On March 18, 2020, the U.S. government enacted the Families First Coronavirus Response Act (FFCRA) as a direct response to the emergent hardships posed by the COVID-19 outbreak. This legislation was pivotal in providing financial support through refundable tax credits for sick and family leave to self-employed individuals affected by the pandemic from April 1, 2020, to December 31, 2020. It laid out the eligibility criteria and calculation methods for these tax credits, marking a significant step in pandemic relief efforts.
Subsequent legislative actions further extended this support. The Consolidated Appropriations Act (CAA), signed on December 27, 2020, prolonged the duration of these tax credits until March 31, 2021. The American Rescue Plan (ARP) Act, signed into law on March 11, 2021, then set forth an additional period for these benefits, extending from April 1, 2021, to September 30, 2021.
Legislation Overview:
- Families First Coronavirus Response Act (FFCRA): Introduced on March 18, 2020, offering sick and family leave tax credits for the period from April 1, 2020, to December 31, 2020.
- Consolidated Appropriations Act (CAA): Extended these credits to cover from April 1, 2020, through March 31, 2021.
- American Rescue Plan (ARP) Act: Expanded the benefit period to April 1, 2021 – September 30, 2021.
Self-Employed Tax Credit (SETC) Details:
What Is the Self-Employed Tax Credit (SETC)?
The Self-Employed Tax Credit (SETC) refers to the sick leave and family leave tax credit provisions for self-employed individuals introduced under the FFCRA. The SETC allows qualified self-employed workers to recover up to $32,220 for 2020 and 2021.
Who Is Eligible for the SETC Tax Credit?
Eligible self-employed individuals are generally those who meet the following three criteria:
- You identify as a self-employed individual (e.g., sole proprietors, freelancers, independent contractors, and gig workers). See examples below.
- Accountants and Bookkeepers
- Airbnb Hosts
- Amazon Resellers
- Copywriters
- Construction Workers
- Consultants
- Dentists
- Graphic Designers
- Uber / Lyft Drivers
- General Practitioners
- Personal Trainers
- Photographers
- Rideshare and Delivery Drivers
- Real Estate Agents
- Social Media Marketers
- Veterinarians
- Website Designers and Developers
- You filed a Schedule SE (IRS Form 1040) for 2020 or 2021, reported a positive net income, and paid self-employment taxes on your earnings.
- You could not work or telework in 2020 or 2021 due to COVID-19.
The SETC specifically targets self-employed individuals, such as freelancers, independent contractors, and other self-employed roles, allowing them to claim significant tax credits for sick and family leave. Eligible individuals include a diverse group ranging from accountants to web developers, provided they meet specific criteria, including having filed a Schedule SE with positive net income for 2020 or 2021 and being unable to work due to COVID-19 related reasons.
How Are SETC Refunds Calculated?
Tax credits provided under the FFCRA for self-employed individuals are equal to the qualified sick leave and family leave equivalent amounts that eligible employers can claim.
Qualified Sick Leave Equivalent Amount
The qualified sick leave equivalent amount applies to self-employed individuals who are unable to work or telework due to:
- being subject to a federal, state, or local quarantine or isolation order due to COVID-19,
- being advised by a healthcare provider to self-quarantine due to COVID-19, or
- experiencing COVID-19-related symptoms and seeking a medical diagnosis.
Under the Emergency Paid Sick Leave Act (EPSLA) provision of the FFCRA, individuals may claim the lesser of $511 per day or 100% of their average daily self-employment income per day. A total of 20 days may be considered: 10 days for the period between April 1, 2020, and March 31, 2021, and 10 days for the period between April 1, 2021, and September 30, 2021.
Qualified Family Leave Equivalent Amount
The qualified family leave equivalent amount applies to self-employed individuals who are unable to work or telework due to:
- caring for an individual who is subject to a quarantine or isolation order related to COVID-19, or
- caring for a child if their school is closed or childcare provider is unavailable due to COVID-19.
Under the expanded Family and Medical Leave Act (FMLA) provision of the FFCRA, individuals may claim the lesser of $200 per day or 67% of their average daily self-employment income per day. A total of 110 days may be considered: 50 days for the period between April 1, 2020, and March 31, 2021, and 60 days for the period between April 1, 2021, and September 30, 2021.
The calculation for these refunds mirrors the equivalent amounts for sick and family leave that eligible employers can claim, with the tax credits for sick leave capped at $511 per day and for family leave at $200 per day, under certain conditions related to COVID-19.
Are There Any Limitations to the SETC?
Yes, in addition to the eligibility criteria, there are a few limitations of the SETC to be aware of.
- You will not receive the full SETC amount if you already received wages from an employer for sick or family leave in 2020 or 2021. Your SETC portion will be reduced by the wages you received.
- You will not receive the full SETC amount if you received unemployment benefits in 2020 or 2021. Your SETC calculation must exclude these days.
- You must be a U.S. citizen, permanent resident, or qualifying resident alien.
How Do I Apply for the SETC?
Live Pay’s self-service platform is the easiest, fastest, and most secure way for individuals to apply for the SETC.
- Confirm Your Eligibility for the SETC. Use our pre-qualification survey to determine your eligibility and calculate your estimated SETC amount.
- Gather Your Tax Statements and Identification. We need information on the dates and reported income from your 2020 and 2021 tax statements and a copy of your driver’s license or passport.
- Complete Your SETC Application. Answer the questions provided, upload your ID, sign a few documents, and select your preferred payment method for the processing fee.
- Await Your Check or Direct Deposit (ACH). The IRS will process your claim and issue a refund via check or direct deposit (ACH) based on your preferences.
