A new tax credit to claim is something you’ll never get sick of.
What is the Self Employed Tax Credit?
Due to the COVID-19 pandemic, many self-employed taxpayers – including freelancers, independent contractors, and entrepreneurs – are unable to work. If you are one of them, a new federal law may give you the right to tax credits for the time you cannot work for specific coronavirus-related reasons.
The Self-Employed Tax Credit (SETC) refers to the sick leave leave credit and family leave tax credit provisions for self-employed taxpayers introduced under the Families First Coronavirus Response Act (FFCRA). The SETC is one of many COVID-19 Tax Credits that allows eligible self-employed individuals to recover up to $32,220 for 2020 and 2021.
At A Glance, the SETC:
- Provides a maximum claim up to $32k tax credits per self-employed individual
- Is based on sick leave equivalent and qualified family leave equivalent amounts
- Applies to Q2 (2020) through Q3 (2021)
- Allows up to 20 sick leave days and 110 family leave days
- May be claimed retroactively for a limited time period
- Deadines are April 15, 2024, and April 15, 2025
Find Out if You Qualify For Self Employed Tax Credit
Tax professionals can help you determine if you qualify for self-employed tax credits.
Who Qualifies for the Self Employed Tax Credit?
To be eligible to claim the SETC, you must meet the following eligibility criteria:
- You identify as a self-employed individual (e.g., sole proprietors, freelancers, independent contractors, and gig workers).
- You filed a Schedule SE (IRS Form 1040) for 2020 or 2021, reported a positive net income, and paid self-employment taxes on your earnings.
- You could not work or telework in 2020 or 2021 due to COVID-19.
Are There Any Limitations to the SETC?
Yes, in addition to the eligibility criteria, there are a few limitations of the SETC to be aware of.
- You will not receive the full SETC amount if you already received wages from an employer for sick leave or qualified family leave in 2020 or 2021. Your SETC portion will be reduced by the 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 days.
- You must be a U.S. citizen, permanent resident, or qualifying resident alien.
How Can I Calculate and Claim the SETC Tax Credits?
To calculate and claim tax credits for self-employment, follow these steps.
The SETC tax credit calculation considers an individuals average daily self-employment income and the self-employment work missed due to COVID-19-related issues. The maximum credit available is $32,220, but it is capped at the individual’s net income from self-employment.
Firstly, calculate your average daily self-employment income by dividing your annual earnings by 365 to get your daily wage. Next, use the Tax Credit Estimator provided by the IRS to estimate the refundable tax credit that you may be eligible for. This will help you determine the amount of credit you can claim. Once you have the estimate, reduce your quarterly estimated income taxes accordingly to account for the tax credit.
It is also crucial to consider the number of days for which you can claim the credit based on your specific COVID-related circumstances. Certain exceptions may apply, such as if you are caring for a child. Take note of these exceptions and adjust the number of days accordingly.
In order to claim the tax credits, you will need to complete IRS Form 7202 to report your applicable tax credits and provide any necessary documentation. Be sure to accurately complete this form and include all the required information. You must also determine your eligibility and amend your 2020 and/or 2021 income tax returns and their supporting schedules. To amend these returns, it is recommended to use a Certified Public Accountant (CPA) or consult with a tax credit professional to obtain the best results. This can take countless hours and funds. Or let American Tax Credits do it for you! Our team has created the fastest, safest, and most accessible tool for eligible self-employed individuals and sole proprietors to claim the federal SETC tax credits you deserve.
Find Out if You Qualify For Self Employed Tax Credit
Tax professionals can help you determine if you qualify for self-employed tax credits.
How Do I Apply for the SETC?
You can apply for the SETC by clicking here .
Jacob Dayan
Entrepreneur • SEO Community Tax, LLC
Jacob Dayan is the CEO and co-founder of Community Tax LLC, a leading tax resolution company known for its exceptional customer service and industry recognition. With a Bachelor’s degree in Business Administration from the University of Michigan’s Ross School of Business, Jacob began his career as a financial analyst and trader at Bear Stearns and Millennium Partners before transitioning to entrepreneurship. Since 2010, he has led Community Tax, assembling a team of skilled attorneys, CPAs, and enrolled agents to assist individuals and businesses with tax resolution, preparation, bookkeeping, and accounting. A licensed attorney in Illinois and Magna Cum Laude graduate of Mitchell Hamline School of Law, Jacob is dedicated to helping clients navigate complex financial and legal challenges.
