Who is eligible for the SETC Tax Credit?

Criteria for Eligibility for the SETC Tax Credit

The fact that you're self-employed is only the first step for eligibility for the SETC Tax Credit.
Certain requirements exist you must satisfy to be eligible.
For example, you must show a positive net income from your self-employment activities on IRS Form 1040 Schedule SE for 2019, 2020, or 2021.

This indicates you should have had higher earnings than expenses on your business.
Nevertheless, if you lacked positive earnings during 2020 or 2021 because of COVID-19, your 2019 net income can be utilized to qualify for the SETC Tax Credit.
This is particularly beneficial for those who are self-employed who experienced financial setbacks during the pandemic.

Additionally, if both you and your spouse are self-employed and file a joint return, you both can qualify for the SETC Tax Credit.
However, it's important to note that, you can’t claim the same COVID-related days for eligibility.
Additionally, be aware that even if you received unemployment benefits, you are still eligible for the SETC Tax Credit.

You are not allowed to claim the days when you got unemployment benefits as days you were unable to work because of COVID-19.
These days are considered separate from pandemic-related work absences.

Self-Employment Status Requirements

The term ‘self-employed’ includes a wide range of professionals, among them are self-employed taxpayers.
To qualify for the SETC tax credit, self-employed status includes:

Sole proprietorships
Independent entrepreneurs
1099 contractors
Freelancers
Workers in the gig economy
Single-member LLCs taxed as sole proprietorships

It is important for these individuals to be knowledgeable about their self-employment tax obligations.

So, whether you’re a freelancer working from the comfort of your home, a gig worker in the fast-paced on-demand service industry, or a sole proprietor managing your own business, you may qualify for the specific tax credit designed for individuals like you, known as the SETC Tax Credit.

In addition to individual professionals, multi-member LLC members and eligible joint ventures are also potentially eligible for SETC.
As an example, partners in partnerships treated as sole proprietorships and partnership general partners may be eligible for SETC, if they satisfy other eligibility criteria.

All you need to do for U.S. citizens, permanent residents, or qualifying resident aliens who are self-employed is to file a Schedule SE with positive net income.

Income Tax Liability Considerations

A key factor in determining your eligibility is your income tax liability for the SETC Tax Credit.
To meet the requirements, you must show positive net income in one of the qualifying years (2019, 2020, or 2021).

However, if you lacked positive earnings in 2020 or 2021 because of COVID-19, you can use your 2019 net income to qualify for the SETC Tax Credit.

Moreover, the employed tax credit SETC, also known as the SETC tax credit, can reduce your self-employment tax liability or could be refunded if it exceeds your tax liability.

It should be noted that the full SETC amount may not be available to individuals who received pay from an employer for family or sick leave, or unemployment benefits in 2020 or 2021.
This is where the self-employment tax credit can greatly aid in lessening your tax burden.

Furthermore, even if you received unemployment benefits, you can still claim the SETC tax credit, they cannot claim days they were receiving these benefits as days they were unable to work due to COVID-19.

COVID-Related Disruptions and Qualified Sick Leave Equivalent

The unpredictability of self-employment has been further compounded by the disruptions brought on by the COVID-19 pandemic.
That said, the SETC Tax Credit is designed to provide financial assistance to those who experienced business disruptions due to COVID-19.

From facing government quarantine orders to experiencing symptoms or providing care for family members and navigating school or childcare closures — if your work capacity was impacted during the period from April 1, 2020, to September 30, 2021, you might be eligible for the SETC Tax Credit.

However, the SETC Tax Credit has specific caveats.
Those self-employed who were on unemployment during the COVID-19 pandemic can still qualify for the SETC Tax Credit.
Yet, they are not allowed to claim credits for days when unemployment benefits were received.

Moreover, maintaining precise documentation of how COVID-19 affected your ability to work is vital, as the IRS could ask for these records during an audit.