The Self-Employed Tax Credit is a returnable tax credit introduced as part of a monetary support plan for self-employed individuals affected by the COVID-19 pandemic. First launched under the FFCRA in 2020, this credit was subsequently broadened through the CARES Act to offer reimbursement for lost earnings due to sickness, quarantine, or caretaking duties.
This article breaks down what the SETC is, who qualifies for it, how the credit is calculated, and the process to claim it.
The SETC is a tax credit designed specifically for self-employed individuals who experienced disruptions due to COVID-19. The credit offers financial relief for those who couldn't work due to the fact that they were sick, under mandatory isolation, or needed to provide care during the pandemic. The credit reimburses income forgone during this time.
To be eligible for the SETC, an individual must meet the following criteria:
Regular employees who receive W-2 forms are unable to qualify for this credit.
The amount you can claim from the SETC depends on your average daily self-employment income. It is divided into two key categories:
Sick Leave Credit: Eligible for those who couldn’t perform their job due to personal illness or quarantine. You can claim 100% of your average daily income, up to $511 per day, for a maximum of 10 days.
Credit for Family Care: Eligible for those incapable of working due to caregiving duties. You can claim two-thirds of your daily income, capped at $200 per day, for up to 50 days.
The maximum total credit that can be claimed over 2020 and 2021 is $32,220. This includes both the sick leave and family leave portions, resulting in a substantial financial aid for those heavily impacted by the pandemic.
To claim the SETC, you should complete Form 7202 from the IRS, which helps calculate the credit based on your self-employment income and the number of days missed due to COVID-19. Below is a simplified guide to the process:
Determine your average daily income:
Calculate Your Leave Credits:
Submit Your Tax Forms:
Maintaining accurate records is critical when claiming the SETC. Be sure to keep the following documentation:
It's necessary to keep copies of both your initial tax filings and any corrections filed for future reference, as the IRS requires substantiating evidence to support your self-employment status and the impact COVID-19 had on your ability to work.
The SETC can be claimed by filing an amended tax return within three years from the initial filing deadline or 2 years from the date tax payment was made, whichever is more recent. For example:
One of the most important advantages of the SETC is that it is refundable, meaning when the credit surpasses your tax liability, the IRS will provide the excess amount as a refund. This makes the credit particularly beneficial for individuals who had lower taxable income or minimal tax liability during the pandemic.
Is the SETC available to individuals with W-2 income? Yes, as long as you have self-employment income reported on your tax filings. https://officialsetcrefund.com/learn/irs-warns-of-false-self-employment-tax-credit-setc-tax-credit/ said, any paid leave earnings received from your employer will decrease the amount of the credit.
What if I didn’t miss any workdays? You are not eligible for the SETC if you did not miss workdays because of COVID-19.
How quickly will I get the refund? After the IRS has handled your claim, it typically takes about 20 weeks to get the refund through a check or direct deposit.
Is there a cap on the amount I can claim? The largest sum you can claim is $32,220 over the 2020 and 2021 tax periods. This includes both the sick and family leave portions.
Can I amend my tax return to claim the SETC? Indeed, you are allowed to file an adjusted tax return using Form 1040-X if you didn't initially claim the credit on your initial tax filing.
What records should I keep for my claim? Keep records of your self-employed earnings, medical records, evidence of quarantine, and any documentation related to childcare to validate your request.
The SETC is a important financial lifeline for independent contractors, gig workers, and other business owners who were impacted by the COVID-19 pandemic. By knowing the qualification criteria and filing correctly, you can benefit from significant monetary assistance. If you haven’t already filed for the SETC, consider submitting an amended tax filing to capitalize on this opportunity.