What is SETC Tax Credit? A Comprehensive Guide for Self-Employed Individuals

The SETC is a returnable tax credit created as part of a economic relief initiative for self-employed individuals impacted by the COVID-19 pandemic. Originally implemented under the FFCRA in 2020, this credit was later expanded through the CARES Act to offer monetary relief for income forfeited due to sickness, self-isolation, or caretaking duties.

This article details what the SETC is, eligibility criteria for it, the method of calculating the credit, and the process to claim it.

What is SETC Tax Credit?

SETC is a tax credit tailored for gig workers who experienced disruptions due to COVID-19.  is gig relief for self employed legit  offers economic assistance for those who missed work either because they were feeling unwell, under self-isolation, or needed to provide care during the pandemic. The credit reimburses income forgone during this time.

Requirements for SETC

To be eligible for the SETC, an individual must meet the following criteria:

• Operate as a self-employed individual, including freelancers, gig workers, and small business owners.
• Have declared self-employment income on Schedule SE of IRS Form 1040 in either the 2020 or 2021 tax year.
• Incapable of working for a valid COVID-19-related reason, such as:
• Mandatory quarantine due to COVID-19.
• Suffering from COVID-19 symptoms or illness.
• Caring for someone affected by COVID-19.
• Caring for children due to COVID-19-related school shutdowns.

Regular employees who receive W-2 forms are ineligible for this credit.

Method for Calculating the SETC

The amount you can claim from the SETC is calculated based on your average daily self-employment income. It is categorized into two main categories:

Sick Leave Credit: Available for those who couldn’t perform their job due to sickness or quarantine. You can claim the full amount of your average daily income, up to $511 per day, for a limit of 10 days.

Credit for Family Care: Available for those unable to work due to the need to care for others. You can claim two-thirds of your daily earnings, capped at $200 per day, for up to 50 days.

The largest credit possible that can be claimed over 2020 and 2021 is $32,220. This includes both the sick leave and family care parts, making it a substantial financial aid for those severely affected by the pandemic.

Filing Requirements and How to Claim the SETC

To claim the SETC, you should complete IRS Form 7202, which calculates the credit based on your earnings from self-employment and the number of days missed due to COVID-19. Here is a simplified guide to the process:

Calculate Your Average Daily Earnings:

• Figure out your total self-employment income for the year and split it by 260 (representing the assumed workdays in a year).

Compute your leave-related credits:

• When calculating sick leave: Multiply your daily earnings by the number of days missed, capped at 10 days.
• When calculating family care leave: Take two-thirds of your daily earnings by the number of days missed, limited at 50 days.

Submit Your Tax Forms:

• Attach Form 7202 to your IRS Form 1040 when filing your tax return.
• Should you have previously submitted your 2020 or 2021 tax return without claiming the SETC, you can submit an amended return using Form 1040-X.

Recordkeeping and Compliance

Keeping precise documentation is critical when filing for the SETC. Be sure to keep the following documentation:

• Proof of self-employment income (e.g., 1099 forms from the IRS, Schedule SE, Schedule C, etc.).
• Medical records or documentation from healthcare providers if you were ill or under quarantine.
• Proof of school or daycare closures if you are filing for family care leave.

It's necessary to keep copies of both your initial tax filings and any corrections filed for potential future audits, as the IRS demands supporting documentation to verify your self-employed status and the extent to which COVID-19 affected your work.

SETC Claim Deadlines

The SETC is eligible to be claimed by filing an amended tax return within 3 years from the original due date or two years from the date the tax was paid, whichever is later. For example:

• The final date to correct your 2020 tax return is April 15th, 2024.
• For 2021, the deadline is April 15, 2025.

SETC as a Refundable Credit

One of the most notable advantages of the SETC is that it is refundable, meaning when the credit surpasses your tax liability, the IRS will provide the excess amount as a refund. This is especially advantageous for self-employed workers who had lower taxable income or had little tax due during the pandemic.

Common FAQs About the SETC

Can I claim the SETC if I also had W-2 income? Yes, as long as you have reported self-employment earnings on your tax return. That said, any paid leave earnings paid by your employer will decrease the amount of the credit.

Am I eligible if I didn't miss work? No, you cannot claim for the SETC if you did not miss workdays because of COVID-19.

How quickly will I get the refund? After the IRS has handled your claim, it generally takes about 20 weeks to get the refund through a check or bank deposit.

What’s the maximum amount I can claim? The largest sum you can claim is $32,220 over the 2020 and 2021 tax periods. This includes both the sick and family leave portions.

Is it possible to amend my tax return to claim the SETC? Indeed, you are allowed to file an amended return using Form 1040-X if you missed claiming the credit on your original return.

What documentation do I need? Keep records of your self-employment income, health documentation, quarantine orders, and any documentation related to childcare to support your claim.

Conclusion

The SETC is a critical financial lifeline for independent contractors, gig workers, and other business owners who were impacted by the COVID-19 pandemic. By understanding the eligibility requirements and filing correctly, you can gain substantial financial relief. If you haven’t yet claimed the SETC, look into filing an amended return to capitalize on this financial benefit.