SETC Tax Credit Qualification Explained
Comprehensive Guide to Qualifying for the SETC Tax Credit
The Self-Employed Tax Credit (SETC), as part of the Families First Coronavirus Response Act (FFCRA), is a important relief measure designed to assist self-employed individuals financially impacted by the COVID-19 pandemic. By offering monetary assistance in the form of returnable tax benefits, the SETC aids freelancers, gig workers, and independent entrepreneurs recover income lost due to sickness, quarantine, or the need to care for others.
This detailed overview will walk you through the detailed qualification criteria for the SETC, how to apply for the credit, and ways to make sure you optimize your credit claim.
What Exactly is the Self-Employed Tax Credit?
The SETC, established through the FFCRA and later expanded through expanded relief programs, was designed specifically to cater to the requirements of self-employed individuals who do not have access to company-sponsored sick leave or family leave benefits. The credit compensates freelancers who were unable to work because of COVID-19-related circumstances, either due to personal illness or because they were caring for others affected 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:
- Contract-based workers, independent contractors, and gig workers
- Business owners with no employees
- Partners in a business or members of a Limited Liability Company (LLC) treated as a sole proprietorship for tax purposes
You must have submitted Schedule SE with your IRS Form 1040 for the 2020 or 2021 tax year, showing your self-employment income. Even self-employed tax credit (setc) program with part-time independent work can qualify, as long as they comply with the income criteria and can document lost income.
2. COVID-19 Impact
The SETC is designed for those who couldn’t work because of COVID-19-related issues, and this applies to:
- Quarantine or Isolation: If you were mandated to self-isolate due to a local, state, or federal quarantine order.
- Health Issues Due to COVID-19: If you were tested positive for COVID-19 or suffered from symptoms that made it impossible to work, you are eligible for the credit.
- Providing Care for Someone: If you were unable to work because you had to take care of someone affected by COVID-19, or if childcare or schools were shut down because of COVID-19, you can claim the family leave portion of the SETC.
- Childcare Disruptions: If pandemic-related shutdowns of schools or daycares prevented you from working, you are qualified 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 requested in two major areas:
1. Sick Leave Credit:
- You can receive 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, limited to $511 per day. For those who couldn’t work for 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.
2. Family Leave Credit:
- The family leave credit is aimed at those who couldn’t work because they needed to care for someone impacted by COVID-19 or because of school or daycare closures. In this case, you can request 67% of your average daily self-employment income, capped at $200 per day. The credit covers 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.