Notes

Who is eligible for the SETC Tax Credit?
Eligibility Criteria for SETC Tax Credit



Being self-employed is merely the initial criterion for eligibility for the SETC Tax Credit.

There are specific conditions you must satisfy to be eligible.

Specifically, you must show a positive net income from self-employment as reported on IRS Form 1040 Schedule SE for 2019, 2020, or 2021.



This indicates you should have had higher earnings than expenses from your business operations.

However, if you lacked positive earnings during 2020 or 2021 due to COVID-19, you can use your 2019 net income to qualify for the SETC Tax Credit.

This is especially advantageous to self-employed individuals who faced financial challenges during the pandemic.



Furthermore, if both you and your spouse are self-employed and file a joint return, you can each qualify for the SETC Tax Credit.

However, you cannot use the same COVID-related days for eligibility.

Additionally, be aware that even if you collected unemployment benefits, you may still qualify for the SETC Tax Credit.



You are not allowed to claim the days you received unemployment benefits as days when you were unable to work as a result of COVID-19.

These days are treated separately from other pandemic-related work absences.



Self-Employment Status Requirements



The term ‘self-employed’ includes a wide range of professionals, such as self-employed taxpayers.

To qualify for the SETC tax credit, self-employed status includes:



Sole proprietors

Independent entrepreneurs

Contractors receiving 1099 forms

Independent freelancers

Gig workers

Single-member LLCs treated as sole proprietorships



It is important for these individuals to be informed of their self-employment tax obligations.



So, if you’re a freelancer working from home, a gig worker in the fast-paced on-demand service industry, or a sole proprietor overseeing your own business, you may qualify for the targeted tax credit designed for individuals like you, referred to as the SETC Tax Credit.



In addition to individual professionals, those in multi-member LLCs and qualified joint ventures are also potentially eligible for SETC.

For instance, partners in partnerships that are taxed as sole proprietorships and general partners within partnerships may be eligible for SETC, given that they meet other required criteria.



The only requirement as a U.S. citizen, permanent resident, or qualifying resident alien who is self-employed is filing a Schedule SE showing positive net income.



Income Tax Liability Considerations



Your income tax liability plays a crucial role in determining your eligibility for the SETC Tax Credit.

To qualify, you must have positive net income in one of the approved years (in the years 2019, 2020, or 2021).



However, if you didn’t have positive earnings in 2020 or 2021 due to 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, is capable of offsetting your self-employment tax liability or even be refunded if it surpasses the tax liability.



It should be noted that the full SETC amount may not be available to individuals who received pay from an employer for family or sick leave, or unemployment benefits in the years 2020 or 2021.

Here’s where the self-employed tax credit can play a significant role in reducing your tax burden.



Moreover, even if you received unemployment benefits, you can still claim the SETC tax credit, they are barred from claiming days they were receiving these benefits as days unable to work due to COVID-19.



COVID-Related Business Disruptions and Qualified Sick Leave



The uncertainties of self-employment have been exacerbated by the unpredictability brought on by the COVID-19 pandemic.

That said, the SETC Tax Credit was created to support those who encountered business interruptions because of COVID-19.



From managing government quarantine mandates to coping with symptoms or attending to family members and navigating school or childcare closures — if your ability to work was compromised during the period from April 1, 2020, to September 30, 2021, you could potentially qualify for the SETC Tax Credit.



It’s important to note that, 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.

However, they cannot claim credits for the days they were receiving unemployment benefits.



Also, it’s crucial to maintain accurate documentation of how the COVID-19 pandemic affected your ability to work, as the IRS may request such documentation during an audit.

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