It is no surprise that many individuals and businesses have been negatively impacted by COVID-19. Fortunately, the Families First Coronavirus Relief Act “FFCRA” provides some relief for those impacted by COVID -19. We are going to focus specifically on self-employed individuals and the tax credits that are available to them.
The Emergency Paid Sick Leave Credit
To be eligible for this credit, self-employed individuals:
- Must be an individual who regularly carries on a trade or business and would be entitled to receive qualified sick leave wages or qualified family leave wages if the individual were an employee of an eligible employer that is subject to the requirements of the FFCRA. (An individual regularly carries on a trade or business for purposes of being an eligible self-employed individual for the qualified sick leave equivalent credit and/or the qualified family leave equivalent credit if he or she carries on a trade or business within the meaning of section 1402 of the Internal Revenue Code (the “Code”), or is a partner in a partnership carrying on a trade or business within the meaning of section 1402 of the Code.) In order to qualify, you must also qualify under one of the COVID-19 reasons listed below.
- Must be unable to work or telework for one of the following reasons:
- The individual is subject to a federal, state, or local quarantine or isolation order related to COVID-19;
- The individual has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
- The individual is experiencing symptoms of COVID-19 and seeking a medical diagnosis.
- The individual is caring for an individual who is subject to a federal, state, or local quarantine or isolation order related to COVID-19 or has been advised by a health care provider to self-quarantine due to concerns related to COVID-19; OR
- The individual is caring for a child if the school or place of childcare has been closed, or the childcare provider of such child is unavailable, due to COVID-19 precautions.
The qualified sick leave credit amount for bullet points i-iii above is equal to the number of days during the taxable year that the individual cannot perform services in the applicable trade or business for one of the above listed reasons multiplied by the lesser of $511 or 100% of the average daily self-employment income (Total income on schedule C divided by 260 days). The credit can be calculated for a maximum of 10 days, or $5,110.
Self-employed individuals who are unable to work or telework due to reasons iv and v above may receive a paid sick leave credit for up to two weeks (80 hours) at 2/3 the employee’s regular rate of pay. The maximum is $200 per day, with a $2,000 maximum credit.
The Expanded Family Leave Credit
The expanded family leave credit is a credit that can be claimed in addition to the emergency paid sick leave credit. This credit is for self-employed individuals who are unable to work or telework because of a need to care for a child whose school or place of care is closed or whose child care provider is unavailable due to reasons related to COVID-19, as described in bullet point v. above. This credit is equal to two-thirds of the employee’s regular pay, up to $200 per day and $10,000 total. Up to ten weeks of qualifying leave can be counted towards the family leave credit.
Claiming the Credits
Both credits outlined above are shown on IRS form 7202. Both credits are refundable tax credits, meaning the taxpayer can receive a refund of the credit if they do not have a tax liability to offset.
The credits for 2020 are effective for income lost during the period of April 1, 2020 – December 31, 2020.
The credit will also be available for the 2021 tax year during the periods of January 2, 2021 – March 31, 2021.
Individuals should maintain any documentation establishing their eligibility to take the credit along with their other tax return documents.
Please let us know if you have any questions in this regard. You can reach us at our office by calling 615-385-0686, or by email at firstname.lastname@example.org.