Self-Employed Tax Credit (SETC) — $50,000+ in Tax Credits for Entrepreneurs Self-Employed Individuals
The COVID-19 pandemic turned the world upside down, and for entrepreneurs and the self-employed, the challenges were particularly daunting.
Enter the Families First Coronavirus Response Act (FFCRA) and its crucial component, the Sick Employees and Tax Credits (SETC) provisions.
This new legislative measure is nothing short of a lifeline for millions.
Here’s why you need to know about them.
And why you should act quickly…
👉 Click here to get more information about how to claim your tax credit
Disclaimer: This article is for informational purposes only and does not constitute legal advice. The author accepts no liability for any errors or omissions, or for any actions taken based on the information provided. Readers are encouraged to consult with a qualified legal professional for specific advice tailored to their individual circumstances. Please consult the proper legal advice
In March 2020, the Families First Coronavirus Response Act (FFCRA) was enacted to support businesses by providing paid sick leave and unemployment benefits due to COVID-19. Initially, it targeted employers with W-2 employees to help them manage the economic impact of the pandemic.
By December 2020, the CARES Act expanded the FFCRA to include self-employed individuals, freelancers, independent contractors, and gig workers, offering them tax credits to compensate for lost income due to COVID-19.
The FFCRA provides paid sick leave, free COVID-19 testing, food assistance, and unemployment benefits. It also ensures health insurance protection from employers. For self-employed individuals, the act offers equivalent coverage through tax credits claimable on their income tax returns, effectively reimbursing them for periods of sick leave due to COVID-19.
The Families First Coronavirus Response Act (FFCRA), enacted in 2020, was an early legislative effort to help small business owners afford sick leave for their employees due to COVID-19. Initially, it focused on employees of specific small businesses but was later expanded in 2021 to include self-employed individuals who faced business losses due to the pandemic.
The "Self-Employed Tax Credit" (SETC) refers to the sick and family leave tax credits for self-employed individuals introduced under the FFCRA. Essentially, SETC is for self-employed individuals, while FFCRA targets employees.
Eligible dates for claiming the FFCRA/SETC income tax credit are from April 1, 2020, to March 31, 2021, and up to 10 days between April 1, 2021, and September 30, 2021.
- Childcare-related time off: Up to 110 days
- 50 days between April 1, 2020, and March 31, 2021
- 60 days between April 1, 2021, and September 30, 2021
- Personal or family illness: Up to 20 days
- 10 days between April 1, 2020, and March 31, 2021
- 10 days between April 1, 2021, and September 30, 2021
Yes, the FFCRA/SETC is designed to cover self-employed individuals, even if they did not pay themselves sick leave.
SETC is a term used informally to describe the sick and family leave tax credits for self-employed individuals introduced under the FFCRA. Look for information under the FFCRA and its application to self-employed individuals.
Yes, the tax credit is specifically for self-employed individuals, small business owners, freelancers, partners in a partnership subject to self-employment taxes, and 1099 contractors.
No, if you did not have positive earnings in 2020 due to COVID-19 but were self-employed, you can elect to use your 2019 net income if it was positive.
No, if you did not have positive earnings in 2021 due to COVID-19 but were self-employed, you can elect to use your 2020 net income if it was positive.
Several factors determine the refund amount, including:
- Net income from Schedule C on your 2019, 2020, and 2021 tax returns.
- Days missed due to sickness or quarantine from COVID-19.
- Time spent caring for a loved one affected by COVID-19.
- Duration of school or daycare closures requiring care for a minor child.
Yes, you can still qualify. An amended tax return will need to be filed, requiring copies of your 2019, 2020, and 2021 tax returns and your driver's license.
No, the process involves signing an agreement letter, completing a survey for information, and uploading copies of your tax returns and driver's license. The rest is handled for you.
You may still be eligible for SETC tax credits if you earned self-employment income in addition to your W2 salary during 2020 and/or 2021. However, receiving paid leave benefits as an employee may affect the amount you can claim as a self-employed individual.
You would only be eligible if you did not fully utilize the credit(s) on previous returns.
To qualify, you must have a positive net (after deductions) self-employed income for 2019, 2020, or 2021, and qualifying COVID days.
Once the necessary paperwork is submitted, the process usually takes 12-16 weeks to complete and receive your cash refund from the IRS.
Yes, if both spouses are self-employed, each could qualify for up to the maximum amount of $32,220 under the right circumstances.
The deadline to amend the 2020 tax return for SETC credits occurring between April 1, 2020, and Dec. 31, 2020, is April 15, 2024. For SETC credits between Jan. 1, 2021, and Sept. 30, 2021, the amendment deadline is April 18, 2025.
Yes, but you cannot claim days you received unemployment benefits as days unable to work due to COVID-19.
Yes, a complete copy of the return is required to amend it for SETC credits.
The SETC tax credit can be up to $32,220, based on your self-employed net earnings in 2020 and 2021.
Determine eligibility and amend your 2020 and/or 2021 tax returns, preferably using a Certified Public Accountant (CPA) or through Legacy Tax & Resolution Services.
The federal government supports businesses affected by COVID-19. This is a limited-time opportunity, so filing for SETC credits promptly is crucial.
Employers can defer the 6.2% employer portion of Social Security tax for March 27, 2020, through December 31, 2020. Self-employed taxpayers can defer 50% of their self-employment tax for the same period. Deferred amounts must be repaid by December 31, 2022.
Eligible individuals include self-employed persons, such as sole proprietors, 1099 contractors, freelancers, and partners in partnerships who filed Schedule SE with positive net income and paid self-employment tax for 2019, 2020, and/or 2021.
No, C or S Corporation income is not considered self-employed income. However, corporations may qualify for sick or family leave tax credits under FFCRA.
No, health insurance coverage does not affect eligibility for the SETC.
No, the SETC credit only considers average daily wages and missed days due to COVID-19-related issues.
Reasons include quarantine orders, self-quarantine advised by a healthcare provider, caring for someone under quarantine, experiencing COVID-19 symptoms, waiting for test results, getting vaccinated, experiencing vaccine side effects, and caring for a child due to school or daycare closure.
Once paperwork is submitted, the process typically takes 12-16 weeks to complete and receive the cash refund from the IRS.
Yes, both can qualify for the maximum credit but cannot share qualifying COVID days.
No, the SETC tax credit is not taxable.
You need a $0 balance with the IRS to receive a refund. Outstanding debts must be paid off first.
Yes, but paid leave benefits as an employee may affect the SETC credit. If the employee status does not provide full coverage, additional credits based on self-employment income may be claimed.
Yes, if self-employment work is typically done on weekends. If not, weekends cannot be claimed.
IRS Form 1040 is the standard individual income tax form used to report annual income and calculate tax liability.
IRS Form 1040X is used to amend previously filed individual
tax returns. Legacy Tax & Resolution Services will use Form 1040X to file for SETC tax credits.
Schedule SE is a tax form used by self-employed individuals to calculate the self-employment tax owed, covering Social Security and Medicare taxes for those who work for themselves.
Schedule C is used by sole proprietors, single-member LLCs, and other self-employed individuals to report business income and expenses. The net income from Schedule C is used to calculate self-employment income on Schedule SE.
IRS Form 7202 is used to claim the Families First Coronavirus Response Act (FFCRA) credits for self-employed individuals, detailing eligibility and tax credit calculations.
IRS Form 8821 authorizes the release of tax information to a third party, allowing Legacy Tax & Resolution Services to access necessary tax information to calculate SETC credits and amend returns.
Legacy Tax & Resolution Services charges no upfront fee. After calculating the tax credit, the fee for filing tax returns is $395. An additional 20% of the refund amount is due after the refund is received.
Filing for SETC credits does not impact the filing of 2023 income taxes. The team at Legacy Tax & Resolution Services will amend previously filed returns for 2020 and/or 2021.
Yes, both can receive the credit but cannot share qualifying COVID days.
No, the SETC tax credit is not taxable.
Once the necessary paperwork is submitted, it typically takes 12-16 weeks to receive the cash refund from the IRS.
A $0 balance with the IRS is required to receive a refund. Any outstanding debts must be paid first.
Yes, but receiving paid leave benefits as an employee may affect the SETC credit. Additional credits may be claimed if employee benefits do not provide full coverage.
Yes, if self-employment work is typically done on weekends. If not, weekends cannot be claimed.
A dependent is a qualifying child or relative of the taxpayer. A child must have lived with the taxpayer for over half the tax year, and the taxpayer must have provided more than half of the relative's total support. Gross income thresholds and other criteria apply.
If the 2020 and/or 2021 tax returns were filed jointly, both taxpayer and spouse must sign the amended returns. If filed as Head of Household or Married Filing Separate, only the taxpayer's signature is required.
No, only days taken to care for a dependent can be claimed.
Yes, but parents or guardians cannot claim the same dates twice.
Yes, if the physical location of the school or place of care is closed, it is considered "closed" for the purposes of the credit, even if the child is expected to complete assignments.
A self-employed person is generally someone who carries on a trade or business as a sole proprietor, independent contractor, or a member of a partnership that conducts a trade or business. This includes part-time businesses and gig workers.
Yes, but days receiving unemployment benefits cannot be claimed as days unable to work due to COVID-19.
Refunds for 2020 and 2021 will be sent directly by the IRS via check to the address provided on the amended return(s).
Positive net earnings are necessary to qualify for the credit as they indicate taxable income against which the credit can be applied. If positive earnings were not available in 2020 due to COVID-19, 2019 net income may be used.
Yes, but receiving paid leave benefits as an employee may affect the SETC credit. Additional credits may be claimed if employee benefits do not provide full coverage.
Yes, if self-employment work is typically done on weekends. If not, weekends cannot be claimed.
No, only days taken to care for a dependent can be claimed.
Yes, but parents or guardians cannot claim the same dates twice.
Yes, if the physical location of the school or place of care is closed, it is considered "closed" for the purposes of the credit, even if the child is expected to complete assignments.
A complete copy of the 2019, 2020, and 2021 tax returns, including Schedule C and a copy of the driver's license for identification, is required.
Form 1040 SE is used to calculate self-employment taxes, including Social Security and Medicare taxes for individuals who work for themselves.
Form 1040-X is used to amend previously filed individual tax returns to claim the FFCRA/SETC credits.
Schedule C is used by self-employed individuals to report business income and expenses. The net income from Schedule C calculates self-employment income on Schedule SE.
Form 7202 is used to claim the FFCRA credits for self-employed individuals, detailing eligibility and tax credit calculations.
Form 8821 authorizes the release of tax information to a third party, allowing the calculation of SETC credits and the amendment of tax returns.
Legacy Tax & Resolution Services charges no upfront fee. The fee for filing tax returns is $395, with an additional 20% of the refund amount due after the refund is received.
Filing for SETC credits does not impact the filing of 2023 income taxes. Amendments are made to previously filed returns for 2020 and/or 2021.
Yes, both can receive the credit but cannot share qualifying COVID days.
No, the SETC tax credit is not taxable.
Once the necessary paperwork is submitted, it typically takes 12-16 weeks to receive the cash refund from the IRS.
A $0 balance with the IRS is required to receive a refund. Any outstanding debts must be paid first.
Yes, but receiving paid leave benefits as an employee may affect the SETC credit. Additional credits may be claimed if employee benefits do not provide full coverage.
Yes, if self-employment work is typically done on weekends. If not, weekends cannot be claimed.
No, only days taken to care for a dependent can be claimed.
Yes, but parents or guardians cannot claim the same dates twice.
Yes, if the physical location of the school or place of care is closed, it is considered "closed" for the purposes of the credit, even if the child is expected to complete assignments.
A complete copy of the 2019, 2020, and 2021 tax returns, including Schedule C and a copy of the driver's license for identification, is required.
👉 Click here to get more information about how to claim your tax credit