A Financial Boost for the Self-Employed
The COVID-19 pandemic created major financial challenges for many self-employed individuals. The Self-Employed Tax Credit (SETC) was introduced to help ease that burden, offering up to $32,220 in refundable relief.
Designed for freelancers, contractors, and entrepreneurs, the SETC provides a way to recover income lost due to pandemic-related disruptions. Whether you’re still rebuilding your finances or looking for a safety net, this credit could offer the stability you need.
Why the SETC Matters:
- Tailored specifically for self-employed individuals who worked through unprecedented challenges.
- Provides direct financial support to help replace lost income.
- Eligibility is based on your self-employment income reported on IRS tax filings from 2019, 2020, or 2021.
If you’re self-employed and felt the impact of the pandemic, exploring the SETC might be the opportunity you’ve been waiting for.
What is the Self-Employed Tax Credit(SETC)
“Self-Employed Tax Credit” is an industry term referring to the Sick and Family Leave Tax Credits established by the FFCRA and expanded by the CARES Act. The Self-Employed Tax Credit (SETC) is a financial relief initiative aimed at helping self-employed individuals recover from the economic setbacks caused by the COVID-19 pandemic. With up to $32,220 in potential support, the SETC is designed to replace lost income and provide much-needed financial stability for freelancers, small business owners, and independent professionals.
If you’re still grappling with the financial impact of the pandemic, the SETC offers a powerful opportunity to rebuild your finances and regain control.
Who Can Claim the SETC?
The SETC covers a broad range of self-employed professionals across industries, including:
- Small business owners
- Freelancers and gig workers
- Restaurant owners
- Healthcare providers
- Real estate agents
- Tradespeople and contractors
- Creative professionals
- Software developers
- Personal trainers
- And many more
Eligibility at a Glance:
- U.S. citizens or qualified permanent residents
- Sole proprietors, independent contractors, or partners in partnerships
- Gig workers who earned 1099 income separate from W-2 earnings (including single-member LLCs)
This flexibility ensures the SETC reaches not just traditional businesses, but also the gig economy—a sector often overlooked but vital to the workforce.
How to Calculate Your SETC Tax Credit
Once you confirm your eligibility for the Self-Employed Tax Credit (SETC), the next step is determining how much you can claim. The calculation is based on two key factors: your average daily self-employment income and the number of workdays missed due to COVID-19 disruptions.
Step 1: Calculate Your Average Daily Income
- Start with your net earnings from self-employment as reported on IRS Form 1040 Schedule SE.
- Divide your annual net earnings by 260 (the estimated number of workdays in a year).
For example:
- If your net earnings are $65,000, your daily income would be:
$65,000 ÷ 260 = $250/day.
Step 2: Break It Down by Sick Leave and Family Leave
-
Qualified Sick Leave Credit:
- You can claim the lesser of:
- 100% of your average daily income, or
- $511 per day (maximum) for days you couldn’t work due to quarantine, COVID-19 symptoms, or isolation.
Example: If your daily income is $250, you can claim the full $250 for each sick leave day missed.
- You can claim the lesser of:
-
Qualified Family Leave Credit:
- You can claim the lesser of:
- 67% of your average daily income, or
- $200 per day (maximum) for days missed to care for a family member or due to COVID-19-related school/daycare closures.
Example: If your daily income is $250, you would claim:
$250 x 67% = $167/day. - You can claim the lesser of:
Step 3: Add Up the Days Missed
Count the total number of qualifying sick leave and family leave days you were unable to work.
If both you and your spouse are self-employed, you can each claim the credit individually, but the qualifying days cannot overlap.
Step 4: Use IRS Form 7202
To calculate and claim the SETC tax credit, complete IRS Form 7202. This form helps account for:
- Your self-employment income,
- COVID-19-related work disruptions,
- Eligible sick leave and family leave credits.
Once finalized, this credit can reduce your tax liability or boost your refund.
By following these steps, you’ll gain a clear estimate of your SETC credit, helping you maximize your financial relief during challenging times.
Ready to Apply for the SETC Tax Credit? Here’s How
Now that you understand the SETC tax credit, its benefits, and how to calculate your refund, it’s time to move forward with your application. While the process may seem overwhelming, breaking it down into clear steps makes it simple:
1. Use an Estimator Tool
Start by determining your potential credit amount. Use a reliable SETC estimator to calculate your refund based on missed workdays and daily self-employment income.
2. Gather Your Documents
Collect all necessary tax information and supporting documentation, including:
- Proof of self-employment income (IRS Schedule SE)
- Records of COVID-19 disruptions, such as days missed for quarantine, symptoms, or family care
- Qualified expenses related to sick or family leave
3. Complete IRS Form 7202
Accurately fill out Form 7202 by:
- Calculating your average daily self-employment income
- Adding up qualifying sick leave and family leave days
- Reporting all figures as required under the Families First Coronavirus Response Act (FFCRA)
4. Attach Form 7202 to Your Tax Return
Once Form 7202 is completed, attach it to your tax return for the applicable tax year (2019, 2020, or 2021). Double-check for accuracy to avoid delays or errors.
5. Consult an Expert for Support
The SETC process can be tricky, and even experienced CPAs often rely on specialists to handle the paperwork. Small mistakes can lead to missed credits, so consider working with professionals who focus on the SETC.
Simplify the Process with SETC Pros
If you’re unsure where to start or want to maximize your credit with confidence, the team at SETC Pros is here to help. Let the experts guide you through every step, ensuring you don’t leave money on the table.
Taking the right steps now could mean thousands of dollars back in your pocket. Don’t miss out—start your SETC application today!
Check out our SETC Refund Estimator!
The SETC Pros Refund Estimator Tool below(Blue Button) is designed to make calculating your potential tax credit fast and hassle-free. In just a few minutes, you can determine your eligibility.
If you wish to jump right ahead or you’re ready to fill out the full application please follow the instructions below:
- Visit the SETC Pros Website: Visit the SETC Pros website, or scroll to the bottom of the page and see the form.
- Follow the Instructions: The form provides a step-by-step guide for easy use.
- Input Your Information: Enter key details such as:
- Name, Email and, Phone
- Select Dates you were impacted
- Number of qualifying dependents
- Applicable deductions
- Submit Your Information: The process takes only 5 minutes to deliver your estimated credit amount.
The tool provides an overview of your potential credits, with the flexibility to adjust variables and explore how different scenarios might impact your results. For the most accurate estimate, ensure all financial data entered is precise.
Check Your Eligibility Now
What Tax Documents Do You Need?
To apply for the SETC tax credit, you’ll need specific tax documents to verify eligibility:
- 2019, 2020, and 2021 Tax Returns: Include Schedule C to show self-employment income.
- Driver’s License: Required for identification.
If you’re amending your federal tax returns to claim the SETC, you must submit a complete copy of the amended returns, including all original schedules and forms.
Keep Detailed COVID-19 Records
Document how the pandemic affected your work, including specific dates and reasons for missed workdays. The IRS may request this information during an audit to verify your eligibility. Having these records readily available ensures a smooth and stress-free process.
Why Work with a Professional Service like SETC Pros?
Applying for the Self-Employed Tax Credit (SETC) can be complicated to do on your own. Using a professional service like SETC Pros to assist with your application can provide significant advantages. Our software ensures you maximize your credit while staying fully compliant with IRS guidelines.
Here’s how SETC Pros can help:
Ensure Accuracy: Avoid errors that could delay your refund or reduce your credit.
Stay Compliant: Tax pros understand IRS rules and regulations, ensuring your application meets all requirements.
Maximize Your Claim: We identify opportunities to claim the full credit amount you’re eligible for based on verified IRS records.
Save Time and Stress: With our assistance, you’ll get faster results without the guesswork.
Understanding SETC Eligibility: Are You Qualified?
Being self-employed is the first requirement for claiming the Self-Employed Tax Credit (SETC), but there are additional criteria to consider.
Key Eligibility Factors
-
Positive Net Income
- You must show positive net income from self-employment on IRS Form 1040 Schedule SE for 2019, 2020, or 2021.
- Positive net income means your business earned more than it spent.
If COVID-19 reduced or eliminated your income in 2020 or 2021, you can still use 2019 earnings to qualify—great news for those hardest hit during the pandemic.
-
Joint Filers
- If both you and your spouse are self-employed and file a joint return, you can each claim the SETC individually.
- However, you cannot use the same COVID-related days for both claims.
-
Unemployment Benefits
- You can still qualify for SETC even if you received unemployment benefits.
- Keep in mind that days you received unemployment cannot be claimed as COVID-related work absences.
Who Is Considered Self-Employed?
The SETC tax credit applies to a broad range of self-employed individuals, including:
- Sole proprietors
- Independent business owners
- 1099 contractors
- Freelancers
- Gig workers
- Single-member LLCs (taxed as sole proprietorships)
Whether you’re a freelancer working from home, a gig worker in on-demand services, or a small business owner, the SETC is designed specifically for individuals like you.
Additional Eligible Groups:
- Members of multi-member LLCs
- Qualified joint ventures
- Partners in partnerships taxed as sole proprietorships
Understanding Tax Liability and SETC Eligibility
Your tax liability plays a crucial role in determining your eligibility for the Self-Employed Tax Credit (SETC). To qualify, you must demonstrate positive net income from self-employment in one of the eligible tax years: 2019, 2020, or 2021.
If you didn’t report positive income in 2020 or 2021 due to COVID-19 disruptions, you can still use your 2019 net income to qualify.
Offsetting Tax Liability or Claiming a Refund
The SETC is a refundable credit, meaning it can:
- Offset your self-employment tax liability directly, or
- Be refunded to you if it exceeds your tax liability.
However, keep in mind:
- If you received employer-paid sick leave, family leave, or unemployment benefits in 2020 or 2021, your SETC amount may be reduced.
- You can still claim the SETC if you received unemployment benefits, but you cannot claim credits for days you were compensated through those benefits.
COVID-19 Disruptions and Qualified Sick Leave Equivalent
The SETC tax credit is specifically designed for self-employed individuals whose work was impacted by the COVID-19 pandemic. Common qualifying disruptions include:
- Government-mandated quarantine orders
- Experiencing COVID-19 symptoms
- Caring for family members affected by COVID-19
- School or childcare facility closures preventing work
These disruptions must have occurred between April 1, 2020, and September 30, 2021.
Key Reminders for Claiming the SETC
- If you received unemployment benefits during this period, you can still qualify, but the days you received those benefits cannot be counted toward your COVID-19 work disruptions.
- Maintain detailed records of how the pandemic impacted your ability to work. The IRS may request this documentation during an audit to verify your claim.
SETC Limitations and Restrictions
While the Self-Employed Tax Credit (SETC) offers significant benefits, it’s essential to understand its limitations and how it may impact your overall tax situation.
-
Impact on Adjusted Gross Income (AGI):
- Claiming the SETC can increase your adjusted gross income, which may affect your eligibility for other tax credits and deductions.
-
Not Taxable Income:
- The good news? The SETC itself is not considered taxable income, so you won’t owe additional taxes on the credit amount.
-
Limitations on Sick and Family Leave Credits:
- If you received wages for sick leave or family leave from an employer in 2020 or 2021, you cannot claim the full SETC amount for those days.
- Similarly, if you received unemployment benefits during the same period, those days cannot be counted toward your SETC eligibility.
-
Missed the Deadline? File an Amended Return
- If you missed the original filing window for claiming SETC, you can still file an amended return for the 2020 or 2021 tax years to adjust or claim your credits. Be mindful of the deadlines for submitting amended returns to ensure you don’t miss out.
By understanding these restrictions, you can plan your tax filings effectively and maximize the benefits of the SETC without unexpected surprises.
Final Thoughts on the SETC Tax Credit
The Self-Employed Tax Credit (SETC) stands as a vital financial lifeline for self-employed individuals who faced economic hardship during the COVID-19 pandemic.
In this guide, we’ve explored everything you need to know: from understanding eligibility and calculating your credit to applying and maximizing your tax savings.
With up to $32,220 in relief available, the SETC is more than just a credit, it’s a critical opportunity to recover lost income and regain financial stability.
As we continue to navigate the post-pandemic world, seizing opportunities like the SETC can make all the difference. Take action, minimize the financial strain, and move forward with confidence and resilience.
Are you ready to see what refund amount you qualify for?
If you think you qualify or have done the estimator already feel free to fill out our instant application and get the ball rolling on your application now.
SETC Self-Employed Tax Credit Form
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