For those that have been asking, yes there is an “ERC” for self-employed individuals. In the intricate realm of tax obligations, self-employed individuals often find themselves dealing with a world of tax complexity. Within this intricate landscape, amidst an array of deductions and credits, one particular benefit may have eluded the attention of many independent workers during the tumultuous years of 2020 and 2021: the self-employed tax credit, a hidden gem that goes by another name, the ERC for self-employed.
The COVID-19 pandemic unleashed a storm of challenges upon the workforce, casting a particularly harsh impact on self-employed individuals. In response, the U.S. government created a fortress of relief measures, including tax credits designed to alleviate the financial burden that independent workers had to deal with. However, amidst the rapidly evolving programs and the deluge of information swirling in the crisis’s wake, many self-employed individuals may have inadvertently let slip through their fingers a gem of opportunity.
The SETC or “ERC for self-employed”, was introduced as part of the Families First Coronavirus Response Act (FFCRA). This credit was created to offer financial assistance to self-employed individuals who couldn’t work due to COVID-19-related situations, such as illness, quarantine, or taking care of family members. Think of it as a helping hand, reaching out to support self-employed workers who faced challenges during these difficult times, providing them with the means to weather the storm and maintain their financial stability.
For those who were unaware of this credit in 2020 and 2021, there’s good news: it’s not too late to claim it. The IRS allows taxpayers to file amended returns for up to three years after the original filing deadline. This means that self-employed individuals who missed out on claiming the ERC for self-employed for the 2020 and 2021 tax years still have time to do so.
To be eligible for the credit, self-employed individuals must have been unable to work for reasons related to COVID-19, such as:
- Being subject to a federal, state, or local quarantine or isolation order
- Being advised by a healthcare provider to self-quarantine
- Experiencing symptoms of COVID-19 and seeking a medical diagnosis
- Caring for an individual subject to quarantine or isolation order
- Caring for a child whose school or place of care was closed due to COVID-19
The credit amount for the ERC for self-employed is calculated based on the number of days the individual was unable to work, with a maximum of 10 days for sick leave and up to 50 days for family leave. The daily credit amount is the lesser of $200 or 67% of the average daily self-employment income for the taxable year. Maximum credit per person is $32, 200 and the average is around $12,000 for those that are eligible.
To claim the credit retroactively, self-employed individuals will need to file Form 1040-X, Amended U.S. Individual Income Tax Return, along with Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals. It’s crucial to maintain accurate records and documentation to support the claim, including evidence of qualifying circumstances and calculations of self-employment income.
The process of amending a tax return may seem daunting, so there are services that will do it for you and even provide you an advance on your credit so you do not need to wait on the IRS to send you a check. Check times from the IRS are ranging from six to eight months. For many self-employed workers who struggled during the pandemic, this overlooked credit could provide much-needed financial relief.
As tax laws and credits continue to evolve, it’s essential for self-employed individuals to stay informed about potential benefits and seek professional advice when needed. The SETC serves as a reminder of the importance of thorough tax planning and the potential for unclaimed benefits, even years after the initial filing
