Criteria for Eligibility for the SETC Tax Credit
Being self-employed is just the first requirement to be eligible for the SETC Tax Credit.
Certain requirements exist that The original source must be met to qualify.
For instance, you must show a positive net income from self-employment as indicated on IRS Form 1040 Schedule SE for the tax years 2019, 2020, or 2021.
This implies your earnings should exceed your expenses in your business.
However, if you didn’t have positive earnings in 2020 or 2021 because of COVID-19, you can use your 2019 net income to qualify for the SETC Tax Credit.
This is particularly helpful for those who are self-employed who experienced financial setbacks during the pandemic.
Furthermore, if you and your spouse are self-employed and file a joint return, each of you can qualify for the SETC Tax Credit.
Nonetheless, you cannot use the same COVID-related days for eligibility.
It should also be noted that even if you received unemployment benefits, you are still eligible for the SETC Tax Credit.
You are not allowed to claim the days when you got unemployment benefits as days you were unable to work because 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, including self-employed taxpayers.
To qualify for the SETC tax credit, self-employed status includes:
Sole proprietorships
Independent business owners
1099 contractors
Freelancers
Gig workers
Single-member LLCs treated as sole proprietorships
It is essential for these individuals to be aware of their self-employment tax obligations.
So, whether you’re a freelancer working from home, a gig worker navigating the fast-paced world of on-demand services, or a sole proprietor running your own business, you may qualify for the specialized tax credit designed for individuals like you, called the SETC Tax Credit.
In addition to individual professionals, members of multi-member LLCs and qualified joint ventures are also potentially eligible for SETC.
As an example, partners in partnerships treated as sole proprietorships and general partners within partnerships could potentially qualify for SETC, given that they meet other required criteria.
All you need to do if you are a U.S. citizen, permanent resident, or qualifying resident alien and self-employed is to file a Schedule SE with positive net income.
Considerations for Income Tax Liability
Your income tax liability is a significant factor in determining your eligibility for the what is the setc tax credit SETC Tax Credit.
To be eligible, you need to demonstrate positive net income in one of the approved years (2019, 2020, or 2021).
Nevertheless, 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, is capable of offsetting your self-employment tax liability or could be refunded if it exceeds your tax liability.
It’s important to note that the total SETC amount might not be available to individuals who received pay from an employer for family or sick leave, or unemployment benefits, during 2020 or 2021.
Here’s where the self-employed tax credit can greatly aid in lessening your tax burden.
Additionally, even though those who received unemployment benefits can claim the SETC tax credit, they cannot count days they received these benefits as days when they were unable to work due to COVID-19.
COVID-Related Business Disruptions and Qualified Sick Leave
The unpredictability of self-employment has been further compounded by the disruptions brought on by the COVID-19 pandemic.
That said, the SETC Tax Credit is designed to provide financial assistance to those who experienced business disruptions due to COVID-19.
From managing government quarantine mandates to experiencing symptoms or providing care for family members and even grappling with school or childcare facility closures — if your ability to work was affected during the period from April 1, 2020, to September 30, 2021, you might be eligible for the SETC Tax Credit.
That said, the SETC Tax Credit comes with its own set of caveats.
Self-employed individuals who received unemployment benefits during the COVID-19 pandemic can still qualify for the SETC Tax Credit.
Still, they cannot claim credits for days when unemployment benefits were received.
Additionally, it is essential to keep accurate records of how COVID-19 impacted your ability to work, as the IRS could ask for these records during an audit.