SETC Tax Credit Qualification Explained
A Thorough Overview of SETC Qualification for the Self-Employed
The Self-Employed Tax Credit (SETC), as part of the Families First Coronavirus Response Act (FFCRA), is a notable relief measure designed to assist independent workers affected by the COVID-19 pandemic. By providing financial relief in the form of returnable tax benefits, the SETC aids freelancers, gig workers, and small business owners reclaim lost earnings due to health issues, quarantine, or the need to care for others.
This detailed overview will help you understand the detailed qualification criteria for the SETC, steps to apply for the credit, and steps to guarantee you maximize your claim.
Understanding the SETC Tax Credit
The SETC, launched via the FFCRA and subsequently broadened through expanded relief programs, was created specifically to address the needs of freelancers who do not have access to employer-paid sick leave or paid family leave. The credit compensates independent contractors who were prevented from working because of COVID-19-related circumstances, either due to personal illness or because they were providing care impacted by the virus.
Eligibility for the SETC
Self-Employed Status
To be meet the requirements for the SETC, you must be recognized as self-employed, which includes:
- Freelancers, independent contractors, and gig workers
- Sole proprietors
- Partnership members or members of a Limited Liability Company (LLC) taxed as a sole proprietorship
You must have provided Schedule SE with your IRS Form 1040 for the 2020 or 2021 tax year, reporting your self-employment income. Even self employed tax credit eligibility with part-time independent work can qualify, as long as they comply with the income criteria and can document lost income.
2. COVID-19 Impact
The SETC is aimed at those who were unable to work because of COVID-19-related issues, and this includes:
- Quarantine or Isolation: If you were obligated to quarantine due to a local, state, or federal quarantine order.
- Diagnosed with COVID-19 or Symptoms: If you were diagnosed with COVID-19 or showed symptoms that prevented you from working, you qualify for the credit.
- Caring for Affected Individuals: If you were unable to work because you needed to care for someone suffering from COVID-19, or if childcare or schools were shut down because of COVID-19, you can claim the family leave portion of the SETC.
- Childcare: If pandemic-related closure of childcare centers stopped you from working, you are able to claim the family leave portion of the credit.
Calculation of the SETC
The SETC is calculated based on your average daily self-employment income and can be claimed in two main categories:
Credit for Sick Leave:
- You can claim up to 10 days of missed work due to sickness, quarantine, or self-isolation. The limit you can claim is 100% of your average daily income, capped at $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 aimed at those who had to stop working because they needed to care for someone suffering from COVID-19 or because of school or daycare closures. In this case, you can request 67% of your average daily self-employment income, capped at $200 per day. The credit applies to up to 50 days in each year, allowing for a maximum family leave credit of $10,000 for 2020 and $12,000 for 2021.
Combined Maximum: Across both the sick leave and family leave credits, self-employed individuals can potentially claim up to $32,220 in total relief across the two years.