A Thorough Overview of SETC Qualification for the Self-Employed
The Self-Employed Tax Credit (SETC), as part of the Families First Coronavirus Response Act (FFCRA), is a notable relief measure designed to assist independent workers financially impacted by the COVID-19 pandemic. By providing How to apply for SETC in the form of refundable tax credits, the SETC helps freelancers, gig workers, and sole proprietors recover income lost due to health issues, quarantine, or caretaking duties.
This thorough walkthrough will help you understand the detailed qualification criteria for the SETC, how to apply for the credit, and ways to make sure you maximize your claim.
What is the SETC?
The SETC, introduced under the FFCRA and later expanded through expanded relief programs, was developed specifically to address the needs of freelancers who do not have access to employer-paid sick leave or paid family leave. The credit offers compensation to self-employed individuals who couldn’t work because of COVID-19-related circumstances, whether from sickness or because they were providing care impacted by the virus.
Qualification Criteria for the SETC
Self-Employed Status
To be qualify for the SETC, you must be recognized as self-employed, which covers:
- Freelancers, gig workers, and gig workers
- Small business owners
- Business partners or members of a Limited Liability Company (LLC) that files taxes as a sole proprietor
You must have filed Schedule SE with your IRS Form 1040 for the 2020 or 2021 tax year, indicating your self-employment income. Even part-time freelancers can qualify, as long as they meet the income requirements and can document lost income.
2. COVID-19 Impact
The SETC is aimed at those who had to stop working because of COVID-19-related issues, and this covers:
- Mandatory Isolation or Quarantine: If you were required to isolate due to a local, state, or federal quarantine order.
- Diagnosed with COVID-19 or Symptoms: If you were tested positive for COVID-19 or experienced symptoms that made it impossible to work, you qualify for the credit.
- Caring for Affected Individuals: If you were unable to do your job because you were responsible for caring for someone suffering from COVID-19, or if childcare or schools were not available due to COVID-19, you can claim the family leave portion of the SETC.
- Childcare: If pandemic-related closure of childcare centers impacted your ability to work, you are eligible for the family leave portion of the credit.
How the SETC is Calculated
The SETC is calculated based on your average daily self-employment income and can be requested in two main categories:
Credit for Sick Leave:
- You can request 10 days of missed work due to illness, quarantine, or self-isolation. The maximum amount you can claim is 100% of your average daily income, up 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.
Credit for Family Care:
- The family leave credit is intended for those who were unable to work because they were responsible for someone suffering from COVID-19 or because of school or daycare closures. In this case, you can request 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.