Tax Credit Schemes To Be Aware Of
The current social media buzz on tax credits is for the “Self Employment Tax Credit.” Not that you or anyone else can actually take advantage of this because…..it does not exist. When researching for this article I did a google search, Self Employment Tax Credit and boy-oh-boy they were all coming out of the woodworks!!!!
A few sponsored click baits had this wording:
- You may receive up to $32,220
- Claim your Self Employment Tax Credit today with help from ERC Experts
- Billions in tax credits claimed for self employed
Once again, the Self Employment Tax Credit does not exist. So what are these peddlers selling?
In reality, the underlying credit being referred to in social media isn’t called the “Self Employment Tax Credit.” It’s a much more limited and technical credit called Credits for Sick Leave and Family Leave. Many people simply do not qualify for this credit, and the IRS is closely reviewing claims coming in under this provision.
People self-employed can claim Credits for Sick and Family Leave only for limited COVID-19 related circumstances in 2020 and 2021. The credit is not available for 2023 tax returns. The IRS is seeing repeated instances where taxpayers are incorrectly using Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, to incorrectly claim a credit based on income earned as an employee and not as a self-employed individual.
To qualify for the Sick and Family Leave Credits, self-employed workers have to meet a variety of technical reasons in 2020 and 2021 that didn’t allow them to work, including caring for an individual subject to a quarantine or isolation order. The IRS has a detailed set of FAQs describing the very technical requirements for meeting this provision of the law.
Other misleading social media marketing techniques include:
The Employee Retention Credit is another technical credit that has been promoted as a way for the average taxpayer to get big government payments. The credit is available to eligible employers that paid qualified wages to some or all employees after March 12, 2020, and before January 1, 2022. Eligibility and credit amount vary depending on when the business impacts occurred. The ERC is not available to individuals.
Generally, businesses and tax-exempt organizations that qualify are those that:
- Were shut down by a government order due to the COVID-19 pandemic during 2020 or the first three calendar quarters of 2021, or
- Experienced the required decline in gross receipts during the eligibility periods during 2020 or the first three calendar quarters of 2021, or
- Qualified as a recovery startup business for the third or fourth quarters of 2021
Eligible employers must have paid qualified wages to claim the credit.
Fuel Tax Credit – promoters are pushing improper claims in regards to this credit. The Fuel Tax Credit is available only for off-highway business and farming use and not for most taxpayers.
The IRS continues to urge taxpayers to avoid these scams as myths continue to persist that these are ways to obtain a huge refund. Many of these scams are highlighted in the annual IRS Dirty Dozen series.