The Self-Employed Tax Credit is a refundable tax credit created as part of a financial relief effort for freelancers impacted by the COVID-19 pandemic. Initially rolled out under the Families First Coronavirus Response Act in 2020, this credit was subsequently broadened through the CARES Act to offer reimbursement for lost earnings due to personal illness, mandatory isolation, or caretaking duties.
This article explains what the SETC is, who is eligible for it, the method of calculating the credit, and the process to claim it.
SETC is a tax credit designed specifically for gig workers who experienced disruptions due to COVID-19. The credit offers economic assistance for those unable to work either because they were ill, under mandatory isolation, or needed to provide care during the pandemic. The credit provides payment for income forgone during this time.
To qualify for the SETC, an individual must meet the following requirements:
Regular employees who receive W-2 forms are ineligible for this credit.
The amount you can claim from the SETC is determined by your daily earnings from self-employment. It is divided into two key categories:
Credit for Sick Leave: Eligible for those who couldn’t work due to personal illness or quarantine. You can claim 100% of your daily earnings, up to $511 per day, for a maximum of 10 days.
Credit for Family Care: Available for those unable to work due to caregiving duties. You can claim 67% of your daily income, capped at $200 per day, for up to 50 days.
The maximum total credit that can be claimed over 2020 and 2021 is $32,220. This combines both the sick leave and family care parts, resulting in a considerable assistance for those heavily impacted by the pandemic.
To claim the SETC, you must complete IRS Form 7202, which calculates the credit based on your earnings from self-employment and the days missed due to COVID-19. Here’s a simplified guide to the process:
Calculate Your Average Daily Earnings:
Calculate Your Leave Credits:
Submit Your Tax Forms:
Keeping precise documentation is important when filing for the SETC. Be sure to keep the following documentation:
It's necessary to keep copies of both your initial tax filings and any corrections filed for future reference, as the IRS demands supporting documentation to support your self-employment status and the impact COVID-19 had on your ability to work.
The SETC is eligible to be claimed by submitting a corrected return within 3 years from the initial filing deadline or two years from the date the tax was paid, whichever is more recent. For example:
One of the most notable advantages of the SETC is that it is reimbursable, meaning when the credit surpasses your tax liability, the IRS will issue the remaining balance as a reimbursement. This is especially advantageous for individuals who had lower taxable income or had little tax due during the pandemic.
Can I claim the SETC if I also had W-2 income? Yes, as long as you have self-employment income reported on your tax return. That said, any paid leave earnings paid by your employer will decrease the amount of the credit.
What if I didn’t miss any workdays? No, you cannot claim for the SETC if you did not miss workdays due to COVID-19-related reasons.
How long does it take to receive the refund? After the IRS has handled your claim, it usually takes about 20 weeks to receive the refund via check or bank deposit.
What’s the maximum amount I can claim? The maximum amount you can claim is $32,220 over the two tax years. https://officialsetcrefund.com/learn/setc-faq/ includes both sick leave and family leave credits.
Is it possible to amend my tax return to claim the SETC? Indeed, you are allowed to file an adjusted tax return using Form 1040-X if you didn't initially claim the credit on your original return.
What documentation do I need? Keep records of your self-employment income, health documentation, evidence of quarantine, and any childcare-related documents to support your claim.
The SETC is a critical source of relief for freelancers, self-employed professionals, and other self-employed individuals affected by the COVID-19 pandemic. By knowing the qualification criteria and claiming the credit accurately, you can benefit from significant monetary assistance. If you haven’t already filed for the SETC, consider submitting an amended tax filing to capitalize on this opportunity.