New Laws and Regulations Businesses Should Know About in 2024
February 8, 2024
FEMA Announces Significant Changes to Disaster Assistance Program
February 9, 2024

Time is Running Out to Claim the Self-Employed Tax Credit—Do You Qualify?

To help businesses and individuals weather the challenges of the COVID-19 pandemic, the federal government introduced a variety of relief measures, including the Families First Coronavirus Response Act (FFCRA) of 2020. Among other provisions, the FFCRA included a tax credit known as the Self-Employed Tax Credit (SETC), which was designed to provide financial relief for self-employed individuals who were impacted by the pandemic in various ways during 2020 or 2021. For those who qualify, an important date is approaching: April 15, 2024 is the deadline to claim the SETC for your 2020 amended tax return.

Who is Eligible for the Self-Employed Tax Credit (SETC)?

The SETC offers a version of the FFCRA’s sick and family leave tax credits for taxpayers who meet the following criteria:

  • Conducted a trade or business that qualified as self-employment income in 2020 and/or 2021. This category encompasses sole proprietors, 1099 subcontractors, freelancers or gig workers, and single-member LLCs. Among pet care service providers, many pet sitters, veterinarians, dog trainers, and others may meet this criterion.
  • Reported a positive net income in 2020 and/or 2021 and paid self-employment taxes.
  • Met the eligibility requirements for receiving qualified sick leave or qualified family leave wages under the Emergency Paid Sick Leave Act or Emergency Family and Medical Leave Expansion Act as if the taxpayer was an employee. In general, this means that if your ability to operate your business was affected by the pandemic—for instance, if you were unable to work due to COVID symptoms, quarantine mandates, or the need to care for a family member—you may be eligible for the SETC.

How Does the SETC Work?

There are two parts to the SETC: the qualified sick leave amount and the qualified family leave amount, both of which match the equivalent amounts that eligible employers may claim.

The qualified sick leave amount applies if you were unable to work due to your own COVID symptoms or quarantine/isolation orders. In these cases, you may receive tax credits for up to 10 days of sick leave between April 1, 2020 and March 31, 2021, and 10 days between April 1, 2021 and September 30, 2021. The credit amounts to 100% of your average daily self-employment income, up to $511 per day, for the days you were unable to work—which totals a maximum of $5,110 in tax credits for each of the periods listed in 2020 and 2021.

If your ability to work was impeded because you had to care for a child whose school or childcare was closed due to the pandemic, or if you had to care for someone who was in quarantine or isolation due to COVID, you may be eligible for the SETC’s family leave tax credits. These credits are available for up to 50 days of family leave between April 1, 2020 and March 31, 2021, and up to 60 days between April 1, 2021 and September 30, 2021. The credit amount is equal to 67% of your average daily self-employment income, up to $200 per day, for a total of $22,000 for both periods.

If you’re eligible for both qualified sick leave and family leave credits, you may claim both, for a maximum of 60 combined days—which translates to total Self-Employed Tax Credits of up to $32,220! Therefore, the SETC could significantly reduce your tax burden. However, there are a couple limitations to keep in mind:

  • If you also worked for an employer and received wages for sick or family leave in 2020 or 2021, your SETC will be reduced by the amount of wages you received.
  • Your SETC calculation must exclude any days for which you received unemployment benefits in the applicable years.

While the deadline for filing your amended 2020 tax return to claim the SETC is rapidly approaching, the deadline for amending your 2021 return is April 15, 2025. If you were self-employed and your business was affected by the pandemic, be sure to consult your tax advisor to determine whether you qualify for up to $32,220 in Self-Employed Tax Credits!

At IBPSA, we are committed to providing pet care service professionals with the information and resources they need to maximize their business success. Visit https://www.ibpsa.com/business-help/ to learn more about how we can help!

(Sources: https://www.irs.gov/newsroom/new-irs-form-available-for-self-employed-individuals-to-claim-covid-19-sick-and-family-leave-tax-credits-under-ffcra#:~:text=The%20FFCRA%2C%20passed%20in%20March,offset%20their%20federal%20income%20tax.,https://1stcapitalfinancial.com/blog/setc-guide/).