What is the Self-employed Tax Credit that was applied to all Self-Employed Americans During the Height of the COVID Pandemic?
The Self-employed Tax Credit is a refundable tax credit that was available to self-employed individuals who lost income due to COVID-19 in 2020 and 2021. It was part of the Families First Coronavirus Response Act (FFCRA), which was enacted on March 18, 2020, and extended by the COVID-related Tax Relief Act of 2020, which was enacted on December 27, 2020 .
The credit had two components: a sick leave credit and a family leave credit. The sick leave credit was worth up to $5,110 per year for self-employed individuals who were unable to work because they were sick with COVID-19, exposed to COVID-19, or under a government-mandated quarantine. The family leave credit was worth up to $10,000 per year for self-employed individuals who had to care for their child whose school or daycare was closed due to COVID-19 .
To claim the credit, self-employed individuals had to meet certain eligibility criteria, such as being regularly engaged in a trade or business, having a reasonable expectation of income or profit, and having records to support their claims. They also had to reduce their gross income by the amount of the credit they claimed. They could claim the credit by filing Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, with their income tax return .
The credit was not available for 2022 unless the government changes the tax code for this year. However, self-employed individuals who missed the opportunity to claim the credit in 2020 or 2021 could still do so by amending their tax returns using Form 1040-X, Amended U.S. Individual Income Tax Return.
For many Americans, this Tax Credit is still available, but ONLY until April 15th, 2024. If you are Self-Employed you may be eligible for this Tax Credit. To learn if you can access up to $32,200 please follow the link below to Fundwise and fill out the assessment form.
How Do I Claim the SETC?
If you are a self-employed individual who lost income due to COVID-19 in 2020 or 2021, you may be eligible for a refundable tax credit under the FFCRA. This credit has two parts: a sick leave credit and a family leave credit. Here is how you can claim the credit:
- First, you need to check if you qualify for the credit. You must be regularly engaged in a trade or business, have a reasonable expectation of income or profit, and have records to support your claims. You also must have been unable to work because of COVID-19-related reasons, such as being sick, exposed, quarantined, or caring for your child whose school or daycare was closed.
- Second, you need to calculate the amount of the credit. The sick leave credit is worth up to $5,110 per year, based on your average daily self-employment income and the number of days you missed work due to COVID-19. The family leave credit is worth up to $10,000 per year, based on your average daily self-employment income and the number of days you had to care for your child due to COVID-19. You can use Worksheet 1 and Worksheet 2 in the instructions for Form 7202 to figure out your credit amount.
- Third, you need to file Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, with your income tax return. You must attach a copy of any documentation that shows your eligibility for the credit, such as a positive COVID-19 test result, a doctor’s note, or a school closure notice. You must also reduce your gross income by the amount of the credit you claimed.
- Fourth, if you already filed your tax return for 2020 or 2021 without claiming the credit, you can still do so by filing an amended return using Form 1040-X, Amended U.S. Individual Income Tax Return. You must attach Form 7202 and the supporting documents to your amended return.
The FFCRA credit is not available for 2022 unless the government changes the tax code for this year. However, you can still claim the credit retroactively if you meet the eligibility criteria and follow the steps above.
How is the Tax Credit Calculated?
If you are a self-employed individual who had to care for your child whose school or daycare was closed due to COVID-19 in 2020 or 2021, you may be eligible for a refundable tax credit under the FFCRA. This credit is called the family leave credit, and it is worth up to $10,000 per year. Here is how you can calculate and claim this credit if you qualify:
- First, you need to determine your average daily self-employment income. This is the net earnings from your trade or business divided by 260. You can use Schedule C, Schedule F, or Schedule SE of your tax return to find your net earnings.
- Second, you need to count the number of days you had to care for your child due to COVID-19. You can claim up to 50 days of family leave per year. You must have documentation to prove that your child’s school or daycare was closed or unavailable because of COVID-19, such as a notice from the school or daycare provider.
- Third, you need to multiply your average daily self-employment income by the number of days you claimed, and then multiply that result by 67%. This is the amount of your family leave credit. The maximum credit amount is $10,000 per year ($200 per day x 50 days).
- Fourth, you need to file Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, with your income tax return. You must attach a copy of the documentation that shows your eligibility for the credit. You must also reduce your gross income by the amount of the credit you claimed.
- Fifth, if you already filed your tax return for 2020 or 2021 without claiming the credit, you can still do so by filing an amended return using Form 1040-X, Amended U.S. Individual Income Tax Return. You must attach Form 7202 and the supporting documents to your amended return.
The FFCRA credit is not available for 2022 unless the government changes the tax code for this year. However, you can still claim the credit retroactively if you meet the eligibility criteria and follow the steps above.
For more information about the FFCRA and its benefits, you can visit these websites:
- https://fundwise.com
- https://www.dol.gov/agencies/whd/pandemic/ffcra-employer-paid-leave
- https://www.ffcrarefund.com/
- https://www.lendio.com/blog/ffcra-tax-credit/
