Self-Employed Tax Credit (SETC) Frequently Asked Questions
What is the SETC tax credit program?
In March 2020, the Families First Coronavirus Response Act (SETC) was signed into law to help companies offer paid sick leave and unemployment benefits caused by COVID-19. Initially, the SETC focused on employers with W-2 employees to help them weather the economic impact caused by the pandemic.
In December 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which expanded the SETC to cover employers and the self-employed. Thanks to the SETC expansion, self-employed individuals, freelancers, independent contractors, and gig workers are now eligible for tax credits that pay you back for the time you would've typically spent earning money that was lost because of COVID.
The SETC is federal legislation passed in response to the COVID-19 pandemic. It provides paid sick leave, free COVID-19 testing, food assistance, and unemployment benefits and stipulates employer-provided health insurance protection. For self-employed individuals, it offers equivalent coverage via tax credits that can be claimed on your income tax return, effectively reimbursing you for periods of sick leave due to COVID-19.
What Is The FCCRA?
The Families First Coronavirus Response Act (FFCRA) was passed in 2020 and was one of the earliest pieces of legislation designed to help small business owners afford the sick leave their employees had to take because of COVID-19.
The FFCRA originally focused only on employees of certain small businesses but was expanded in 2021 to cover US citizens who were self-employed during the COVID-19 pandemic and suffered losses in business due to lockdowns or illnesses for themselves or family members.
How much can I qualify for under FFCRA?
Eligible individuals can qualify for refunds up to $32,200 and couples up to $64,440, providing significant financial support during these challenging times.
What services are covered by the processing fees?
Our processing fees cover the entire end-to-end process, including amending tax returns, submitting applications to the IRS, and providing weekly follow-ups until your funds are disbursed.
Is FFCRA only applicable to businesses directly impacted by COVID-19 closures?
No, FFCRA is designed to support all self-employed individuals and small business owners who experienced disruptions due to COVID-19, irrespective of the specific cause.
What is the Difference Between SETC and FFCRA?
The “SETC” (Self-Employed Tax Credit) is a colloquial term that refers to the provisional sick and family leave tax credits for self-employed individuals introduced under the FFCRA (Families First Coronavirus Response Act). There is no distinguishing difference besides SETC is for self-employed individuals and FFCRA for employees.
Can I apply for FFCRA if I've already received relief from other programs like PPP or EIDL?
Absolutely, FFCRA is a separate program, and you can apply for its benefits even if you've received assistance from other relief programs.
Can I calculate my potential refund before committing to the application process?
Absolutely! You can use our tax refund calculator on the website to check your eligibility upfront and get an estimate of how much you could claim.
Is FFCRA a loan or a grant?
FFCRA is not a loan; it's a retroactive tax credit. The amount can either reduce your current tax liability or be directly refunded to you.
What forms do I need to submit to the IRS for the FFCRA application process?
The primary form is the amended Form 7202, which is used to claim the FFCRA tax credits for self-employed individuals. Our experts will guide you through the process and complete and submit this form for you.
Who is eligible for FFCRA benefits?
Self-employed individuals and small business owners, including sole proprietors, freelancers, and gig workers, who faced COVID-related disruptions are eligible.
Do I need to provide any supporting documentation along with Form 7202?
While we do not need the supporting documentation to prepare your amended returns, you should retain the evidence regarding the missed work, quarantine orders, childcare closures, or vaccination appointments. Our team will guide you on the necessary documentation. Usually, providing us specific dates and times is sufficient.
Can I track the status of my FFCRA application with the IRS through Direct Funder?
Yes, we provide regular follow-ups and updates on the status of your application. Our team communicates with the IRS on your behalf to ensure a smooth and efficient process.
Is there a checklist available for the forms and documentation required for FFCRA submission?
Yes, we provide a comprehensive checklist outlining the forms and supporting documentation needed for your FFCRA application in your client portal. This ensures a smooth and organized submission process.
Can I apply if I missed work due to reasons not directly related to COVID-19?
No, FFCRA specifically addresses situations related to COVID-19, such as quarantine, childcare challenges due to closures, illness, vaccination, and related issues.
What happens if there are discrepancies in the information submitted to the IRS?
In the rare event of discrepancies, Legacy Tax & Resolution Services works diligently to rectify any issues. We maintain clear communication with the IRS and address discrepancies promptly to ensure the success of your FFCRA application.
What Dates Are Eligible For FFCRA/SETC Income Tax Credits?
The dates you can claim under FFCRA/SETC income tax credit are between April 1, 2020 – March 31, 2021, and up to 10 days for dates between April 1, 2021 – September 30, 2021.
Here is a breakdown of the days:
Childcare-related time off – up to 110 days
50 days between April 1st 2020 and March 31st 2021
60 days between April 1, 2021, and September 30, 2021
Yourself or loved one (other than child) – up to 20 days
10 days between April 1, 2020 and March 31, 2021
10 days between April 1, 2021, and September 30, 2021
Do I Still Qualify If I Did Not Pay Myself Sick Leave?
Yes! This is what the FFCRA/SETC was designed to cover, especially since a lot of entrepreneurs fall into this category.
Is there a reason why I cannot find information about the Self-Employed Tax Credit (SETC) on the IRS' website?
The “SETC” (Self-Employed Tax Credit) is a colloquial term that refers to the provisional sick and family leave tax credits for self-employed individuals introduced under the FFCRA (Families First Coronavirus Response Act). You will need to start by searching for the FFCRA (Families First Coronavirus Response Act) and find the section indicating how it also applies to self-employed individuals.
How much of a tax credit can I expect to receive?
The size of your SETC tax credit hinges on a few key elements:
- Your Schedule C or SE Net Income: This is drawn from your 2019, 2020, and 2021 tax returns. Your net income plays a major role in shaping the credit amount.
- Days Affected by COVID-19: This includes any days you were sick or had to quarantine due to COVID-19.
- Caring for a COVID-19 Affected person: If you spent time caring for someone impacted by COVID-19, this is factored in.
- Remote/Virtual learning, School Closures: If schools or daycare centers were closed or unavailable and you had to care for a minor child, this too influences your credit.
These elements collectively contribute to determining the tax credit you can expect. For a precise calculation, you might want to use a specialized tax credit calculator or consult a tax expert.
How is the credit amount determined?
The amount of the tax credit you can receive is determined through a combination of specific criteria:
Income and Days Affected by COVID-19: Your average daily self-employment income and the number of days you missed work due to COVID-related issues, like quarantine or symptoms, are pivotal. This is used to calculate your potential credit.
Child Care Credit Calculation: If you took leave for childcare, your credit is the lesser of your average daily self-employment income or $511 per day.
Self-Employment Work Interruption Credit: If you missed work due to personal COVID-19 issues or caregiving, the credit is the lesser of two-thirds of your daily income or $200 per day.
Net Income and Caregiving Factors: Your net income reported on Schedule C for the tax years 2019-2021, the days you were sick or quarantined, and the time spent caregiving due to COVID-19, including periods when schools or daycare were closed, all play a role in the calculation.
Our Client Portal simplifies this process, guiding you through these factors and helping calculate your maximum FFCRA tax credit. For a quick estimate, our online Tax Credit Calculator can provide an accurate assessment of your eligibility and the likely credit amount.
What is the difference between SETC and FFCRA?
While SETC (Self-Employed Tax Credit) and FFCRA (Families First Coronavirus Response Act) are both born from the same legislative umbrella aimed at providing COVID-19 relief, there's a neat distinction in their applicability:
- SETC: A Special Focus for the Self-Employed
- FFCRA: The Employee-Oriented Counterpart
So, while they share a common goal of easing the COVID-19 burden, SETC and FFCRA divvy up their support based on your employment status SETC for the self-starters and FFCRA for the employed.
Will I have to do a lot of paperwork to file by SETC with you?
Not at all. It's really straightforward – just select your days in our questionnaire. Then, upload your 2019 to 2021 tax returns and a copy of your driver’s license, and sign our agreement. That's it! We handle the rest, ensuring a smooth and stress-free process for you.
How will I receive my FFCRA refund?
Get ready for a nice surprise in your mailbox! The IRS will dispatch a check for your 2020 and/or 2021 FFCRA tax credit directly to the address listed on the tax return. It's like getting a special delivery just for you. But, keep in mind, if you've got any outstanding tax dues, the IRS will apply the refund to the balancing due first.
How long does it take to receive a refund?
Once you've filed for your FFCRA credit, the IRS typically takes up to three weeks to give you a nod of acceptance. Think of it as the IRS giving your application a thumbs up. But the real countdown begins after this acceptance – it can take 16 to 20 weeks for your refund to make its grand entrance, via check.
Do I have to be self-employed to file for the tax credit refund?
Yes. This tax credit is for self-employed individuals, small business owners, freelancers, partners in a partnership that are subject to self-employment taxes, and 1099 contractors only.
Is the SETC tax credit based on gross self-employed income or net self-employed income?
When determining eligibility for the SETC (Self-Employed Tax Credit), it's your net self-employed income that's under the microscope. This means you need to have a positive net income, which is your earnings after all allowable business deductions, for either 2019, 2020, or 2021. Additionally, your eligibility hinges on having specific days that qualify under the COVID-related criteria. It's this combination of positive net income and qualifying days that shapes your eligibility for the SETC.
What if I have questions or need assistance during the process?
If you find yourself with questions or in need of assistance as you navigate through the process, don't worry, we've got your back! Our dedicated customer service team is like your personal support squad, ready to jump in and make sure your experience is as smooth and stress-free as possible.
No matter where you are in the process, if you hit a snag or just need some clarification, we're only a message or a call away. Our team is always on standby, eager to assist you with any inquiries or concerns. Reach out to us through our designated channels, and we'll be right there to guide you, ensuring you have all the information and support you need. We're here to make your journey through this process as straightforward and hassle-free as we can. Your peace of mind is our top priority!
Do I have to have positive tax earnings in 2020 to qualify for SETC income tax credit?
No, if you did not have positive earnings in 2020 because of COVID-19 restrictions but were still self-employed in 2020, you may elect to use your 2019 net income if that year has a positive self-employed income.
Is there an extensive amount of paperwork to complete?
No need to worry about overwhelming paperwork. Our process is straightforward and secure:
- Effortless Agreement Signing: You'll receive a secure email to sign our “Client Agreement” electronically. Quick and easy!
- Minimal Documentation: Just upload your tax returns for 2019, 2020, and 2021, along with your driver’s license and a secondary photo ID for compliance.
- We Handle the Details: Once your documents are uploaded, our team takes over, managing everything from amendments to maximizing your entitlements.
- Already Filed Your Taxes? If you've filed your 2020 and 2021 returns but need amendments for additional credits, we're here to help with that too.
That's it! We aim to make this process as seamless and efficient as possible for you.
Do I have to have positive tax earnings in 2021 to qualify for the SETC income tax credit?
No, if you did not have positive earnings in 2021 because of COVID-19 restrictions but were still self-employed in 2021, you may elect to use your 2020 net income if that year has a positive self-employed income.
How much of a tax credit can I expect to receive?
There are a few factors that go into calculating your tax credit refund amount. The biggest factors would be:
- Your net income from your Schedule C on your 2019, 2020, and 2021 tax returns.
- How many days you were out sick or told to quarantine with Covid-19
- How long you might have cared for a loved one affected by Covid-19.
- How long any schools or daycare centers were closed (and you were forced to care for a minor child during the closings).
But the fastest and easiest way to find out how much you qualify for is to simply use our online Tax Credit Calculator
Can I still qualify if I already filed my taxes for 2020 & 2021?
Absolutely Yes! We will need to file an amendment on your tax return. We do this all the time. All we require from you is a copy of your 2019, 2020, and 2021 tax returns and a copy of your driver's license and we’ll handle the rest.
Does filing for FFCRA tax credits have any impact on filing my 2023 income taxes?
Worry not about your 2023 tax filings when claiming FFCRA tax credits – they're like two ships passing in the night, not affecting each other. Here's the lowdown:
Separate Lanes: Filing for FFCRA credits is a journey back in time, revisiting your 2020 and 2021 tax filings. It's all about making tweaks to those years, not the upcoming 2023 tax season.
Expert Navigation: Our CPA crew is like your time-travel team, diving into your past filings (2020 and 2021) to skillfully amend them for FFCRA credits. They ensure everything's shipshape without causing ripples in your 2023 tax voyage.
Smooth Sailing for 2023: Your 2023 tax filing remains unaffected, cruising along its usual course. So, you can breathe easy and focus on the here and now, knowing your past and future tax journeys are well taken care of.
If the taxpayer and spouse both have self-employed income, can they both get the max $32,220 if they each qualify for the max?
Absolutely! If both spouses have self-employed income and individually qualify, they can each receive the maximum SETC of $32,220. However, it's important to note that they cannot share qualifying COVID days for children. Each spouse must meet the eligibility criteria based on their own separate self-employed activities and COVID-impacted days. This allows both individuals to fully benefit from the credit, provided their individual circumstances align with the SETC requirements.
Do I have to fill out a ton of paperwork?
Not at all. We basically have an agreement letter on our website that you’ll need to read, sign, and date, you will complete a survey to provide us with your information and provide an estimate of your refund. You will also need to upload a copy of your 2019, 2020, and 2021 tax returns and a copy of your driver's license. That’s basically it.
We try to make the process as easy and stress-free as we can for you. Once we have your tax returns we’ll take over and get everything filed for you.
Can I claim SETC tax credits if I am also a W2 employee?
You may still be eligible to claim SETC tax credits as long as you earned self-employment income in addition to your W2 salary during 2020 and/or 2021. If you are also a W2 employee and your employer filed for FFCRA credits on your behalf, you may have to decrease the credit for the FFCRA wages paid.
If you receive paid leave benefits as an employee, it may affect the amount of tax credit you can claim as a self-employed individual under the SETC. You cannot claim a double benefit for the same period. However, if your situation as an employee doesn't provide full coverage, there might be potential to claim additional credits based on your self-employment income.
Furthermore, if you receive paid leave benefits in your capacity as an employee, there could be an impact on the tax credit available to you as a self-employed individual under the FFCRA. It is important to note that claiming a double benefit for the same period is not permissible. However, in cases where your employee status does not offer comprehensive coverage, there may be an opportunity to pursue additional credits based on your self-employment income.
Is this similar to the PPP program?
The PPP (Paycheck Protection Program) and the FFCRA (Families First Coronavirus Response Act) are indeed both responses to the economic fallout of COVID-19, but they cater to different needs.
PPP's Role: The PPP is all about bolstering small businesses. It does this by offering loans, which can be forgiven if used primarily for payroll and other eligible expenses. It's essentially a financial lifeline for businesses to keep their teams employed during the pandemic's challenging times.
FFCRA's Focus: On the other hand, FFCRA is not about loans but about providing tax credits. These credits are applied to taxes that individuals, especially the self-employed and employers, have already paid. Unlike the PPP, which is designed to support businesses directly, FFCRA is more individual-focused, offering relief to people impacted by COVID-19 related work disruptions.
While both play crucial roles in pandemic relief, their mechanisms of support differ significantly - one through loans for businesses and the other through tax credits for individuals
Are there any limitations for the SETC?
Absolutely, there are a few key limitations to the Self-Employed Tax Credit (SETC) that are worth keeping in mind:
Not a Full Payout with Other Benefits: If you've already received wages from an employer for sick or family leave in 2020 or 2021, don't expect to hit the SETC jackpot. Your SETC amount gets trimmed down by the FFCRA wages you pocketed.
Unemployment Benefits Affect the Equation: Also, if you received unemployment benefits during these years, your SETC calculation needs to sidestep these days. It's all about ensuring you're not double-dipping from the benefit pool.
Residency Matters: And remember, SETC isn't just for anyone. You need to be a U.S. citizen, permanent resident, or a qualifying resident alien to get in on this.
Income Limits in Play: There's also an income ceiling to consider. Earning beyond a certain threshold might nudge you out of the SETC eligibility zone.
Geographical Variations: Different countries have their own spin on SETC rules. It's wise to consult a tax professional or dig into your country's tax guidelines to see where you stand.
So, while SETC offers a valuable financial cushion, it's not a one-size-fits-all deal. Knowing these limitations helps you realistically assess what you can expect from this credit.
Do I qualify for SETC tax credit if I already received Sick & Family Leave credit on either the 2020 or 2021 returns?
You would only be eligible if you did not FULLY UTILIZE the credit(s) on previous return(s). Not fully utilized means did not list the most beneficial self-employed income by electing the highest self-employed income year (2019 or 2020 for the 2020 amendment, or 2020 or 2021 for the 2021 amendment) or you listed less than the actual COVID days in any of the three categories for the years 2020 or 2021.
What if I have NOT filed the 2020 or 2021, can I still receive the SETC?
Certainly! If your 2020 or 2021 taxes are still pending, you're not out of the race for SETC benefits. Our team of Accountants are well-equipped to prepare your original tax returns with the inclusion of SETC. But remember, it's important to be aware of the refund statute limitations discussed earlier.
This ensures that you remain within the legal timeframe for claiming your tax credits. Our professionals are here to guide you through this process, making sure you meet all necessary requirements for a successful SETC claim.
Is the SETC tax credit based on gross self-employed income or net self-employed income?
To qualify for the self-employed tax credit you MUST have a positive NET (after deductions) self-employed income for either 2019, 2020 or 2021 AND qualifying COVID days.
How long before I will receive my cash refund?
To be honest, once we receive the necessary paperwork from you, we will begin to work on your case and get all the forms filed, etc. it is then up to the IRS to send you your refund directly to you.
We find for the most part that it usually takes 12-16 weeks to complete the process and receive your cash refund.
I we filed a joint return and my spouse or partner is also self-employed, can we each qualify for the SETC?
Yes, if both of you are self-employed, you could each qualify for up to the maximum amount (under the right circumstances) of $32,220.
Refund Statute of Limitations and SETC
Based on the statute of limitation, the opportunity to amend for the purpose of seeking the refundable credit on the 2020 tax return for the Self-Employed Tax Credit (SETC) that occurred between April 1, 2020, and Dec. 31, 2020, expires April 15, 2024, for returns filed by the due date. Returns with an extended due date may have a later deadline, as may those filed within the postponement period granted by Notice 2021-21 to May 17, 2021 (with “lookback” period relief granted by Notice 2023-21).
For the Self-Employed Tax Credit (SETC) that occurred between Jan. 1, 2021, and Sept. 30, 2021, an amendment to claim the credit is eligible to be filed up to April 18, 2025.
Do I qualify for the SETC tax credit if I received unemployment benefits during 2020 and/or 2021?
You can still qualify for the SETC tax credit even if you received unemployment benefits. However, you CANNOT claim the days you received unemployment benefits as days you were not able to work due to COVID-19-related issues.
Does filing for SETC tax credits impact filing my 2023 income taxes?
Actually, no. Filing for the SETC tax credit won't affect your 2023 income tax filings at all. To access these credits, our in-house team of accountants will amend your previously filed taxes for 2020 and/or 2021. This means the process is retroactive and doesn't touch your 2023 tax situation. It's a separate adjustment to your past filings, ensuring that your 2023 taxes remain unaffected.
For the SETC credit, do you require a complete copy of my return to be amended?
Yes, for any return to be amended, we require a COMPLETE copy of the return, including all schedules. A complete copy of the return MUST be submitted with the amended return for the return being amended.
Example: If we are amending 2020 by electing to use the 2019 positive self-employed income, we must have a complete copy of the 2020 return.
How much is the SETC credit?
The SETC Tax credit can be up to $32,220, based on your self-employed net earnings in 2020 and 2021.
To calculate your SETC credit, we use your daily average self-employment income (this is your net earnings for the taxable year divided by 260) and the amount of self-employment work missed due to COVID-19-related issues. This allows the IRS to estimate how much you lost in wages for every day you could not work.
Note: The SETC is per qualified taxpayer. If your spouse is also self-employed, you may be eligible for up to another $32,220.
How can I claim the SETC tax credits?
To claim the SETC tax credits, you must determine your eligibility and amend your 2020 and/or 2021 tax returns and their supporting schedules. To amend these returns, it is recommended to use a Certified Public Accountant(CPA) to obtain the best results. This can take countless hours and funds. Or let Legacy Tax & Resolution Services do it for you! Our CPA team has created the fastest, safest, and most accessible tool for self-employed individuals and sole proprietors to claim the federal SETC tax credits you deserve.
Why Would the IRS Just Refund My Taxes?
Essentially, the federal government is vested in supporting businesses impacted by COVID. They recognize small businesses, including yours, play a crucial role in local and national economies. However, this is a limited-time opportunity and won’t be around forever, so it’s important you get your SETC filed ASAP!
What is the Social Security tax deferral, all about?
If you have employees, you can defer the 6.2% employer portion of Social Security tax for March 27, 2020 through December 31, 2020. Self-employed taxpayers can also postpone the payment of 50% of the Social Security portion of their self-employment tax for the same period.
This is a deferral rather than forgiveness, so those amounts will eventually need to be repaid. Half of the deferred amount was due on December 31, 2021, and the other half was due on December 31, 2022.
Who Qualifies for the SETC tax credits?
To qualify for the SETC, you must meet the following criteria
- Identify as a Self-employed individual. A few examples, but not limited to, include sole proprietorship, independent business owners, 1099 contractors, freelancers, gig workers, and single-member LLC, taxed as a Sole-Proprietorship, and general partner of a partnership.
- Have filed a Schedule SE of IRS Tax Form 1040 in 2020 and/or 2021 with positive net income and paid self-employment tax on your earnings for the years 2019 and/or 2020 and or 2021.
- Have missed work due to COVID-19-related issues.
If all of my income is run through a C or S Corp, do I qualify for the SETC tax credits?
C or S Corporation income is not considered self-employed income, so you would not qualify for SETC. There is, however, good news! If your employing corporation paid you while you were not working because of COVID-19, your corporation may qualify for sick or family leave tax credits under FFCRA. The rules for qualification are the same as that of SETC.
Are you eligible for the tax credit if you don’t have health insurance?
Yes. Your eligibility for the Self-Employed Tax Credit (SETC) does not take health insurance coverage into consideration. However, if you are self-employed and need insurance, there are options for health insurance. You may even be eligible to write off the cost of your health insurance premiums by taking advantage of the self-employment health insurance deduction.
What if your child does not have health insurance?
You can claim the Self-Employed Tax Credit (SETC) on Form 7202 whether your child did or did not have health insurance. The credit only takes into account your ability to not work due to no child care or caring for your child. If your child is uninsured, you may be able to get insurance through the Children’s Health Insurance Program (CHIP).
Are costs for unpaid medical bills eligible for the tax credit?
Unpaid medical bills are not eligible for the Self-Employed Tax Credit (SETC). The credit only looks at your average daily wages and the number of missed days.
What qualifies as a reason for claiming SETC?
To qualify for SETC tax credits, you must have missed self-employment work due to COVID-related issues. If you were unable to work because of one of the following reasons, you may be eligible:
- A government agency imposed a quarantine or isolation order related to COVID–19.
- Advised by a healthcare provider to self-quarantine due to concerns related to COVID–19.
- You cared for an individual who is subject to either of the above two.
- You experienced COVID-19 symptoms while also waiting for an appointment with your doctor.
- You were exposed to COVID-19 and were unable to work pending the results of a test or diagnosis.
- You were waiting for COVID-19-related test results and quarantined as a precaution.
- You were getting vaccinated against COVID-19.
- You were experiencing side effects from the COVID-19 vaccine.
- You were accompanying an individual to obtain immunization related to COVID-19.
- You cared for your son or daughter because the school or place of care of the child was closed, or the child care provider of such child is unavailable, due to COVID–19 precautions.
- You experienced any other substantially similar condition specified by the secretary of health and human services in consultation with the secretary of the treasury
and the secretary of labor.
What is the definition of quarantine or isolation in the above reason for claiming the SETC
Federal, state, or local lockdown orders related to COVID-19 Quarantining or isolation order related to COVID-19
What is the definition of childcare in the above reason for claiming the SETC
Caring for your child whose school had closed or gone virtual care or caring for your child because your child care provider was unavailable due to COVID-19.
Can more than one parent of guardian claim SETC tax credits simultaneously to care for my child whose school or place of care was closed or went virtual due to COVID-19-related reasons?
Yes, but parents or guardians can not claim the same dates twice.
What is the definition of vaccination in the above reason for claiming the SETC?
A COVID-19 vaccination appointment or time away from your business due to the side effects related to a vaccination.
What is the definition of illness in the above reason for claiming the SETC?
Symptoms of COVID-19 or seeking a medical diagnosis and or sickness due to vaccination side effects or while caring for someone with COVID symptoms.
Can I Claim SETC Tax Credits If I Am Also A W2 Employee and received FFCRA as an employee?
Yes, but it may affect your SETC Credit. You may still qualify for credit depending on if your employer filed for the FFCRA on your behalf.
Why Do I Have To Have Positive Tax Earnings To Qualify For FFCRA/SETC Income Tax Credit?
Earnings determine the rate per day. If you did not have positive self-employed earnings in 2020 because of COVID-19 restrictions, we can use your 2019 net positive income. If you did not have positive self-employed earnings in 2021 because of COVID-19 restrictions, we can use your 2020 net positive income.
Are There Any Limitations to the SETC?
Yes, in addition to the eligibility criteria, there are a few limitations of the SETC should be aware of.
- You will not receive the full SETC amount if you already received wages from an employer for sick or family leave in 2020 or 2021. Your SETC portion will be reduced by the FFCRA wages you received.
- You will not receive the full SETC amount if you received unemployment benefits in 2020 or 2021. Your SETC calculation must exclude these paid through unemployment days.
- You must be a U.S. citizen, permanent resident, or qualifying resident alien.
What dates are eligible for SETC tax credits?
The SETC covers the days you were unable to perform self-employment work from April 1, 2020 - September 30, 2021.
Here is a breakdown of the number of days you could be eligible Childcare related time off - up to 110 days
- 50 days between April 1, 2020 and March 31, 2021
- 60 days between April 1, 2021, and September 30, 2021
Yourself or loved ones - up to 20 days
- 10 days between April 1, 2020 and March 31, 2021
- 10 days between April 1, 2021, and September 30, 2021
You took care of your children who were affected by school or daycare shutdowns.
You took care of someone else/family member who had COVID-19 issues.
How is the credit amount determined?
Self-employed individuals are eligible for FFCRA credit if they are out of work (or telework) due to government quarantine orders, self-quarantine, COVID-19 symptoms and seeking a medical diagnosis. The credit is calculated by multiplying the number of days on leave and taking whichever amount is smaller:
- Your average daily self-employment income per year or:
- $511.
If you are unable to work (or telework) to take care of a family member who is under quarantine or to take care of a child whose childcare is unavailable, you are still eligible for this credit. The credit is calculated by multiplying the number of days on leave and taking whichever amount is smaller:
- 2/3 of your average daily self-employment income or :
- $200.
We will use line 6 of the Schedule SE on your personal tax return to determine your total self-employed income, which is then divided by 260 (Considered the standard amount of working days in a year) to calculate your daily rate.
From there, we must determine which reason the leave was taken and that will decide what rate can be paid for the dates being claimed. For self-leave, we claim your full daily rate of up to $511/day. Family or childcare leave is calculated as 2/3rds of your pay up to $200/day.
What is the average SETC refund people receive?
The average Legacy Tax & Resolution Services customer has received an SETC refund of $9,400.
Will I Get A Check Or Will The Refund Be Deposited In My Account?
Refunds for 2020 and 2021 will be sent to you directly by the IRS via check to the address provided on your amended return(s).
How long does it take to receive a refund?
It can take up to three weeks for the IRS to acknowledge the acceptance of your SETC credit application and up to 20 weeks from that acceptance to receive your refund via check or direct deposit.
Why haven't I heard of the SETC tax credits before?
Initially, the SETC focused on employers with W-2 employees. While the CARES Act was passed later that same year with the expansion to provide tax credits to the self-employed, it was not widely publicized. Research shows over 80% of self-employed individuals are unaware they're entitled to the SETC tax credits.
Are there any deadlines for claiming the SETC tax credits?
Yes, the deadline to amend your 2020 and/or 2021 tax return for claiming or adjusting SETC credits is three years from the original due date of the return or within two years from the date you paid the tax, whichever is later. The deadline for filing for the SETC tax credits for your 2020 tax return is April 15, 2024, and Applications for 2021 (or a mix of 2020 and 2021) are due April 15, 2025, unless you filed an extension but would not suggest pushing that limit.
What if I already filed my taxes for 2020 & 2021?
Our CPAs and EAs must file an amended tax return for each year applicable. All we require from you is a copy of your 2019, 2020, and 2021 tax returns and a copy of your driver's license, and we'll handle the rest.
What if I have NOT filed the 2020 or 2021, can I still receive the SETC?
Yes. our CPAs and EAs will have to prepare your original returns, to include the SETC. Be mindful of the refund statute discuss above.
I had no income in 2020. Is the SETC based on my 2019 income?
If to are considered "self-employed" in 2020, you may elect to use either the 2019 or 2021 self-employed income. The same applies to 2021. If to are considered "self-employed" in 2021, you may elect to use either the 2020 or 2021 self-employed income.
What is the IRS' definition of being considered "self-employed"?
Generally, you are self-employed if any of the following apply to you;
- You carry on a trade or business as a sole proprietor or an independent contractor.
- You are a member of a partnership that carries on a trade or business.
- You are otherwise in business for yourself (including a part-time business or a gig worker).
Note: While you do not have to have a positive "self-employed" income to be considered "self-employed", the SETC is limited by the "self-employed" income listed on Form 1040-SE for the year elected.
*Note- Member of a Partnership: General partners have self-employment income on their percentage of the business income from the partnership, whether it's distributed or not. However, limited partners have self-employment income only on guaranteed payments for services they provide to the partnership.
I understand that I have to have self-employed income in either 2019, 2020 or 2021. Can the 2020 self-employed income be used for both the 2020 and 2021 amendments?
Yes! For 2020, you can elect to use either the 2019 or 2020 self-employed income to qualify. For 2021, you can elect to use either the 2020 or 2021 self-employed income to qualify.
Can a partner in a partnership claim the tax credits?
Maybe. A partner in a partnership is a self-employed individual if the partner's distributive share constitutes net earnings from self-employment or if the partner receives guaranteed payments for services. If the partner is a self-employed individual and is not able to work for reasons related to COVID-19, the partner is eligible for the tax credits.
Generally, partners in a partnership (including members of a limited liability company (LLC) that is treated as a partnership for federal tax purposes) are considered to be self-employed, not employees, when performing services for the partnership.
Is this similar to the PPP program?
The PPP (Paycheck Protection Program) and SETC (Families First Coronavirus Response Act) are two distinct initiatives responding to the economic impact of the COVID-19 pandemic. PPP assists small businesses by providing loans with the potential for loan forgiveness. SETC is not a loan but a credit on taxes individuals have already paid. While PPP supported businesses, SETC focused on helping individuals.
What is the Sick & Family Leave Tax Credit?
The Sick and Family Leave Tax Credit for self-employed and 1099 workers is for eligible self-employed individuals or independent contractors.
Under the FFCRA, eligible self-employed individuals or independent contractors could claim a refundable tax credit against their income tax liability for up to 100% of the qualified sick and family leave equivalent amounts, subject to certain limitations if they were unable to work or telework due to COVID-19-related reasons.
The qualified sick leave equivalent amount was the lesser of either $511 per day or 100% of the average daily self-employment income/260 for each day an individual was unable to work or telework because they were subject to a quarantine or isolation order, had COVID-19 symptoms and were seeking a medical diagnosis, or were caring for someone who was subject to a quarantine or isolation order or who had COVID-19 symptoms.
The qualified family leave equivalent amount was the lesser of either $200 per day or 67% of the average daily self-employment income for each day an individual was unable to work or telework because they needed to care for a child whose school or place of care was closed due to COVID-19.
Is SETC a loan or a grant?
SETC is a tax credit, not a loan. It is also not considered a grant as it's a refund of taxes you've already paid. The tax credits are designed to cover the same expenses that mandatory paid leave would cover for employees. If you're sick or caring for someone due to COVID-19, or you're experiencing conditions that prevent you from working, these credits aim to compensate you for your lost income.
What documentation do I need to provide?
For the most part, we only require your 2019, 2020, and 2021 tax returns, including your Schedule C and a copy of your driver's license for identification.
What is the Form 1040 SE
A 1040 Schedule SE tax form is one of the schedules in an IRS Form 1040 ("U.S. Individual Income Tax Return”). A Schedule SE is used to calculate individuals’ total self-employment taxes. Self-employment taxes include Social Security and Medicare taxes, similar to those withheld for W-2 employees.
What is the Form 1040-X
An IRS Form 1040-X is an “Amended U.S. Individual Income Tax Return.” Since the FFCRA’s sick leave and family leave tax credits for self-employed individuals now have to be claimed retroactively, claimants must amend their original income tax return(s) to claim the credit(s).
Note: When you use Legacy Tax & Resolution Services Platform, your IRS Form 1040-Xs are filed on your behalf.
What is Form 7202?
An IRS Form 7202 is the core document used to claim sick leave and family leave tax credits for self-employed individuals. The 7202 is sued to detail self-employed individuals’ eligibility and tax credit calculations.
Note: When you use Legacy Tax & Resolution Services Platform, your IRS Form 7202 is filed on your behalf.
How much are your processing fees?
Our fee schedule is really simple. We charge an No upfront fee. After you we calculate the amount of your tax credit you can have Legacy Tax File your tax returns for $395. If you would like to take the IRS form 7202, that we will have completed, you have the option to take it to file it your self of use another tax professional. Once you receive your refund from the IRS, an additional 20% of your refund amount is then due AFTER you receive your refund.
Does filing for SETC tax credits impact filing my 2023 income taxes?
Filing for the SETC tax credit will not impact filing your 2023 income taxes. To receive SETC tax credits, our team of CPAs will amend the taxes you already filed for 2020 and/or 2021.
How much of a tax credit can I expect to receive?
A few factors go into calculating your tax credit refund amount. The most significant factors would be:
- Your net income from your Schedule C on your 2019, 2020, and 2021 tax returns.
- How many days you were out sick or told to quarantine with Covid-19
- How long you might have cared for a loved one affected by Covid-19
- How long were schools or daycare centers closed (and you were forced to care for a minor child during the closings).
But the fastest and easiest way to find out how much you qualify for is to simply use our online Tax Credit Calculator
If the taxpayer and spouse both have self-employed income, can they both get the Self-Employed Tax Credit (SETC)?
Yes. They can both get the credit but they cannot share qualifying COVID days!
If the taxpayer and spouse both have self-employed income, can they both get the max $32,220, if they each qualify for the max?
Yes. They can both get the max credit but again, they cannot share qualifying COVID days!
Is the Self-Employed Tax Credit (SETC) taxable?
No. Unlike the ERTC, it is not taxable!
How long before I will receive my cash refund?
Once we receive the necessary paperwork from you, we will begin to work on your case immediately and get all the forms filed; then, it is up to the IRS to send your refund directly to you.
For the most part, we find that it usually takes 12–16 weeks to complete the process and receive your cash refund.
What if I have an IRS debt or a Treasury Offset (State Tax Debt, Child Support, etc) will the IRS take my money?
You’ll need a $0 balance with the IRS to get a check. That means any outstanding or past-due taxes or Treasury Offset must be paid off first, and you’ll receive whatever is left over (if anything).
Terminology Questions
What is the definition of a dependent?
The IRS defines a dependent as either a qualifying child or relative of the taxpayer. The relative can be your child, stepchild, foster child, sibling, parent, grandparent, grandchild, aunt, uncle, niece, nephew, or certain in-law relationships.
A child must have lived with you for over half of the tax year. Temporary absences, such as for education or medical care, are generally counted as periods of living with you. You must have provided more than half of the relative's total support during the tax year. The relative's gross income must be below a certain threshold determined annually by the IRS (subject to change). It's important to note that these are just general guidelines, and there may be additional rules and exceptions. The IRS provides detailed information in publications such as IRS Publication 501.
A Dependent must be;
- Under age 19 at the end of the tax year and younger than the taxpayer (or the taxpayer's spouse, if filing jointly) or
- A full-time student under the age of 24 at the end of the year and younger than the taxpayer (or spouse, if filing jointly) or
- Any age if permanently and totally disabled at any time during the year.
Examples of a Dependent:
- Child
- Parent
- Brother/Sister
- Stepparent/Stepchild
- Adoptive Daughter/Adoptive Son
- Stepbrother/Stepsister
- Half Brother/Half Sister
- Grandparent/Grandchild
- Son-in-law/Daughter-in-law
- Mother-in-law/Father-in-law
- Brother-in-law/Sister-in-law
- Uncle/Aunt
- Niece/Nephew
What happens in cases of divorce after filing 2020/2021 taxes?
All customers who filed the 2020 and/or 2021 tax returns with a Married Filing Joint status are required by the IRS to have both Taxpayer and Spouses' signatures on the amended tax returns before acceptance. Legacy Tax & Resolution Services also requires both spouses to verify their identities. However, if you were married and filed as Head of Household or Married Filing Separate, only your signature is required on the amended return(s).
Can I Use Days I Took Care Of A Child Other Than My Own Child?
No. you can only use the days you took care of your dependent as defined above.
Can More Than One Parent Of Guardian Claim FFCRA/SETC Tax Credits To Care For My Child Whose School Or Place Of Care Was Closed Or Went Virtual Due To Covid-19 Related Reasons?
Yes, but parents can not claim the same dates twice.
What If My Child's School Moved To Online Classes? Is It Still Considered "Closed" For The Purpose Of The Credit?
Yes. If the physical location where your child received instruction or care is now closed, the school or place of care is “closed” for purposes of paid sick leave and expanded family and medical leave. This is true even if your child is still expected or required to complete assignments.
What does it mean to be self-employed?
A self-employed person in the United States, as defined by the Internal Revenue Service (IRS), is generally considered someone to whom the following applies:
- You carry on a trade or business as a sole proprietor or an independent contractor.
- You are a member of a partnership that carries on a trade or business.
- You are otherwise in business for yourself (including a part-time business or a gig worker).
The Legacy Tax & Resolution Services platform is designed to assist sole proprietors, independent business owners, 1099 contractors, freelancers, gig workers, and single-member LLCs taxed as a sole proprietorship or Multi-Member LLCs taxed as a Partnership. We also work with individuals across all industries, including realtors, estheticians, hair stylists, taxi drivers, financial consultants, graphic designers, event staff, and construction workers.
Do I qualify for SETC tax credit if I already received unemployment benefits?
You can still qualify for the SETC tax credit even if you received unemployment benefits. However, you cannot claim the days you received unemployment benefits as days you were not able to work due to COVID-19 related issues.
Note: Unemployment Benefits are not consider Self-employed income for the Self-Employment Tax Credit.
Can I claim SETC tax credits if I am also a W2 employee?
You may still be eligible to claim SETC tax credits as long as you earned self-employment income in addition to your W2 salary during 2020 and/or 2021. If you are also a W2 employee and your employer filed for SETC credits on your behalf, you may not be able to utilize the Legacy Tax & Resolution Services platform.
If you receive paid leave benefits as an employee, it may affect the amount of tax credit you can claim as a self-employed individual under the SETC. You cannot claim a double benefit for the same period. However, if your situation as an employee doesn't provide full coverage, there might be potential to claim additional credits based on your self-employment income.
Do weekends count as days I can claim?
Yes, if you missed self-employment work that you would have normally worked on a weekend, then you can claim weekends as days missed.
If you normally don’t work on weekends or your child does not go to school on weekends, you cannot claim credits for weekends that they would not have worked or taken leave anyway. The credits are only available for the days that you would have worked or taken leave if not for the COVID-19-related reasons.
Can I use days I took care of a child other than my own child?
Yes, you may qualify for taking care of a child other than your own under the "Caring for others" section of our portal.
What if my child's school moved to online instruction/classes? Is it considered "closed" for the purpose of the credit?
Yes, if the physical location where your child received instruction or care was closed, the school or place of care is "closed" for purposes of paid sick leave and expanded family and medical leave. This is true even if your child is still expected or required to complete assignments.
Will I get a check or will the refund be deposited in my account?
Refunds for 2020 and 2021 will be sent to you directly by the IRS via check to the address provided on your SETC Amendment Package.
Why do I have to have positive net earnings to qualify for SETC income tax credit?
Positive net earnings are a requirement from the IRS to qualify for the SETC income tax credit. Positive net earnings indicate taxable income against which a credit can be applied. We understand the Covid-19 pandemic effected everyone globally. If you did not have positing earnings in 2020 because of Covid-19 restrictions, we may use your 2019 net income.
Can I call and talk to someone about my situation?
Absolutely. Just head on over to our Contact Us page and you can contact us via the online form or give us a call at (855) 829-5877. We’re happy to talk to you and answer any questions you may have.
Form Questions
What is a Form 1040?
IRS Form 1040 is the standard individual income tax form in the United States, used by taxpayers to report their annual income and calculate their tax liability. To file for the SETC tax credits, Legacy Tax & Resolution Services will amend your previously filed IRS Form 1040.
What is a Form 1040X?
IRS Form 1040X is used to amend your previously filed individual tax return. To file for the SETC tax credits, Legacy Tax & Resolution Services will amend your previously filed IRS Form 1040 by completing Form 1040-X.
What is a Schedule SE Form 1040?
Schedule SE is a tax form self-employed individuals use to calculate the self-employment tax owed. This tax covers Social Security and Medicare taxes for individuals who work for themselves.
Although all businesses may qualify for the SETC tax credits, Legacy Tax & Resolution Services can only process self-employed individuals now. To be eligible for the SETC tax credit, a self-employed individual must have self-employment income listed on line 6 of Schedule SE (2020 and 2021) and line 4 of Schedule SE (2019).
What is a Schedule C?
Schedule C is a tax form used by sole proprietors, single-member LLCs, and other self-employed individuals to report their business income and expenses. The form is filed as part of the individual's income tax return (Form 1040), and it helps calculate the net profit or loss from the business, which is then used to determine the individual's overall taxable income. Net income (line 31) from Schedule C calculates self-employment income on line 2 of Schedule SE (Form 1040).
This does not appear in the application. However, it is essential to know that Schedule C feeds into the overall self-employment income calculation on Schedule SE (Form 1040).
What is a Form 7202?
IRS Form 7202 is a tax form used to claim the Families First Coronavirus Response Act (SETC) credits for self-employed individuals. This form must be completed to calculate the total amount of SETC credit self-employed individuals qualify for COVID-19-related reasons.
What is a Form 8821?
IRS Form 8821 is the Tax Information Authorization form. Taxpayers use this form to authorize the release of their tax information to a third party, such as a tax professional, for a specified period. Once signed, Form 8821 allows Legacy Tax & Resolution Services to pull your required tax information to accurately calculate your SETC credit and amend the 2020 and/ or 2021 tax returns to file for your SETC tax credits. This form does not authorize the designee to represent the taxpayer before the IRS; it only allows Legacy Tax & Resolution Services to receive and inspect confidential tax information. If representation before the IRS is necessary, a separate form, such as Form 2848 (Power of Attorney and Declaration of Representative), would be required.