Criteria for Eligibility for the SETC Tax Credit
Being self-employed is just the first requirement for eligibility for the SETC Tax Credit.
Certain requirements exist that you need to meet to qualify.
For instance, you must show a positive net income from your self-employment activities 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.
That said, if you lacked positive earnings during 2020 or 2021 because of COVID-19, your 2019 net income can be utilized to qualify for the SETC Tax Credit.
This is particularly helpful for self-employed workers who experienced financial setbacks during the pandemic.
Additionally, if both you and your spouse 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 received unemployment benefits, you can still qualify for the SETC Tax Credit.
You cannot claim the days you received unemployment benefits as days when you were unable to work due to COVID-19.
Such days are distinct from pandemic-related work absences.
Criteria for Self-Employment Status
The term ‘self-employed’ includes a wide range of professionals, such as self-employed taxpayers.
For the purpose of the SETC tax credit, self-employed status includes:
Sole proprietors
Independent business owners
1099 contractors
Freelancers
Gig workers
Single-member LLCs treated as sole proprietorships
It is crucial for these individuals to be knowledgeable about 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 running your own business, you might be eligible for the targeted tax credit designed for individuals like you, referred to as the SETC Tax Credit.
In addition to individual professionals, members of multi-member LLCs and eligible joint ventures may also be eligible for SETC.
As an example, partners in partnerships treated as sole proprietorships and partnership general partners could potentially qualify for SETC, provided they meet other necessary 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 plays a crucial role in determining your eligibility for the SETC Tax Credit.
To meet the requirements, you need to demonstrate positive net income in one of the qualifying years (in the years 2019, 2020, or 2021).
Nevertheless, 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.
Moreover, the SETC employed tax credit, commonly referred to as the SETC tax credit, can offset your self-employment tax liability or even be refunded if it surpasses the tax liability.
It should be noted that the total SETC amount might not be available to individuals who received employer pay for family or sick leave, or unemployment benefits in the years 2020 or 2021.
This is where the self-employed tax credit can significantly help reduce your tax burden.
Additionally, even if you received unemployment benefits, you can still claim the SETC tax credit, they cannot claim days they were receiving these benefits as days they were 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 unpredictability brought on by the COVID-19 pandemic.
Nevertheless, 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 struggling with school or childcare facility closures — if your ability to work was compromised during the period from April 1, 2020, to September 30, 2021, you might be eligible for the SETC Tax Credit.
It’s important to note that, the SETC Tax Credit includes particular conditions.
Self-employed individuals who received unemployment benefits during the COVID-19 pandemic can still qualify 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 officialsetcrefund ability to work, as the IRS might require this documentation during an audit.