Is There a Tax Credit for Self-Employed Workers Affected by the Coronavirus

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The Families First Coronavirus Response Act (FFCRA) provided tax credits to eligible self-employed taxpayers who could not work due to COVID-19 from April 2020 to March 31, 2021. The American Rescue Plan Act, signed by President Joe Biden, extended these credits through September 30, 2021, allowing eligible taxpayers to claim them on their 2021 tax return. Taxpayers have until April 18th, 2025 to claim these credits.

Below, we break down the credits still available for self-employed taxpayers under FFCRA.

Which tax credits are still available to self-employed workers affected by COVID-19?

Two tax credits are still available to self-employed workers affected by COVID-19: Sick leave and family leave. The sick leave credit applies to qualified individuals who were not able to work for a period of time due to COVID-19 or were caring for someone with COVID-19. You may qualify for the family leave credit if you had to care for a family member due to COVID-19-related circumstances and already maxed out the sick leave days.

How does the self-employed tax credit work?

The self-employed tax credit provides tax savings for individuals who could not work due to COVID-19. These credits offset any tax liability created from self-employment income in the taxable year. Since these credits are refundable, taxpayers could potentially receive a tax refund if their tax bill has been covered.

Each tax credit for self-employed individuals is equal to the qualified sick and family leave amount that eligible employers are allowed to claim. Here's a breakdown of the calculation to determine your sick leave credit:

• First, calculate your daily average self-employment income. This is your net earnings for the taxable year divided by 260 (5 work days per week x 52 weeks in a year). This allows the IRS to estimate how much you lost in wages for every day you were not able to work.

• Determine if you want to use your prior-year income to determine the amount of credit for which you are eligible. This can work in your favor if the prior year's income is greater than the current year. You would be eligible for a bigger credit amount.

• Compare your daily average self-employment income number to the maximum credit that is allowed for each self-employed individual per day. The largest amount that a taxpayer can claim for the sick leave credit is $511 for each eligible day. Your credit equals the lesser of your daily average income calculation or the maximum credit allowed per day.

If you are claiming the sick credit for days you cared for someone else, you cannot use the $511 for each eligible day. You can only use the $511 per day allowance when you meet the three criteria listed in the table below. Otherwise, you will have to calculate your sick leave credit using the lesser of $200 a day or 67% of the average pay per day. This is the same calculation used for the family leave credit.

The family leave credit is also calculated using the average daily self-employment income. Your credit amount will equal the lesser of $200 a day or 67% of the average pay per day. The most a taxpayer can claim for this credit is $200 a day.

The chart below shows the maximum sick and family leave credit that can be claimed in 2020 and 2021. A self-employed individual can claim both the sick and family leave credit, adding up to a credit worth $15,110 per eligible taxpayer.

Can I still claim the tax credit if I already filed my return?

Yes. You can still claim the sick and family leave credits even if you already filed your 2020 and 2021 tax returns. If you were unaware of the credit, you can file an amended tax return, known as Form 1040-X. You will add Form 7202 and attach it to the 1040-X to show the credits that you missed on the original return.

Because these credits are refundable, there is a time limit for how long you can claim them. This is because they can result in you getting money from the IRS or lowering a tax debt if you have one. You have 3 years from the original due date of the return or 2 years after making a payment to claim a refund. The IRS calls this date the Refund Statute Expiration Date (RSED).

The 2021 tax return was due on April 18, 2022. This makes the 2021 RSED April 18, 2025. This means that individuals have until that date to claim a refund of the sick and leave credits for 2021.

The RSED for 2020 was May 17, 2024 because that is 3 years after the 2020 tax return due date, May 17, 2021. This means if a refund was due on May 17, 2021 the last date to claim it was May 17, 2024. However, if there was a balance, that affects the RSED. The RSED now becomes 2 years after a payment is made.

Let's say you have a hair studio and you were not aware of the sick and paid leave in 2020 so you did not claim them. When you filed your tax return, you had a $15,000 balance that you put on a payment plan with the IRS in 2022. You made your first payment on September 18, 2022. If you file an amended tax return to claim the credits by September 18, 2024, you can still claim those refundable credits.

Who is eligible for the tax credit?

Eligible self-employed individuals are those who regularly carry on a trade or business. This includes business owners with a traditional brick-and-mortar store and contractors. Your part-time business or side gig can also qualify if your activities have a profit motive. You should always keep good records to prove your self-employment status.

Self-employed workers must also be eligible for qualified sick leave or family leave under the Emergency Paid Sick Leave Act (EPSLA) or expanded Family Medical Leave Act (FMLA). They must follow the same guidelines as if they were an employee of an eligible employer.

The IRS released the following guidelines to help you determine if you are eligible for the sick leave credit and how much your credit is worth. A self-employed individual may be eligible for the sick leave credit if they could not work or telework due to the following circumstances:

A self-employed individual may be eligible for the family leave credit if they could not work or telework due to:

• Caring for an individual who was subject to a quarantine or isolation order related to COVID-19.

• Caring for a son or daughter if their school or place of care was closed. This can include the childcare provider being unavailable due to COVID-19.

• Experiencing other similar conditions specified by health and government agencies.

Are there any limits to the tax credit?

Yes. There are limits to the sick and family leave credits. You will not receive the full tax credit if you received any wages from an employer for sick or family leave. The wages received reduce the amount of the credit for which you are eligible. This prevents individuals from double-dipping from the same benefit.

Here's an example of how the sick and family leave credits work:

• Let's say you work as an administrative assistant in your father's electric company.

• You also worked as a part-time real estate agent on the side during 2021.

• You had a net profit of $135,000 from selling houses. You missed 10 days of showings and closings due to COVID.

• During that time, you received $1,600 in sick wages from your father's electric company.

• You can only claim $3,510 ($5,110 - $1,600) as a sick leave credit on your 2021 taxes for your side gig work as a real estate agent.

Only self-employed individuals with a net profit will be able to take the tax credits. If there was a loss in the business, you are not eligible for the sick or family leave credit.

What is IRS Form 7202? Where can I find help filling it out?

IRS Form 7202 is a tax form used to calculate your sick and family leave credits. The form is also referred to as Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals. Families with two self-employed individuals will need to fill out a separate Form 7202 for each individual. If you have questions about your specific tax situation, you can reach out to the following individuals:

• Trained tax professional

• Certified public accountant (CPA)

• Enrolled agent (EA)

The IRS also offers free tax help for qualifying individuals.

Am I eligible for the tax credit if I don't have health insurance?

Yes. Your eligibility for the sick leave and family leave tax credits do not take health insurance coverage into consideration. However, if you are self-employed and need insurance, there are options for health insurance. You may even be eligible to write off the cost of your health insurance premiums by taking advantage of the self-employment health insurance deduction.

What if my child does not have health insurance?

You can claim the family leave credit on Form 7202 regardless of whether your child had health insurance. The credit only takes into account your ability to not work due to no child care or caring for your child. If your child is uninsured, you may be able to get insurance through the Children's Health Insurance Program (CHIP).

Are costs for unpaid medical bills eligible for the tax credit?

No. Unpaid medical bills are not eligible for the family leave or sick leave tax credit. The credit only looks at your average daily wages and the number of missed days.

Frequently asked questions

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