Criteria for Eligibility for the SETC Tax Credit
The fact that you're self-employed is only the first step for eligibility for the SETC Tax Credit.
There are certain criteria that you need to meet to be eligible.
For instance, you must show a positive net income from your self-employment activities as indicated on IRS Form 1040 Schedule SE for 2019, 2020, or 2021.
This means you should have earned more than you spent in your business.
Nevertheless, if you didn’t have positive earnings in 2020 or 2021 because of COVID-19, your 2019 net income can be utilized to qualify for the SETC Tax Credit.
This is particularly helpful for those who are self-employed who faced financial challenges during the pandemic.
Additionally, if you and your spouse are self-employed and file a joint return, each of you can qualify for the SETC Tax Credit.
However, you are not allowed to claim the same COVID-related days for eligibility.
Additionally, be aware that even if you received unemployment benefits, you can still qualify for the SETC Tax Credit.
It’s prohibited to claim the days when you received unemployment benefits as days you couldn’t work because of COVID-19.
These days are treated separately from other pandemic-related work absences.
Criteria for Self-Employment Status
The term ‘self-employed’ includes a wide range of professionals, including self-employed taxpayers.
For the purpose of the SETC tax credit, self-employed status includes:
Sole proprietors
Independent business owners
Contractors receiving 1099 forms
Independent freelancers
Gig workers
Single-member LLCs treated as sole proprietorships
It is essential for these individuals to be informed of their self-employment tax obligations.
So, whether you’re a freelancer working from the comfort of your home, a gig worker navigating the fast-paced world of on-demand services, or a sole proprietor overseeing your own business, you could potentially be eligible for the specific tax credit designed for individuals like you, called the SETC Tax Credit.
In addition to individual professionals, those in multi-member LLCs and eligible joint ventures could also qualify for SETC.
As an example, partners in sole proprietorship-partnerships and partnership general partners might qualify for SETC, if they satisfy Click here to find out more other eligibility criteria.
The only requirement if you are a U.S. citizen, permanent resident, or qualifying resident alien and self-employed is to submit a Schedule SE with positive net income.
Considerations for Income Tax Liability
A key factor in determining your eligibility is your income tax liability for the SETC Tax Credit.
To qualify, you must have positive net income in one of the eligible years (2019, 2020, or 2021).
That said, if you lacked positive earnings in 2020 or 2021 because of COVID-19, your 2019 net income can be used to qualify for the SETC Tax Credit.
Moreover, the employed tax credit SETC, or SETC tax credit, can offset your self-employment tax liability or even be refunded if it surpasses the tax liability.
You should be aware that the total SETC amount might not be available to individuals who received employer pay for family or sick leave, or unemployment benefits in 2020 or 2021.
This is where the self-employed tax credit can play a significant role in reducing your tax burden.
Additionally, while individuals who received unemployment benefits can claim the SETC tax credit, they cannot claim days they were receiving these benefits as days they were unable to work due to setc tax credit COVID-19.
COVID-Related Business Disruptions and Qualified Sick Leave
The unpredictability of self-employment has been further compounded by the unpredictability brought on by the COVID-19 pandemic.
Nevertheless, the SETC Tax Credit was created to support those who encountered business interruptions because of COVID-19.
From managing government quarantine mandates to dealing with symptoms or caring for family members and navigating school or childcare closures — if your ability to work was compromised between April 1, 2020, and September 30, 2021, you could qualify for the SETC Tax Credit.
That said, the SETC Tax Credit has specific caveats.
Self-employed workers who received unemployment benefits during COVID-19 are still eligible for the SETC Tax Credit.
Yet, they are not allowed to claim credits for days when unemployment benefits were received.
Moreover, maintaining precise documentation of how COVID-19 affected your ability to work is vital, as the IRS may request such documentation during an audit.