What Are the New COVID-19 Self-Employed Tax Credits and How Do I Qualify?
Whether you are an individual taxpayer, or you own your own business, COVID-19 has affected most people in one way or another. We know times have been rough and you may have already heard about various coronavirus relief options like stimulus payments, expanded unemployment, and extended tax deadlines. But did you know that there are some new refundable tax credits available if you are self-employed and were impacted by coronavirus?
On March 18, the Families First Coronavirus Response Act (FFCRA) was passed which includes relief for self-employed and small businesses in the form of refundable sick leave and family leave tax credits. The qualified sick leave and family leave tax credits are being provided to eligible self-employed individuals who are not able to receive paid sick leave or family leave from an employer like employees do. Don’t worry about trying to remember all the details of the new tax credits. We have you covered with a NEW Tax Credit Estimator tool to help you easily estimate how much credit you may be eligible for and also explains how the credit is calculated under the FFCRA. TurboTax will also be up to date and show you the credits you may be eligible for when it’s time to file your taxes.
Here’s what you should know about the qualified sick and qualified family leave credits, how much you can get, and how they’re calculated.
Note: the Tax Credit Estimator Calculator is meant for estimation purposes only and is not determinative of the actual tax credit amounts available. Please make sure to review the FFCRA and latest IRS guidance to understand the rules and how they apply to your particular situation.
What exactly are the qualified sick and qualified family leave tax credits?
The qualified sick and qualified family leave tax credits are federal income tax credits for eligible self-employed individuals, claimed on their 2020 taxes and used to offset their 2020 federal self-employment tax. The amounts of the credits are tied to the “qualified sick leave equivalent amount” and the “qualified family leave equivalent amount.”
What is the qualified sick leave equivalent amount and how do I qualify?
If you are self-employed, you may be eligible for qualified sick leave if you are unable to work or telework because you:
- Are impacted by a Federal, State, or local quarantine or isolation order related to COVID-19
- Are being advised by a health care provider to self-quarantine
- Are experiencing symptoms of COVID-19 and seeking a medical diagnosis
The qualified sick leave equivalent amount is equal to the number of days in the taxable year that you cannot perform services for these reasons, up to 10 days, multiplied by the lesser of $511 or 100% of the average daily self-employed income.* So, if your average daily income is $100 and you were off the maximum of 10 days, you would be eligible for a tax credit of $1,000 ($100 x 10).
*The average daily self-employment income is equal to net earnings from self-employment divided by 260.
If you are unable to work or telework due to taking care of someone else, you may also be eligible for qualified sick leave equivalent if you are:
- Caring for someone subject to Federal, State, or local quarantine or isolation order related to COVID-19, or who has been advised by a health care provider to self-quarantine due to concerns related to COVID-19
- Taking care of a child due to the child’s school or place of care being closed due to COVID-19 precautions
The qualified sick leave equivalent is a little different from when you are unable to work due to you having coronavirus yourself and is equal to the number of days in the taxable year that you cannot perform services due to taking care of someone for the reasons above up to 10 days, multiplied by the lesser of $200 or 67 percent of the average daily self-employed income for that taxable year. For example, if your average daily income is $100 and you were off taking care of your sick child, you would be eligible for a credit of $670 ($100 x 67% x 10 days).
Note: Qualified sick leave equivalent amount days must occur during the period beginning April 1, 2020 through December 31, 2020.
What is the qualified family leave tax credit equivalent?
The qualified family leave tax credit equivalent is equal to the number of days in the taxable year (up to 50) that you cannot perform services for which you would be entitled to paid family leave, multiplied by the lesser of $200 or 67% of your average daily self-employment income. So, if you took family leave for the maximum amount of days (50) and your average daily self-employment income is $100, you would be entitled to a credit of $3,350 ($100 x 67% x 50 days)
Can I receive both qualified sick leave tax credits and qualified family leave tax credits?
Yes, you can claim them both as long as you meet the requirements above. TurboTax Tax Credit Estimator will help you estimate the credits you are eligible for. TurboTax will also help you claim the tax credits when you file your tax year 2020 taxes.
Our Tax Credit Estimator not only calculates qualified sick and family leave, but can also estimate social security tax deferral, which is another benefit of coronavirus relief.
Is there any way to get the credits now or any type of money related to the qualified sick or qualified family leave equivalent?
If you are self-employed, you can fund your sick leave and family leave equivalents by taking into account the 2020 tax credit (claimed in 2021) you are eligible for and reduce your 2020 quarterly estimated tax payments. TurboTax Tax Credit calculator will help you estimate the tax credits you are eligible for so you can reduce your estimated tax payments.
If you don’t take the tax credit or tax credits into account when you pay your estimated taxes, you can claim them when you file your 2020 taxes in 2021.
Don’t worry about having to remember all of these new tax rules. TurboTax has recently developed the Self-Employed Coronavirus Relief Center in English and Spanish, built to guide self-employed individuals through the different coronavirus relief programs, help them understand what the various relief programs mean to their taxes, and access tax advice all in one place.