The SETC is a returnable tax credit established as part of a monetary support plan for self-employed individuals suffering from the COVID-19 pandemic. Originally implemented under the Families First Coronavirus Response Act in 2020, this credit was eventually extended through the CARES Act to offer compensation for income lost due to sickness, mandatory isolation, or caregiving responsibilities.
This article explains the nature of the SETC, eligibility criteria for it, the method of calculating the credit, and the process to claim it.
SETC is a tax credit tailored for self-employed individuals who experienced disruptions due to COVID-19. The credit provides economic assistance for those who missed work either because they were ill, under self-isolation, or were responsible for caregiving during the pandemic. The credit reimburses lost wages during this time.
To be eligible for the SETC, an individual must satisfy the following requirements:
Employees on W-2 forms who receive W-2 forms are not eligible for this credit.
The amount you can claim from the SETC is calculated based on your average daily self-employment income. It is categorized into two primary types:
Credit for Sick Leave: Available for those who couldn’t perform their job due to sickness or quarantine. You can claim 100% of your average daily income, up to $511 per day, for a maximum of 10 days.
Family Leave Credit: Eligible for those incapable of working due to caregiving duties. You can claim 67% of your daily income, capped at $200 per day, for a maximum of 50 days.
The maximum total credit that can be claimed over 2020 and 2021 is $32,220. This combines both the sick leave and family leave portions, making it a considerable assistance for those severely affected by the pandemic.
To claim the SETC, you should complete Form 7202 from the IRS, which calculates 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:
Compute your leave-related credits:
Submit Your Tax Forms:
Keeping precise documentation is critical when claiming the SETC. Ensure you retain the following documentation:
It's necessary to keep copies of both your initial tax filings and any amended returns for future reference, as the IRS demands supporting documentation to support your self-employment status and the impact COVID-19 had on your ability to work.
The SETC is eligible to be claimed by submitting a corrected return within 3 years from the original due date or two years from the date the tax was paid, whichever is later. For example:
One of the most notable benefits of the SETC is that it is reimbursable, meaning when the credit surpasses your tax liability, the IRS will provide the excess amount as a reimbursement. This is especially advantageous for self-employed workers who earned less taxable income or had little tax due 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 qualified leave wages received from your employer will reduce the amount of the credit.
What if I didn’t miss any workdays? No, you cannot claim for the SETC if you didn't take any workdays due to COVID-19-related reasons.
How quickly will I get the refund? After the IRS has handled your claim, it usually takes about 20 weeks to receive the refund through a check or direct deposit.
What’s the maximum amount I can claim? The maximum amount you can claim is $32,220 over the two tax years. This includes both the sick and family leave portions.
Is it possible to amend my tax return to claim the SETC? Indeed, you are allowed to file an amended return using IRS Form 1040-X if you didn't initially claim the credit on your initial tax filing.
What documentation do I need? Maintain documentation of your self-employment income, health documentation, quarantine orders, and any documentation related to childcare to validate your request.
The Self-Employed Tax Credit is a important financial lifeline for independent contractors, self-employed professionals, and other self-employed individuals who were impacted by the COVID-19 pandemic. By understanding the eligibility requirements and claiming the credit accurately, you can benefit from significant financial relief. If you haven’t already filed for the SETC, consider submitting an amended tax filing to capitalize on this financial benefit.