Are Self-Employed Individuals Eligible for the Employee Retention Credit?

The Employee Retention Credit (ERC) was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help businesses keep employees on their payroll during the COVID-19 pandemic. While many businesses have been eligible for the ERC, one group that has been unsure of their eligibility is self-employed individuals.

So, are self-employed individuals eligible for the ERC? The answer is yes, but it depends on how they report their income and whether they have employees.

Self-employed individuals who file Schedule C with their Form 1040 are eligible for the ERC if they experienced a significant decline in gross receipts. The credit is based on 50% of qualified wages paid up to $10,000 per year, per employee. However, the credit is only available for wages paid after March 12, 2020, and before January 1, 2022.

It’s important to note that self-employed individuals cannot claim the ERC on their own wages. They can only claim the credit on wages paid to their employees. If the self-employed individual has no employees, they are not eligible for the ERC.

To be eligible for the ERC, self-employed individuals must also meet the eligibility requirements for significant decline in gross receipts. If their gross receipts for a calendar quarter in 2020 were less than 50% of gross receipts for the same quarter in 2019, they meet the eligibility requirement. They can also meet the requirement for the immediately preceding calendar quarter, which means that they can apply for the ERC for a quarter before they actually experienced a significant decline in gross receipts.

In addition to the ERC, self-employed individuals may also be eligible for other forms of COVID-19 relief, such as the Paycheck Protection Program (PPP) or the Economic Injury Disaster Loan (EIDL) program. These programs provide loans to help businesses cover expenses during the pandemic, including payroll costs for self-employed individuals.

In conclusion, self-employed individuals who file Schedule C may be eligible for the Employee Retention Credit if they have employees and have experienced a significant decline in gross receipts. The credit is based on 50% of qualified wages paid up to $10,000 per year, per employee. It’s important to note that the credit cannot be claimed on the self-employed individual’s own wages and that they must meet the eligibility requirements for significant decline in gross receipts.