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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 significant relief measure created to help self-employed individuals affected by the COVID-19 pandemic. By offering monetary assistance in the form of returnable tax benefits, the SETC supports freelancers, gig workers, and independent entrepreneurs make up for lost revenue due to health issues, quarantine, or caregiving responsibilities.
This thorough walkthrough will guide you through the specific requirements for the SETC, how to apply for the credit, and steps to guarantee you get the most from your claim.
What Exactly is the Self-Employed Tax Credit?
The SETC, established through the FFCRA and subsequently broadened through expanded relief programs, was developed specifically to meet the demands of independent workers who do not have access to employer-paid sick leave or leave allowances. The credit offers compensation to self-employed individuals who were prevented from working because of COVID-19-related circumstances, whether because of illness or because they were caring for others impacted by the virus.
Qualification Criteria for the SETC
Self-Employment Requirement
To be meet the requirements for the SETC, you must be recognized as self-employed, which includes:
- Freelancers, gig workers, and gig workers
- Sole proprietors
- Partners in a business or members of a Limited Liability Company (LLC) that files taxes as a sole proprietor
You must have submitted Schedule SE with your IRS Form 1040 for the 2020 or 2021 tax year, showing your self-employment income. Even SETC tax credit relief for rideshare drivers with part-time independent work can qualify, as long as they satisfy the income thresholds and can document lost income.
2. COVID-19 Impact
The SETC is designed for those who had to stop working because of COVID-19-related issues, and this includes:
- Mandatory Isolation or Quarantine: If you were obligated to quarantine due to a local, state, or federal quarantine order.
- COVID-19 Symptoms or Diagnosis: If you were diagnosed with COVID-19 or suffered from symptoms that stopped you from working, you are eligible for the credit.
- Care for Others: If you were unable to work because you had to take care of 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 closure of childcare centers 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 primary categories:
Sick Leave Portion of the Credit:
- You can receive 10 days of missed work due to illness, quarantine, or self-isolation. The limit you can claim is 100% of your average daily income, limited to $511 per day. For those who missed the maximum number 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 impacted by COVID-19 or due to childcare closures. In this case, you can file for 67% of your average daily self-employment income, limited to $200 per day. The credit is available for 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 be eligible for up to $32,220 in total relief across the two years.
