. Even while COVID caused their revenue to decline. Sadly, the self-employed did not have the opportunity to use the credit to offset payroll tax expenses. However, self-employed individuals are not without options.

If you were unable to work due to COVID and you meet the IRS requirements, you could be entitled to claim the COVID credit for the self-employed.

1. You Worked for Yourself

Any taxpayer who is a self-employed business owner. This covers independent contractors, freelancers, and sole owners who run a business and employ people.

According to the IRS, anyone who works for themselves without an employer is classified as self-employed. To be eligible for these credits, you have to be self-employed in 2020 or 2021.

2. You Can Be Qualified for Sick or Family Leave Pay

When taking sick leave or family leave would be permissible if you were an employee. You may be able to obtain self-employed COVID tax credits. If you have COVID and got tested, had symptoms and tried to get tested, or were quarantined, you are eligible for sick leave. And if you had to take care of someone who required COVID-related care, you might also be eligible.

If you had to care for a kid due to COVID-related circumstances, you may be eligible for family leave. You may be eligible for this credit if you were unable to work due to sickness or quarantines. But you may also be eligible if your child’s school or daycare was closed because of COVID.

3. You Have Documentation to Back Up Your Claims

To prove your eligibility for the self-employed COVID tax credits, you must have documentation. This includes any documents that can support your claim. Such as announcements of school closings, revenue statements from your business, medical records, and so on.

When you file your tax return, you are not required to include copies of the documents. Only if the IRS audits you do you need the records. This rule applies to whatever information you provide on your tax return. Not just COVID credits for the self-employed, and it applies for a period of seven years.

If you want to use the employee retention credit for the self-employed, you must first determine if you meet these three requirements. But it needs to happen at the proper time. Only those who weren’t able to work in 2020 or 2021 are eligible for these COVID tax credits. For the tax year 2022, these credits are not accessible to self-employed people.

How to Claim the COVID Tax Credits for Self-Employed

The self-employed COVID-tax credits must be claimed on your 2020 or 2021 tax returns. For any time in 2020 and the first nine months of 2021 that you were unable to work due to COVID-related issues, you may claim sick leave or family leave credits.

If you were unable to work between April 1, 2020, and September 30, 2021, owing to COVID vaccine-related causes, you may also be eligible for these credits.

Here is a summary of the process for requesting these credits. You can complete these tasks on your own. But for the greatest outcomes, you should get assistance from a tax credit expert.

Calculate the Number of Days of Credits You Can Claim

If you are addressing your COVID-related difficulties or assisting someone else who is not your child with COVID-related issues, you can claim up to 10 days’ worth of credits. Even if you were unable to work for longer than 10 days, you are only permitted to claim 10 days of credit.

But there is one exception. If you were unable to work because you had to take care of your child who was absent from school or daycare due to COVID, you may be entitled to claim more than the allotted ten days. Your child must be younger than 18 years old. Or disabled and unable to care for themselves.

This COVID tax credit for independent contractors can last up to 50 days. And is valued at up to $200 per day or 67% of your average daily wage. If you missed 10 weeks of work, your total credit may be worth up to $10,000.

Using the Self-Employed COVID Credit: Common Errors to Avoid

People who were unable to work due to COVID-related causes may find the self-employment COVID credits to be highly helpful.

Make sure your application for the credits is completed properly. To steer clear of typical mistakes, remember these tips:

  • Use the appropriate year’s IRS Form 7202.
  • Make sure to carefully complete the form by carefully reading the instructions.
  • Remember that you can determine your average daily rate using either the income from the current or prior year.
  • If you need to modify a return that you already submitted, make sure you don’t miss the deadline.
  • Have proof of your claims on hand in case the IRS audits your return.

People who work for themselves frequently lack safety nets like this tax credit. In most cases, they are not eligible for unemployment benefits or sick pay. This is why it’s so crucial to utilize this tax credit. The government seldom ever provides benefits like this to independent contractors.

Get Assistance with COVID Self-Employed Tax Credit Applications

We can make sure you don’t pass up this special opportunity. The staff at Your Part Time Accountant can assist you in submitting applications for the self-employed employee retention credit. And any other credits to which you may be entitled. Whether or not you have already filed, we may assist you in claiming this credit.

If you have unfiled returns for 2020 and 2021, we can assist you in filing them! And if you have already filed for those years, we can assist you in amending them. Contact us right away to find out how we can put these credits in your pocket.