Can a Sole Proprietor Claim the Employee Retention Credit?

The Employee Retention Credit (ERC) is a valuable tax credit that provides financial relief to businesses impacted by the COVID-19 pandemic. But what about sole proprietors? In this blog post, we’ll explore the eligibility criteria for the ERC and answer the question: can a sole proprietor claim the Employee Retention Credit?

Introduction

The ERC is a federal tax credit designed to provide financial relief to businesses impacted by the COVID-19 pandemic. This credit can provide significant tax savings for businesses that retain their employees during this challenging time.

What is the Employee Retention Credit (ERC)?

The Employee Retention Credit (ERC) is a refundable tax credit designed to encourage businesses to retain employees during the COVID-19 pandemic. This credit is available to businesses of all sizes and can provide significant tax savings.

Eligibility Criteria for the ERC

To be eligible for the ERC, businesses must meet certain criteria, including experiencing a decline in gross receipts or being fully or partially suspended due to government orders related to COVID-19. The credit amount is based on qualified wages paid to employees during the eligible period.

Can Sole Proprietors Claim the ERC?

Yes, sole proprietors can claim the ERC if they meet the eligibility criteria. Sole proprietors can claim the credit based on qualified wages paid to themselves during the eligible period.

Real-Life Scenarios

Here are two real-life scenarios that demonstrate how sole proprietors can claim the ERC:

Scenario 1: John is a sole proprietor who operates a small retail business. Due to the COVID-19 pandemic, John experiences a decline in gross receipts and is forced to reduce his business operations. John continues to pay himself qualified wages during this time and is eligible to claim the ERC based on these wages.

Scenario 2: Sarah is a sole proprietor who operates a consulting business. Sarah’s business is not fully or partially suspended due to government orders related to COVID-19, but she experiences a decline in gross receipts. Sarah continues to pay herself qualified wages during this time and is eligible to claim the ERC based on these wages.

Conclusion

The Employee Retention Credit (ERC) is a valuable tax credit that provides financial relief to businesses impacted by the COVID-19 pandemic. Sole proprietors can claim this credit if they meet the eligibility criteria and pay themselves qualified wages during the eligible period. By understanding the eligibility criteria and consulting with a tax advisor, sole proprietors can maximize their tax savings and invest in their business.

Schedule a no-obligation, no cost call with the professional experts at Occams to help drive solutions for your business. 

Sources and Citations

1. Internal Revenue Service. “COVID-19-Related Employee Retention Credits: How to Claim the Employee Retention Credit FAQs.” https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-how-to-claim-the-employee-retention-credit-faqs   

2. The Tax Foundation. “Employee Retention Credit: Tax Foundation.” https://taxfoundation.org/employee-retention-credit/ 

3. Forbes. “Employee Retention Credit: How to Claim This Valuable Tax Credit.” https://www.forbes.com/sites/samanthahawkins/2021/02/24/employee-retention-credit-how-to-claim-this-valuable-tax-credit/?sh=70850fb045e5 

FAQ