Don't try your luck with oddball tax advice, like claiming 'self-employment tax credit'

Call it what you want. The "SETC" payout. The "Self-Employment Tax Credit — the last pandemic program!" The COVID-19 tax break for gig workers and freelancers. "Self-employed?" asks one post on Facebook. "You may be eligible for $32,220 tax credit refund."

It's all the tax rage on social media. And the IRS says it's all wrong. Just more "outlandish claims," the IRS says, on social media.

"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," according to a new alert from the Internal Revenue Service.

Exactly, what is the self-employment tax credit?

The self-employment tax credit doesn't even exist. The credit being touted on social media actually involves claiming what the IRS calls "a more limited and technical" tax break known as Credits for Sick Leave and Family Leave.

IRS Commissioner Danny Werfel called the tax buzz "another misleading social media claim that’s fooling well-meaning taxpayers into thinking they’re due a big payday.”

Very limited eligibility scenarios apply to the sick and family leave credits for quite specific COVID-19 related circumstances in 2020 and 2021. The credit doesn't even apply to 2023 tax returns.

To qualify for the legitimate credits, the IRS stated, self-employed workers have to meet several requirements that didn’t allow them to work in 2020 and 2021, including caring for an individual subject to a quarantine or isolation order. The FAQ at IRS.gov gives guidance to trying to wrap your arms around many mindboggling rules.

IRS issues a string of warnings about credits in 2024

Tax rules are way too complicated to start. A targeted tax break might work for your neighbor, but it won't work for you. One tax break that saved you money last year might not even be around this year.

And, sad to say, too many people rush to social media to deal with a long list of things that they simply don't understand. Like neighborhood bickering. Like the attempted assassination of former President Donald Trump. And yes, like taxes. We would all like simple, straightforward answers.

Unfortunately, based on a string of IRS warnings this year, some really bad tax advice and shady tax preparation promoters are floating around on social media and elsewhere.

The IRS said it has seen "thousands of dubious claims come in." As a result, the entire tax refund is being delayed. Taxpayers then must show they have legitimate documentation to support these types of claims.

Consider these previous IRS warnings:

Clean Energy Credits: Unscrupulous tax return preparers are promoting a scheme that targets retirees, as well as wage earners, by wrongly touting the tax filer's ability to buy clean energy credits to trim their tax bill. Often, the targeted group files a 1040. The promoters, according to the IRS, are misrepresenting the rules for claiming clean energy credits under the Inflation Reduction Act, also known as IRA.

Fuel tax credit: Unscrupulous tax return preparers inflated refunds by erroneously claiming the fuel tax credit by filing Form 4136, Credit for Federal Tax Paid on Fuels.

Household employment taxes: According to an IRS alert in May, some taxpayers are inventing fictional household employees and then filing Schedule H (Form 1040), Household Employment Taxes, to claim a refund based on false sick and family medical leave wages they never paid.

Sick leave and family leave credits: The latest alert in July follows an IRS back in early March that highlighted a scam involving fraudulently filing Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals.

Taxpayers, of course, are the ones on the hook. If you claim credits that you're not qualified to get, it is possible that you could ultimately face fines and be subject to federal criminal prosecution and imprisonment.

Many taxpayers who made these dubious claims are receiving notices that they need to verify their identity with the IRS first, if they're hoping to get any tax refund cash.

The IRS stated in May that "taxpayers who improperly claimed these credits still need to authenticate their identity. Once the taxpayer’s identity has been verified, they may need to amend their tax return to remove the improperly claimed credit."

The amended return, the IRS stressed, won't go through in these cases until after the taxpayer authenticates their identity.

Anyone who is unsure about the legitimacy of a particular tax credit, the IRS said, should seek advice from a qualified tax professional. Do your homework. Take time to research to see if a particular credit is being over-hyped by some unprofessional tax preparers.

TikTok isn't for taxes

What can make things worse for taxpayers who want to do the right thing: We're seeing a string of boutique shops pop up to promote these oddball tax strategies, like what some promoters call the "Self-Employed Tax Credit" or SETC.

Earlier, the IRS cracked down on the misuse of a pandemic-era tax break called the Employee Retention Credit. Back in September, the IRS even took the highly unusual step of halting the processing of new claims for the credit after seeing aggressive marketing of the tax strategy and a flood of fraudulent and improper claims.

The IRS stated that marketing around the so-called “Self-Employment Tax Credit” seems similar to the 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," the IRS said. "In reality, these are very limited credits that have a variety of complex requirements before people can qualify."

Meg Killian, executive vice president for the National Association of Enrolled Agents, said misinformation relating to tax rules starts with those who are "either uninformed or have bad intent."

"And then it gets traction the same way other things do on social media," Killian said.

One firm is out there advertising the “self-employment credit” on TikTok, using an influencer style, she said. "And their address is a co-working space in D.C. but there’s very little information about who they are."

Yes, Killian said, the buzz about the so-called "self-employment credit" is reminiscent of all those radio ads and other marketing pitches around the employee retention credit more than a year ago.

A lot of fraudulent claims were generated by employee retention credit mills, and not legitimate tax preparers, Killian said. If someone thinks they might really qualify for sick and family leave tax credits, she said, they should take their time and work with a reputable and licensed tax preparer, such as an enrolled agent.

Sure, you can find a few people here and there on social media who are now mocking all this crazy tax advice. "If you think false information will work, try 'yo' luck," one person posted. Yeah, maybe, it's best not to just roll the dice with your tax return.

Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tompor.