Can a Sole Proprietor Qualify for the ERTC?

September 6, 2023
Dayes Law Firm

The Employee Retention Tax Credit (ERTC), a.k.a. the Employee Retention Credit (ERC), is an important tax benefit business owners can claim if they were able to keep employees on payroll while sustaining significant losses during the COVID-19 pandemic. You can claim the ERTC retroactively within the filing deadlines if you haven’t done so.

As a sole proprietor, you may wonder whether your business may qualify for this tax credit and which wages are ERC-eligible. Working with experienced ERTC tax attorneys will help you calculate and claim the ERC.

How Does the ERTC Work?

The ERTC/ERC is a refundable credit that may cover up to 50% of eligible wages paid to employees in 2020, capped at $10,000, and up to 70% of eligible wages paid in 2021, capped at $10,000/quarter. In total, employers may claim up to $26,000 per employee. Qualified wages include salary and certain health benefits. 

Your business may claim the ERTC if you had to suspend or limit your operations because of pandemic-related restrictions or experienced a significant decline in gross receipts during the covered period. 

For ERTC/ERC purposes, a “significant decline” means:

  • For 2020: A drop of at least 50% compared to the same quarter in 2019
  • For 2021: A drop of at least 20% compared to the same quarter in 2019

Can Sole Proprietorships Claim This Benefit?

You can’t claim the ERTC for your wages as a sole proprietor. However, if your business employs other people, their wages may qualify for this tax credit. For instance, if you’re the sole proprietor of an IT consulting business but pay wages to tech support team members or to an administrator, you could collect the ERC for eligible wages paid in 2020 and 2021. 

Remember that if you run a family business and some employees include your spouse or close relatives (like your children, parents, or siblings), these employees’ wages may be ineligible for the ERTC. Experienced ERTC tax attorneys can help you understand which wages qualify for the ERTC/ERC.

ERTC Filing Guidelines

To claim the ERC, you must file IRS Form 941 (Employer’s Quarterly Federal Tax Return) for eligible quarters. You’ll also need proper supporting documentation, including:

  • Records and financial statements showing how COVID-19 restrictions affected your business
  • Any receipts, invoices, and other records showing the expenses you shouldered by keeping your business open during the pandemic
  • A log of eligible employees’ work hours and wages
  • Correct payroll records and employment tax forms, including names, SSNs, and paid wages

What is the Deadline for Claiming the ERC?

The ERTC filing window for 2020 and 2021 ends on April 15, 2024, and April 15, 2025, respectively. Apart from filing on time, you must ensure you list all eligible wages correctly on Form 941.

ERTC filing guidelines include many complex nuances, and any error could cause frustrating delays in claiming this credit. You could even trigger an audit since the IRS now invests extra resources in scrutinizing ERC claims to battle incorrect and fraudulent filings. We highly recommend working with qualified professionals like ERTC tax attorneys to claim the ERC correctly. 

Claim Your ERTC Quickly and Accurately With Dayes Law Firm

Are you unsure whether your sole proprietorship qualifies for the ERTC and how to claim this tax benefit? Contact us at Dayes Law Firm. Our competent, experienced ERTC tax attorneys will help you check eligibility, calculate your available tax credit, and handle the filing process swiftly and accurately.

Call 866-567-4510 or contact us online for a free consultation with an ERTC lawyer in Phoenix, AZ.