SETC Tax Credit: Detailed Guide to Qualification for Self-Employed Individuals
The Self-Employed Tax Credit (SETC), as part of the Families First Coronavirus Response Act (FFCRA), is a important relief measure created to help freelancers financially impacted by the COVID-19 pandemic. By providing financial relief in the form of returnable tax benefits, the SETC aids freelancers, gig workers, and sole proprietors recover income lost due to health issues, quarantine, or caregiving responsibilities.
This detailed overview will help you understand the detailed qualification criteria for the SETC, steps to apply for the credit, and ways to make sure you optimize your credit claim.
Understanding the SETC Tax Credit
The SETC, established through the FFCRA and subsequently broadened through expanded relief programs, was designed specifically to cater to the requirements of self-employed individuals who do not have access to company-sponsored sick leave or family leave benefits. The credit compensates freelancers who were unable to work because of COVID-19-related circumstances, either due to personal illness or because they were caring for others suffering from the virus.
Who Qualifies for the SETC?
1. Self-Employment Status
To be qualify for the SETC, you must be classified as self-employed, which includes:
- Contract-based workers, independent contractors, and gig workers
- Business owners with no employees
- Business partners or members of a Limited Liability Company (LLC) taxed as a sole proprietorship
You must have submitted Schedule SE with your IRS Form 1040 for the 2020 or 2021 tax year, indicating your self-employment income. Even Gig economy pandemic SETC tax credits with part-time self-employment can qualify, as long as they meet the income requirements and can prove lost earnings.
Impact of COVID-19
The SETC is aimed at those who couldn’t work because of COVID-19-related issues, and this includes:
- Isolation or Quarantine: If you were mandated to self-isolate due to a local, state, or federal quarantine order.
- COVID-19 Symptoms or Diagnosis: If you were diagnosed with COVID-19 or experienced symptoms that prevented you from working, you qualify for the credit.
- Providing Care for Someone: If you were unable to work because you were responsible for caring for someone suffering from COVID-19, or if childcare or schools were closed due to the pandemic, you can claim the family leave portion of the SETC.
- Childcare Disruptions: If pandemic-related closures of schools or childcare facilities stopped you from working, you are eligible for the family leave portion of the credit.
SETC Calculation Method
The SETC is determined based on your average daily self-employment income and can be filed in two main categories:
Sick Leave Portion of the Credit:
- You can request 10 days of missed work due to personal illness, quarantine, or self-isolation. The maximum amount you can claim is 100% of your average daily income, limited to $511 per day. For those who missed the full amount of 10 days due to illness, the total credit for sick leave could be as high as $5,110 per tax year.
Family Leave Portion:
- The family leave credit is designed for those who were unable to work because they needed to care for someone affected by COVID-19 or because childcare facilities were closed. In this case, you can file for 67% of your average daily self-employment income, capped at $200 per day. The credit covers up to 50 days in each year, allowing for a maximum family leave credit of $10,000 for 2020 and $12,000 for 2021.
Maximum Total Credit: Across both the sick leave and family leave credits, self-employed individuals can possibly request up to $32,220 in total relief across the two years.