Eligibility Criteria for SETC Tax Credit
Being self-employed is just the first requirement to be eligible for the SETC Tax Credit.
There are certain criteria that you need to meet to be considered.
For instance, you must have earned a positive net income from your self-employment activities as reported on IRS Form 1040 Schedule SE for 2019, 2020, or 2021.
This indicates you should have had higher earnings than expenses on your business.
Nevertheless, if you didn’t have positive earnings in 2020 or 2021 due to COVID-19, your net income from 2019 can be used to qualify for the SETC Tax Credit.
This is especially advantageous for self-employed workers who faced financial challenges during the pandemic.
Furthermore, if both you and your spouse are self-employed and file a joint return, each of you can qualify for the SETC Tax Credit.
However, it's important to note that, you can’t claim the same COVID-related days for eligibility.
Additionally, be aware that even if you received unemployment benefits, you may still qualify for the SETC Tax Credit.
You cannot claim the days when you received unemployment benefits as days you couldn’t work Helpful resources because of COVID-19.
These days are treated separately from other pandemic-related work absences.
Self-Employment Status Requirements
The term ‘self-employed’ encompasses a broad spectrum of professionals, among them are self-employed taxpayers.
For the purpose of the SETC tax credit, self-employed status includes:
Sole proprietors
Independent entrepreneurs
1099 contractors
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, whether you’re a freelancer working from the comfort of your home, a gig worker in the fast-paced on-demand service industry, or a sole proprietor overseeing your own business, you could potentially be eligible for the specific tax credit designed for individuals like you, called the SETC Tax Credit.
In addition to individual professionals, multi-member LLC members and approved joint ventures may also be eligible for SETC.
For instance, partners in partnerships treated as sole proprietorships and partnership general partners might qualify for SETC, given that they meet other required criteria.
The only requirement if you are a U.S. citizen, permanent resident, or qualifying resident alien and self-employed is filing a Schedule SE showing positive net income.
Factors Regarding Income Tax Liability
A key factor in determining your eligibility is your income tax liability for the SETC Tax Credit.
To be eligible, you must show positive net income in one of the approved years (2019, 2020, or 2021).
However, if you lacked positive earnings in 2020 or 2021 because of COVID-19, you can use your 2019 net income to qualify for the SETC Tax Credit.
Additionally, the SETC employed tax credit, commonly referred to as the SETC tax credit, can offset your self-employment tax liability or could be refunded if it exceeds your tax liability.
It should be noted that the setc tax credit total SETC amount might not be available to individuals who got employer pay for family or sick leave, or unemployment benefits in the years 2020 or 2021.
Here’s where the self-employed tax credit can significantly help reduce your tax burden.
Moreover, even though those who received unemployment benefits can 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 challenges of self-employment have been intensified by the disruptions brought on by the COVID-19 pandemic.
However, the SETC Tax Credit is designed to provide financial assistance to those who experienced business disruptions due to COVID-19.
Whether dealing with government quarantine orders to coping with symptoms or attending to family members and struggling with school or childcare facility closures — if your ability to work was compromised between April 1, 2020, and 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.
Also, it’s crucial to maintain accurate documentation of how the COVID-19 pandemic affected your ability to work, as the IRS might require this documentation during an audit.