Criteria for Eligibility for the SETC Tax Credit
The fact that you're self-employed is only the first step for eligibility for the SETC Tax Credit.
There are specific conditions you must satisfy to be considered.
Specifically, you must show a positive net income from self-employment as reported on IRS Form 1040 Schedule SE for the tax years 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 those who are self-employed who experienced financial setbacks during the pandemic.
Moreover, if both you and your partner are self-employed and submit a joint tax return, you both can qualify for the SETC Tax Credit.
However, you are not allowed to claim the same COVID-related days for eligibility.
It should also be noted that even if you collected unemployment benefits, you may still qualify 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.
Such days are distinct from pandemic-related work absences.
Self-Employment Status Requirements
The term ‘self-employed’ covers a diverse array of professionals, including self-employed taxpayers.
To qualify for the SETC tax credit, self-employed status includes:
Sole proprietors
Independent entrepreneurs
1099 contractors
Freelancers
Gig workers
Single-member LLCs treated check here as sole proprietorships
It is essential for these individuals to be knowledgeable about 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 managing your own business, you may qualify for the specific tax credit designed for individuals like you, referred to as the SETC Tax Credit.
In addition to individual professionals, multi-member LLC members and approved joint ventures could also qualify for SETC.
As an example, partners in sole proprietorship-partnerships and general partners in partnerships might qualify for SETC, given that they meet other required criteria.
The only requirement for U.S. citizens, permanent residents, or qualifying resident aliens who are self-employed is to submit a Schedule SE with positive net income.
Income Tax Liability Considerations
A key factor in determining your eligibility is your income tax liability for the SETC Tax Credit.
To meet the requirements, you need to demonstrate positive net income in one of the eligible years (2019, 2020, or 2021).
However, if your earnings weren’t positive in 2020 or 2021 due to COVID-19, your 2019 net income can be used to qualify for the SETC Tax Credit.
Furthermore, the SETC employed tax credit, commonly referred to as the SETC tax credit, can offset your self-employment tax liability or may be refunded if it surpasses your tax liability.
It’s important to note that the entire SETC may not be accessible to individuals who received employer pay for family or sick leave, or unemployment benefits, during 2020 or 2021.
This is where the self-employed tax credit can significantly help reduce your tax burden.
Moreover, while individuals who received unemployment benefits can claim the SETC tax credit, they are barred from claiming days they were receiving these benefits as Additional hints days unable to work due to COVID-19.
Qualified Sick Leave Equivalent and COVID-Related Disruptions
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 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 struggling with school or childcare facility closures — if your ability to work was compromised between April 1, 2020, and September 30, 2021, you could qualify for the SETC Tax Credit.
It’s important to note that, the SETC Tax Credit comes with its own set of caveats.
Self-employed workers who received unemployment benefits during COVID-19 are still eligible 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 may request such documentation during an audit.