SETC Tax Credit Qualification Explained
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 notable relief measure designed to assist self-employed individuals financially impacted by the COVID-19 pandemic. By providing financial relief in the form of refundable tax credits, the SETC helps freelancers, gig workers, and small business owners reclaim lost earnings due to sickness, quarantine, or caretaking duties.
This thorough walkthrough will help you understand the specific requirements for the SETC, how to apply for the credit, and how to ensure you maximize your claim.
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What Exactly is the Self-Employed Tax Credit?
The SETC, introduced under the FFCRA and later expanded through additional COVID-19 support laws, was created specifically to address the needs of independent workers who are not provided with employer-paid sick leave or paid family leave. The credit compensates freelancers who were unable to work because of COVID-19-related circumstances, either due to personal illness or because they were taking care of others suffering from the virus.
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Eligibility for the SETC
Self-Employed Status
To be meet the requirements for the SETC, you must be considered self-employed, which includes:
- Freelancers, gig workers, and gig workers
- Business owners with no employees
- Partners in a business or members of a Limited Liability Company (LLC) treated as a sole proprietorship for tax purposes
You must have filed Schedule SE with your IRS Form 1040 for the 2020 or 2021 tax year, showing your self-employment income. Even is self employed tax credit legit with part-time self-employment can qualify, as long as they satisfy the income thresholds and can prove lost earnings.
2. COVID-19 Impact
The SETC is intended for those who were unable to work because of COVID-19-related issues, and this includes:
- Isolation or Quarantine: If you were required to isolate due to a local, state, or federal quarantine order.
- Health Issues Due to COVID-19: If you were tested positive for COVID-19 or showed symptoms that stopped you from working, you qualify for the credit.
- Providing Care for Someone: If you were prevented from working because you were responsible for caring for someone affected by COVID-19, or if childcare or schools were not available due to COVID-19, you can claim the family leave portion of the SETC.
School or Daycare Closures: If pandemic-related shutdowns of schools or daycares prevented you from working, you are eligible for the family leave portion of the credit.
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SETC Calculation Method
The SETC is calculated based on your average daily self-employment income and can be filed in two major areas:
Sick Leave Portion of the Credit:
- You can claim up to 10 days of missed work due to personal illness, quarantine, or self-isolation. The highest amount you can claim is 100% of your average daily income, capped at $511 per day. For those who couldn’t work for 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.
2. Family Leave Credit:
- The family leave credit is designed for those who couldn’t work because they were responsible for someone affected by COVID-19 or due to childcare closures. In this case, you can claim 67% of your average daily self-employment income, limited to $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.
Total Possible SETC Credit: 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.
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