SETC Tax Credit Qualification Explained
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 important relief measure designed to assist independent workers financially impacted by the COVID-19 pandemic. By providing financial relief in the form of refundable tax credits, the SETC helps freelancers, gig workers, and small business owners reclaim lost earnings due to sickness, quarantine, or caregiving responsibilities.
This thorough walkthrough will walk you through the detailed qualification criteria for the SETC, how to apply for the credit, and steps to guarantee you get the most from your claim.
What is the SETC?
The SETC, launched via the FFCRA and subsequently broadened through expanded relief programs, was created specifically to meet the demands of independent workers who are not provided with sick leave through an employer or leave allowances. setc advance funding offers compensation to independent contractors who were prevented from working because of COVID-19-related circumstances, whether because of illness or because they were providing care affected by the virus.
Eligibility for the SETC
Self-Employment Requirement
To be meet the requirements for the SETC, you must be classified as self-employed, which covers:
- Freelancers, independent contractors, and gig workers
- Sole proprietors
- Business partners or members of a Limited Liability Company (LLC) that files taxes as a sole proprietor
You must have submitted Schedule SE with your IRS Form 1040 for the 2020 or 2021 tax year, reporting your self-employment income. Even those with part-time independent work can qualify, as long as they comply with the income criteria and can show a loss of income.
Impact of COVID-19
The SETC is aimed at those who had to stop working because of COVID-19-related issues, and this includes:
- Isolation or Quarantine: 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 diagnosed with COVID-19 or showed symptoms that stopped you from working, you can claim the credit.
- Care for Others: If you were unable to work because you were responsible for caring for someone suffering from 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: If pandemic-related closure of childcare centers impacted your ability to work, you are qualified for the family leave portion of the credit.
Calculation of the SETC
The SETC is determined based on your average daily self-employment income and can be claimed in two major areas:
1. Sick Leave Credit:
- You can receive 10 days of missed work due to sickness, quarantine, or self-isolation. The limit you can claim is 100% of your average daily income, limited to $511 per day. For those who missed the full amount 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 were unable to work because they were responsible for someone impacted by COVID-19 or because childcare facilities were closed. In this case, you can claim 67% of your average daily self-employment income, up to $200 per day. The credit applies to up to 50 days in each year, allowing for a maximum family leave credit of $10,000 for 2020 and $12,000 for 2021.
Total Possible SETC 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.