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IRS warns taxpayers about misleading claims about non-existent “Self Employment Tax Credit;” promoters, social media peddling inaccurate eligibility suggestions

The Internal Revenue Service issued a consumer alert today following bad advice circulating on social media about a non-existent “Self Employment Tax Credit” that’s misleading taxpayers into filing false claims.

Promoters and social media are marketing something they describe as the “Self Employment Tax Credit” as a way for self-employed people and gig workers to get big payments for the COVID-19 pandemic period. Similar to misleading marketing around the Employee Retention Credit, there is inaccurate information suggesting many people qualify for the tax credit and payments of up to $32,000 when they actually do not.

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 so people filing claims do so at their own risk.

“This is another misleading social media claim that’s fooling well-meaning taxpayers into thinking they’re due a big payday,” said IRS Commissioner Danny Werfel. “People shouldn’t be misled by outlandish claims they see on social media. Before paying someone to file these claims, taxpayers should consult with a trusted tax professional to see if they meet the very limited eligibility scenarios.”

People who were 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.

The IRS is seeing some similarities to marketing around this “Self Employment Tax Credit” similar to aggressive promotion of the Employee Retention Credit. Both are technical credits that have been mischaracterized by some as a way for average taxpayers to get a big government payment. In reality, these are very limited credits that have a variety of complex requirements before people can qualify.

The IRS urges people to check with a trusted tax professional before filing for any “Self Employment Tax Credit” or any other questionable tax claim circulating on social media.

The IRS has previously warned taxpayers about misuse of the Sick and Family Leave Credits stemming from various tax scams and inaccurate social media advice that led thousands of taxpayers to file inflated refund claims during the past tax season.

In addition to the Sick and Family Leave Credit, the IRS warned taxpayers not to fall for these scams centered around the Fuel Tax Credit and household employment taxes. The IRS has seen thousands of dubious claims come in where it appears taxpayers are claiming credits for which they are not eligible, leading to refunds being delayed and the need for taxpayers to show they have legitimate documentation to support these claims.

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 were highlighted during this spring’s annual Dirty Dozen series, including the Fuel Tax Credit scam, bad social media advice and “ghost preparers.”

“These improper claims have been fueled by social media and people sharing bad advice,” Werfel said. “Scam artists constantly prey on people’s hopes and try to use the complexity of the tax system to convince people there are secret ways to get a big refund. All of these scams illustrate that it’s important to carefully review the tax return for accuracy before filing and rely on the advice of a trusted tax professional, not someone trying to make a quick buck or a questionable source on social media.”

IRS sends letters disallowing improper ERC claims – As part of continuing efforts to combat dubious Employee Retention Credit (ERC) claims, the IRS is sending letters to thousands of taxpayers notifying them of disallowed ERC claims.

For more information about how to respond to a disallowance letter, see Understanding Letter 105-C, Disallowance of the Employee Retention Credit.

Resolving incorrect claims for the Employee Retention Credit – The IRS continues to urge employers to review their ERC claims. There is limited time to resolve incorrect claims without penalties and interest. Resources to check ERC eligibility:

Warning signs of incorrect claims
ERC Eligibility Checklist (interactive tool on IRS.gov or a printable guide PDF)
Frequently asked questions on ERC at IRS.gov/ercfaq
If their incorrect claim is still pending, they should consider the claim withdrawal program that allows them to withdraw a pending ERC claim with no interest or penalties.

The IRS announced a second ERC Voluntary Disclosure Program that lets businesses that received an incorrect ERC repay 85% of the amount of the credit without interest or penalties. The program is open through Nov. 22, 2024.

IRS helps taxpayers by providing penalty relief on nearly 5 million 2020 and 2021 tax returns with unpaid balances – In a major step to help people who owe back taxes, the IRS announced new penalty relief for approximately 4.7 million individuals, businesses and tax-exempt organizations that were not sent automated collection reminder notices during the pandemic.

The relief will total about $1 billion and most of those receiving it make under $400,000 a year.

Given the unusual situation due to the pandemic, the IRS is taking several steps in advance of resuming normal collection notices for tax years 2020 and 2021 to help taxpayers with unpaid tax bills. They include:

Issuing a special reminder letter starting next month
taking steps to waive the failure-to-pay penalties for eligible taxpayers affected by this situation for tax years 2020 and 2021
This penalty relief is automatic. Eligible taxpayers don't need to take any action to get it.

IRS announces delay in Form 1099-K reporting threshold for third party platform payments — Following feedback from taxpayers, tax professionals and payment processors and to reduce taxpayer confusion, the Internal Revenue Service this week released Notice 2023-74 announcing a delay of the new $600 Form 1099-K reporting threshold for third party settlement organizations for calendar year 2023. As the IRS continues to work to implement the new law, the agency will treat 2023 as an additional transition year. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.

IRS ends unannounced revenue officer visits to taxpayers – The IRS announced a major policy change that will end unannounced visits to taxpayers by agency revenue officers to reduce public confusion and increase overall safety. The change reverses a decades-long practice by IRS Revenue Officers, the unarmed agency employees whose duties included visiting households and businesses to collect unpaid taxes. Effective immediately, the unscheduled visits will end except in a few unique circumstances.

Inflation Reduction Act Strategic Operating Plan – The IRS unveiled its Strategic Operating Plan, an ambitious effort to transform the tax agency and dramatically improve service to taxpayers and the nation during the next decade. The report outlines the agency's historic plans to make fundamental changes following funding from last year's Inflation Reduction Act.

2023 tax inflation adjustments – The IRS announced the tax year 2023 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2022-38 provides details about these annual adjustments.

2023 standard mileage rates – Beginning January 1, 2023, the standard mileage rates used to calculate the deductible costs of operating a car (also vans, pickups or panel trucks) are 65.5 cents per mile for business use. For details, see IRS issues standard mileage rates for 2023; business use increases 3 cents per mile.

Clean vehicle and energy credits
New, Previously Owned and Qualified Commercial Clean Vehicles Credit – The Inflation Reduction Act of 2022 (IRA) made several changes to the new clean vehicle credit for qualified plug-in electric drive motor vehicles, including adding fuel cell vehicles. The IRA also added a new credit for previously owned and commercial clean vehicles. Get answers to frequently asked questions about the new, previously owned and qualified commercial clean vehicles credit.

Home energy credits – The Inflation Reduction Act of 2022 (IRA) amended credits for energy efficient home improvements and residential energy property. Get details on eligible expenditures and how the credit limitations work in the frequently asked questions about energy efficient home improvements and residential clean energy property credits.

Alternative fuel credits – Find rules to make a one-time claim for the credit and payment allowable for alternative fuels sold or used during 2022 first, second, and third calendar quarters in Notice 2022-39. Also get instructions for how a taxpayer's liability for excise tax may be reduced by claiming the alternative fuel mixture credit allowable for 2022 first and second quarters. The alternative fuel credits are part of the Inflation Reduction Act.

Prevailing Wage and Apprenticeship – The Inflation Reduction Act of 2022 (IRA) amended and enacted various clean energy tax incentives that provide increased credit or deduction amounts if certain prevailing wage and registered apprenticeship requirements are met. Treasury and the IRS published final regulations and frequently asked questions on providing rules and definitions for taxpayers seeking to satisfy the prevailing wage and apprenticeship requirements.

Elective pay and Transferability – Elective pay allows applicable entities (as defined), including tax-exempt and governmental entities that would otherwise be unable to claim these credits because they do not owe federal income tax, to benefit from some clean energy tax credits by treating the amount of the credit as a payment of tax and refunding any resulting overpayment.

Transferability allows entities that can't use elective pay but do qualify for an eligible tax credit to transfer all or a portion of the credit to a third-party buyer in exchange for cash. The buyer and seller would negotiate and agree to the terms and pricing.

The IRS has provided an overview and several audience specific posters that can be found on the elective pay and transferability landing page and frequently asked questions on providing rules and definitions for taxpayers seeking to satisfy the prevailing wage and apprenticeship requirements.

See Credits and deductions under the Inflation Reduction Act.

2023 tax filing
Missed the filing deadline – The IRS urges taxpayers who missed the April 15 filing deadline to file their 2023 tax return as soon as possible. Taxpayers who owe and missed the deadline without requesting an extension should file quickly to limit penalties and interest. For struggling taxpayers unable to pay their tax bill, the IRS has several options available to help.

Disaster tax relief – Individuals and business affected by the terrorist attacks in the State of Israel now have until Oct. 7, 2024, to file various federal returns, make tax payments and perform other time-sensitive tax-related actions.

Individuals and businesses in parts of Tennessee affected by severe storms and tornadoes that began on Dec. 9 now have until June 17, 2024, to file various federal individual and business tax returns and make tax payments.

Individuals and businesses affected by elevated levels of lead and copper in the water supply in the island of St. Croix now have until Feb. 29, 2024, to file various individual and business tax returns and make tax payments.

Taxpayers affected by severe storms and flooding in parts of Illinois now have until Feb. 15, 2024, to file various individual and business tax returns and make tax payments.

Taxpayers affected by seawater intrusion in parts of Louisiana now have until Feb. 15, 2024, to file various federal individual and business tax returns and make tax payments.

Hawaii wildfire victims in Maui and Hawaii counties now have until Feb. 15, 2024, to file various federal individual and business tax returns and make tax payments.

Taxpayers affected by Hurricane Lee anywhere in Maine and Massachusetts now have until Feb. 15, 2024, to file various federal individual and business tax returns and make tax payments.

Individuals and businesses affected by Hurricane Idalia in several counties in Georgia, South Carolina, and Florida and now have until Feb. 15, 2024, to file various federal individual and business tax returns and make tax payments.

The current list of eligible localities and other details for each disaster are always available on the Tax relief in disaster situations page.

State payments – The IRS provided details clarifying the federal tax status involving special payments made by 21 states in 2022. During a review, the IRS has determined that taxpayers in many states will not need to report these payments on their 2022 tax returns.

Families who don't owe taxes can still claim key tax credits – Families and individuals who qualify can still file their 2021 tax return and claim without penalty some or all of the 2021 Recovery Rebate Credit, the Child Tax Credit, the Earned Income Tax Credit and other tax credits. The IRS sent a letter to 9 million individuals and families who appear to qualify for a variety of key 2021 tax benefits but did not yet claim them.

Puerto Rico families can claim the Child Tax Credit – Families with children in Puerto Rico who don't owe taxes to the IRS can still file their 2021 tax return at any point until April 15, 2025, and claim without penalty the Child Tax Credit of $3,600 per child.

Tax credits for families revert to 2019 levels – You'll likely receive a significantly smaller refund compared to last year because the Child Tax Credit (CTC), the Earned Income Tax Credit (EITC) and the Child and Dependent Care Credit amounts revert to pre-COVID levels:

The CTC is worth $2,000 for each qualifying child for 2022. A child must be under age 17 at the end of 2022 to be a qualifying child.
For the EITC, eligible taxpayers with no children who received roughly $1,500 in 2021 will now get $560 for the 2022 tax year.
The Child and Dependent Care Credit returns to a maximum of $2,100 in 2022 instead of $8,000 in 2021.
Premium Tax Credit expanded – You may be eligible for tax year 2022 under the temporarily expanded eligibility for the Premium Tax Credit. You must meet both the income requirements and the other eligibility criteria.

Stimulus payments – There were no new stimulus payments for 2022, unlike 2020 and 2021.

No above-the-line charitable deductions – During COVID, taxpayers were able to take up to a $600 charitable donation tax deduction on their tax returns. However, for tax year 2022, taxpayers who don't itemize and who take the standard deduction, won't be able to deduct their charitable contributions.

Paycheck Protection Program (PPP) loans improperly forgiven are taxable – If you inappropriately received forgiveness of your PPP loan, we encourage you to file an amended return that includes forgiven loan proceed amounts in income. IRS issued guidance PDF that confirms if your PPP loan is forgiven based on misrepresentations or omissions, you can't exclude the forgiveness from your income. You must include in your income the portion of the loan proceeds that were forgiven based upon misrepresentations or omissions.

IRS reopens Voluntary Disclosure Program to help businesses with problematic Employee Retention Credit claims; sending up to 30,000 letters to address more than $1 billion in errant claims

The Internal Revenue Service announced today a limited time reopening of the Voluntary Disclosure Program to help businesses fix incorrect Employee Retention Credit claims as the agency continues compliance work.

The Employee Retention Credit (ERC) Voluntary Disclosure Program (VDP) will run through November 22 and allow businesses a chance to correct improper payments at a 15% discount and avoid future audits, penalties and interest. During the first disclosure program that ended in March, there were more than 2,600 applications from ERC recipients that disclosed $1.09 billion worth of credits.

To underscore the importance of participating in the Voluntary Disclosure Program, the IRS also announced it plans to mail up to 30,000 new letters to reverse or recapture potentially more than $1 billion in improper ERC claims. Thousands more mailings on additional questionable payments will be made in the fall.

“The limited reopening of the Voluntary Disclosure Program provides an opportunity for those with improper claims to come in ahead of IRS compliance work and get a discount on repayments,” said IRS Commissioner Danny Werfel. “This is especially important given increasing IRS compliance actions involving bad claims, many of them are the result of aggressive marketing tactics to lure unsuspecting businesses into claiming the complex credit. This provides a final window of opportunity for those misled businesses to make adjustments and avoid future compliance action by the IRS.”

“The push by promoters flooded the IRS with questionable ERC claims, which clogged our systems and slowed work,” Werfel added. “We recognize well-meaning businesses are caught up in this, and we are taking important steps to help them. This includes reopening the Voluntary Disclosure Program as well as getting more payments out to qualifying businesses.”

Last week, the IRS announced it was taking additional steps to move forward with ERC, including updates on the processing moratorium, compliance actions and upcoming payments. In recent weeks, the IRS separately sent out 28,000 disallowance letters to businesses whose pending claims showed a high risk of being incorrect. The IRS estimates that these disallowances will prevent up to $5 billion in improper payments. The IRS has also identified 50,000 valid ERC claims and is quickly moving them into the pipeline for payment processing in coming weeks. These payments are part of a low-risk group of claims.

The ERC program began as an effort to help businesses during the pandemic, but as time went on, the program increasingly became the target of aggressive marketing – and potentially predatory in some cases – well after the pandemic ended. For example, some promoter groups called the credit by another name, such as a grant, business stimulus payment or government relief besides ERC or the Employee Retention Tax Credit (ERTC) to increase claims. The IRS continues compliance work on questionable ERC claims on multiple fronts, with thousands of audits underway and 460 criminal cases initiated.

ERC Voluntary Disclosure Program reopens; special discount available through November 22
Today’s announcement features a special reopening of the ERC Voluntary Disclosure Program (VDP) through November 22 to help businesses that received questionable payments to self-correct and repay the credit they received after filing ERC claims in error. The IRS urged businesses with claims that show warning sign indicators to review eligibility requirements and talk to a trusted tax professional to see if the disclosure program is a good option for them.

As the IRS continues intensifying its compliance work involving improper ERC claims, the disclosure program protects businesses from more costly future compliance action. The second VDP offers a 15% discount for businesses repaying credits for tax periods in 2021, a slightly reduced rate from the first program’s 20% discount that ended in March.

Businesses should act soon to resolve incorrect claims and avoid potential future issues such as audits, full repayment, penalties and interest. Full details are available in IRS Announcement 2024-30 PDF, also released today, with highlights outlined in another IRS news release, IR-2024-213, IRS provides details of second Employee Retention Credit Voluntary Disclosure Program; program for improper claims open through Nov. 22.

Thousands of new recapture letters going out for improper ERC claims made for Tax Year 2021, some Tax Year 2020
As part of ongoing compliance work, the IRS announced today plans to mail thousands of additional letters reversing or recapturing improperly paid ERC claims. The IRS currently anticipates this round of mailings could reach up to 30,000 letters this fall. These “clawback” notices potentially represent more than $1 billion in claims from Tax Year 2021 and some additional, later-filed Tax Year 2020 claims. These letters notify taxpayers that the IRS is reversing or recapturing their previous credit. Several thousand of the letters have been mailed, with more coming in upcoming weeks and into the fall.

The IRS notes that those who receive these recapture letters will be ineligible to participate in the Voluntary Disclosure Program for the calendar quarter the letter covers.

This is the second round of these letters. Previously, the IRS determined that more than 12,000 entities filed claims that were improper for Tax Year 2020, resulting in $572 million in assessments.

The latest letters generally involve larger claims than earlier letters regarding 2020 because Congress increased the maximum ERC in 2021. Congress increased the maximum ERC from $5,000 per employee per year in 2020 to $7,000 per employee for each quarter of the year in 2021.

When the IRS identifies an employer that has received excessive or erroneous ERC, the agency will reclaim that ERC through normal tax assessment and collection procedures.

"This new round of letters serves as another incentive for businesses that believe they received an erroneous Employee Retention Credit payment to come forward and participate in the disclosure program and resolve the matter on more favorable terms," Werfel said. “The disclosure program provides a limited, unique opportunity to avoid future IRS compliance problems as well as sidestep a significant repayment fee with penalties and interest.”

Separate ERC Claim Withdrawal Program remains available for those with pending claims
The IRS also continues to urge employers with pending, unpaid ERC claims to consider a separate ERC Claim Withdrawal Program that allows them to remove a pending ERC claim – one that the IRS has not processed yet. They can withdraw the claim and pay no interest or penalty. Already, the claim withdrawal process for those with unprocessed ERC claims has led to more than 7,300 entities withdrawing $677 million.

ERC compliance work continues
The IRS continues analyzing ERC claims, intensifying audits and pursing promoter and criminal investigations. Beyond the disallowance letters, current initiatives results include:

Criminal investigations: As of July 1, 2024, IRS Criminal Investigation has initiated 460 criminal cases, with potentially fraudulent claims worth nearly $7 billion. In all, 37 investigations have resulted in federal charges so far, with 17 investigations resulting in convictions and nine sentencings with an average sentence of 20 months.
Promoter investigations: The IRS is gathering information about suspected abusive tax promoters and preparers improperly promoting the ability to claim the ERC. The IRS’s Office of Promoter Investigations has received hundreds of referrals from internal and external sources. The IRS will continue civil and criminal enforcement efforts of these unscrupulous promoters and preparers.
Audits: The IRS has thousands of ERC claims currently under audit.

IRS announces new federal income tax brackets for 2025

The IRS has announced new federal income tax brackets and standard deductions for 2025.

In its announcement on Tuesday, the agency raised the income thresholds for each bracket, which applies to tax year 2025 for returns filed in 2026. The top rate of 37% applies to individuals with taxable income above $626,350 and married couples filing jointly earning $751,600 or more for 2025.

The IRS also boosted figures for dozens of other provisions, including long-term capital gains brackets, estate and gift tax exemption and eligibility for the child tax credit, among others.

Federal tax brackets for 2025
Federal income tax brackets show how much you owe on each part of your “taxable income,” which you calculate by subtracting the greater of the standard or itemized deductions from your adjusted gross income.

37% for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly).
35% for incomes over $250,525 ($501,050 for married couples filing jointly).
32% for incomes over $197,300 ($394,600 for married couples filing jointly).
24% for incomes over $103,350 ($206,700 for married couples filing jointly).
22% for incomes over $48,475 ($96,950 for married couples filing jointly).
12% for incomes over $11,925 ($23,850 for married couples filing jointly).
10% for incomes of $11,925 or less ($23,850 or less for married couples filing jointly).
After 2025, lower taxes enacted by former President Donald Trump will sunset without action from Congress. If the provision expires, the tax brackets will revert to 2017 levels, shifting to 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.

Higher standard deduction
The standard deduction will also increase in 2025, rising to $30,000 for married couples filing jointly, up from $29,200 in 2024. Starting in 2025, single filers can claim $15,000, a bump from $14,600.

Trump’s tax cuts also included higher standard deductions, which will sunset after 2025 if Congress doesn’t extend that tax break.

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2024 tax filing season set for January 29

As we dive into 2024, acting swiftly to maximize your tax refund is vital. Don’t miss these crucial deadlines:

Personal Tax Filing:
Standard Deadline: April 15, 2024
Extension Deadline: October 15, 2024

Partnerships and Multi-Member LLCs:
Standard Deadline: March 15, 2024
Extension Deadline: September 16, 2024

S Corporations (S Corp):
Standard Deadline: March 15, 2024
Extension Deadline: September 16, 2024.

C Corporations (C Corp):
Standard Deadline: April 15, 2024 (calendar year)
Extension Deadline: October 15, 2024 (calendar year)

Tax-Exempt Organizations:
Standard Deadline: May 15, 2024 (calendar year)
Extension Deadline: November 15, 2024 (calendar year)