Self- Employed Tax Credit (SETC)
Coronavirus Paid Leave Tax Credits for Self-Employed Workers
Where you unable to work or telework due to:
Quarantine
- Federal, state, or local lock down orders related to COVID-19
- Quarantining or isolation order related to COVID-19
Illness
- Cared for an individual who is subject to a Federal, State, or local quarantine or isolation order related to
COVID-19, or has been advised by a health care provider to self-quarantine due to concerns related to COVID-19. - Cared for a child if the child’s school or place of care has been closed, or child care provider is unavailable due
to COVID-19 precautions; or - Symptoms of COVID-19 or seeking a medical diagnosis
- Sickness due to vaccination side effects
Vaccination
- A COVID-19 vaccination appointment
- Side effects due to vaccination
Other Similar Condition
Experiencing 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.
Childcare
- Caring for your child whose school had closed or gone virtual
- Caring for your child because your childcare provider was unavailable due to COVID-19.
You may be eligible for up to $32,220 in tax credits from 2020 & 2021
While the SETC is not new, countless Americans remain uninformed of its existence, potentially missing their rightful claims. Time is of the essence, with only a limited period left to seize this opportunity.
Research shows over 80% of self-employed individuals don’t know they’re eligible.
The Families First Coronavirus Response Act (FFCRA) came to the rescue for many self-employed taxpayers during the pandemic. The act, signed into law on March 18, 2020, initially provided tax credits to eligible taxpayers who could not work from April through December 31, 2020, due to COVID-19. The credit was extended to March 31, 2021. This carryover period from January through March 31, 2021, allowed eligible taxpayers to claim any unused sick leave or paid leave credits from 2020. The FFCRA laid the ground rules for how the credits worked, who is eligible, and how the credit is calculated.
On March 11, 2021, President Joe Biden signed the American Rescue Plan Act. This extended the tax credits for self-employed workers through September 30, 2021. This means that taxpayers affected April 1 - September 30, 2021, can claim the credits on their 2021 tax return.
Below, we break down the credits available for self-employed taxpayers under FFCRA.
What tax credits are available to self-employed workers affected by COVID-19?
There are two tax credits available to self-employed workers affected by COVID-19: Sick leave and family leave. The sick leave credit applies to qualified individuals who were not able to work for a period of time due to COVID-19 or were caring for someone with COVID-19. You may qualify for the family leave credit if you had to care for another family member due to COVID-19-related circumstances and already maxed out the sick leave days.
Prior to April 2020, the credit for sick and family leave was limited to certain employers. This credit was available to small and mid-sized employers who had fewer than 500 employees. Qualified employers received the credit for providing paid sick and family leave wages to their employees.
The Families First Coronavirus Response Act expanded these credits to include self-employed workers. This includes freelancers, contractors, and gig workers. This legislation allowed qualified self-employed individuals to claim the credit on their 2020 tax return. The American Rescue Plan Act extended the credit and allowed taxpayers to claim it on their 2021 tax return, too.
|
Legislation |
Date signed |
Tax credits |
Eligible time period |
|
Families First Coronavirus Act |
March 18, 2020 |
Qualified sick and family leave credits |
April 1, 2020- |
|
American Rescue Plan Act |
March 11, 2021 |
Qualified sick and family leave credits |
April 1, 2021-September 30, 2021 |
Below is the history of how we got here under the Families First Coronavirus Response Act (FFCRA), Consolidated Appropriations Act (CAA) and finally the American Rescue Plan (ARP).
| FFCRA payroll tax credit provisions as modified by CAA 2021 and ARP | |||
| FFCRA | CAA 2021 | ARP | |
| Mandatory for eligible employers | Yes | No | No |
| Qualifying reasons expanded | N/A | No | Yes |
| Max credit per employee for paid sick leave | $5,110 – $2,000 | $5,110 – $2,000 | $5,110 – $2,000 |
| (depends on qualifying reason) | (max. did not reset Jan. 1, 2021) | (max. reset April 1, 2021) | |
| Max credit per employee for E-FMLA | $10,000 | $10,000 | $12,000 |
| (max. did not reset Jan. 1, 2021) | (max. reset April 1, 2021) | ||
| Credit increased for allocable health insurance costs | Yes | Yes | Yes |
| Wages subject to employer Social Security tax | No | No | Yes |
| (however, the payroll tax credit is increased by this amount) | |||
| Credit available to local and state government employers | No | No | Yes |
How does the self-employed tax credit work?
The self-employed tax credits provide tax savings for individuals who could not work due to COVID-19. These credits offset any tax liability created from self-employment income in the taxable year. Since these credits are refundable, taxpayers could potentially receive a tax refund if their tax bill has been covered.
The SETC is a specialized tax credit designed to support self-employed individuals during the COVID-19 pandemic. It acknowledges the unique challenges faced by those who work for themselves, especially during times of illness, caregiving responsibilities, quarantine, and related circumstances. This credit can be a valuable resource for eligible individuals to help bridge financial gaps caused by unforeseen disruptions.
Whether you're a self-employed business owner, a 1099 subcontractor, or a family-centric small business, the Self-Employed Tax Credit holds the potential to bridge the gap left by more traditional forms of support.
Almost everybody with Schedule C income, qualifies to some extent.
In response to the coronavirus (COVID-19) crisis, an eligible self-employed individual was allowed to claim an income tax credit for any tax year for:
- a qualified sick leave equivalent amount under Section 7002 of the Families First Coronavirus Response Act (P.L. 116-127); and/or
- 100 percent of a qualified family leave equivalent amount under Section 7004 of P.L. 116-127.
COVID-19: Credits for Sick and Family Leave for April 1st, 2020- March 31st, 2021
The American Rescue Plan Act Extended the dates from April 1st, 2020, to September 30th, 2021
In response to the coronavirus (COVID-19) crisis, an eligible self-employed individual was allowed to claim an income tax credit for any tax year for:
- a qualified sick leave equivalent amount under Section 9642 of the American Rescue Plan Act of 2021 (P.L. 117-2); and/or
- 100 percent of a qualified family leave equivalent amount under Section 9643 of P.L. 117-2.
Are there any limits to the tax credit?
Yes, there are limits to the sick and family leave credits. You will not receive the full tax credit if you also received any wages from an employer for sick or family leave. The wages received reduces the amount of the credit you are eligible for. This prevents individuals from double dipping from the same benefit.
Here’s an example of how the sick and family leave credits work:
- Let’s say James works as a stocker in his father’s retail store.
- He also worked as a electrician on the side in his own business during 2020.
- James had a net profit of $135,000 from his business. He missed 10 days of working in his father's store due to COVID.
- During that time, Rodney received $1,600 in sick wages from his father’s retail store.
- He can only claim $3,510 ($5,110 - $1,600) as a sick leave credit on his taxes for his business as an electrician.
Only self-employed individuals with a net profit will be able to take the tax credits. If there was a loss in the business, you are not eligible for the sick or family leave credit.
Are you eligible for the tax credit if you don’t have health insurance?
Yes. Your eligibility for the sick leave and family leave tax credits do not take health insurance coverage into consideration.
What if your child does not have health insurance?
You can claim the family leave credit 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.
Are costs for unpaid medical bills eligible for the tax credit?
Unpaid medical bills are not eligible for the family leave or sick leave tax credit. The credit only looks at your average daily wages and the number of missed days.
The SETC is a Refundable Credit!
A non-refundable tax credit can only reduce tax liability to zero. The Self-Employed Tax Credit (SETC) is refundable tax credit results in a tax refund if the amount owed is below zero. Very Important: This means that you can amend your return(s) 2020 and 2021 and get the FULL amounts of the refundable credit(s).
The bottom line
There are tax credits available for self-employed individuals and small-business owners who could not work or telework due to COVID-19. Qualified individuals may be able to claim up to $15,110 for the sick and family leave credits for 2020 and $17,110 for 2021. These refundable credits can be claimed by filing a Form 7202 with the 2020 or 2021 tax return. If the returns have already been filed, you need to amend the returns to get the refundable credit. It’s important to consult with a tax professional to ensure that these calculations for the credits are done correctly.
Key Eligibility Criteria
Self-Employed Status:
If you were self-employed in 2020 and/or 2021, you could potentially qualify for the SETC. This includes sole proprietors who run businesses with employees, 1099 subcontractors, and single-member LLCs. You're on the right track if you filed a "Schedule C" or a Partnership (1065) on your federal tax returns for 2020 and/or 2021.
COVID Impacts:
Whether you battled COVID, experienced COVID-like symptoms, needed to quarantine, underwent testing or cared for a family member affected by the virus, the SETC could be your financial relief. If the closure of your child's school or daycare due to COVID restrictions forced you to stay home and impacted your work, we're here to help.
Important Note:
Sub S or True S Corps / C Corps are not eligible for the SETC. This unique tax credit is exclusively available to business owners who filed a "Schedule C" or a Partnership (1065) on their federal tax returns for 2020 and/or 2021
A Simple 3-Step Process
1) GET QUALIFIED INSTANTLY
If you’re self employed and suffered losses during the pandemic, chances are you qualify for this special program. Just fill out the survey above to find out how much you qualify for instantly.
2) FILE YOUR CLAIM
We’re help to help you every step of the way. Our experts will complete all your paperwork and file your claim with the IRS on your behalf, even if you already filed your 2020 and/or 2021 taxes.
3) RECEIVE YOUR MONEY
Sit back and relax knowing your money is on the way. You’ll receive your refund directly from the IRS. Most clients receive their money within 16-20 weeks.
When you're ready to apply, you'll need the date(s) that qualify you, and a copy of your 2019, 2020 and 2021 tax returns.
References
Congress.gov. (2020). Families First Coronavirus Response Act.
Congress.gov. (2020). H.R. 6201 - Families First Coronavirus Act.
FAQs
IRS' FAQ: Special Issues for Employees
Families First Coronavirus Response Act (FFCRA)
Department of Labor Families First Coronavirus Response Act (FFCRA) Frequently Asked Questions
Also See
A Guide To Collecting Unemployment When You're Self-Employed