Self-Employed Tax Credit (SETC)

The SETC tax credit program, established by the Families First  Coronavirus Response Act (FFCRA) in March 2020, initially targeted W-2  employees for paid sick leave and unemployment benefits due to COVID-19.  The program later expanded under the Coronavirus Aid, Relief, and  Economic Security (CARES) Act in December 2020 to include self-employed  individuals, freelancers, independent contractors, and gig workers. The  SETC provides federal legislation offering tax credits to compensate for  lost income during COVID-19-related periods of sick leave.

Initially focused on W-2 employees, the SETC's expansion under the CARES  Act to include the self-employed was not widely publicized. Research  indicates that over 80% of self-employed individuals are unaware of  their entitlement to SETC tax credits.

The SETC tax credit can amount to a maximum of $32,220, determined by  your self-employed net earnings in 2020 and 2021. The calculation  considers your daily average self-employment income and the days missed  due to COVID-19-related issues.

To claim SETC tax credits, eligible individuals must assess their  qualification, amend their 2020 and/or 2021 tax returns, and submit  supporting schedules. Utilizing a Certified Public Accountant (CPA) or Tax Attorney (LL.M.) is  recommended for optimal results, and we are happy to advise our self-employed clients on efficiently and correctly claiming their federal SETC tax credits.

 Self-employed individuals, including sole proprietors, independent  business owners, 1099 contractors, freelancers, gig workers, and  single-member LLCs taxed as a Sole-proprietorship, qualify if they filed  a Schedule SE of IRS Tax Form 1040 in 2020 and/or 2021, reported  positive net income, and experienced work disruptions due to COVID-19.

To qualify for SETC tax credits, you must have missed self-employment  work due to COVID-related issues, such as government-imposed quarantine  orders, doctor-recommended self-quarantine, COVID-19 symptoms, waiting  for test results, vaccination, or experiencing side effects from the  COVID-19 vaccine.

The SETC covers days from April 1, 2020, to September 30, 2021, with  varying eligibility periods for childcare-related time off and personal  COVID-related issues.

The credit amount depends on your average daily self-employment income and the days missed due to COVID-related issues. The childcare portion  is calculated by multiplying the number of leave days by your average  daily self-employment income or $511, whichever is smaller. For personal  COVID-related issues or caregiving, the calculation involves 2/3 of  your average daily self-employment income or $200, whichever is smaller.

On average, we have seen our clients receive an SETC refund of $9,400. How long does it take to receive a refund? After the IRS acknowledges  the acceptance of your SETC credit application, it can take up to 20  weeks to receive your refund via check or direct deposit.

Yes, the deadline to amend 2020 and/or 2021 tax returns for SETC  credits is three years from the original due date or within two years  from the tax payment date, whichever is later.