Frequently Asked Questions about the Self-Employed Tax Credit (SETC)
What is the SETC tax credit program?
The SETC tax credit program, established by the Families First Coronavirus Response Act (FFCRA) in March 2020, initially targeted W-2 employees for paid sick leave and unemployment benefits due to COVID-19. The program later expanded under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in December 2020 to include self-employed individuals, freelancers, independent contractors, and gig workers. The SETC provides federal legislation offering tax credits to compensate for lost income during COVID-19-related periods of sick leave.
How much is the SETC credit?
The SETC tax credit can amount to a maximum of $32,220, determined by your self-employed net earnings in 2020 and 2021. The calculation considers your daily average self-employment income and the days missed due to COVID-19-related issues.
How can I claim the SETC tax credits?
To claim SETC tax credits, eligible individuals must assess their qualification, amend their 2020 and/or 2021 tax returns, and submit supporting schedules. Utilizing a Certified Public Accountant (CPA) is recommended for optimal results. Legacy Tax & Resolution Services offers a user-friendly tool for self-employed individuals to efficiently claim their federal SETC tax credits.
Who qualifies for the SETC tax credits?
Self-employed individuals, including sole proprietors, independent business owners, 1099 contractors, freelancers, gig workers, and single-member LLCs taxed as a Sole-proprietorship, qualify if they filed a Schedule SE of IRS Tax Form 1040 in 2020 and/or 2021, reported positive net income, and experienced work disruptions due to COVID-19.
What qualifies as a reason for claiming SETC?
To qualify for SETC tax credits, you must have missed self-employment work due to COVID-related issues, such as government-imposed quarantine orders, doctor-recommended self-quarantine, COVID-19 symptoms, waiting for test results, vaccination, or experiencing side effects from the COVID-19 vaccine.
What dates are eligible for SETC tax credits?
The SETC covers days from April 1, 2020, to September 30, 2021, with varying eligibility periods for childcare-related time off and personal COVID-related issues.
How is the credit amount determined?
The credit amount depends on your average daily self-employment income and the days missed due to COVID-related issues. The childcare portion is calculated by multiplying the number of leave days by your average daily self-employment income or $511, whichever is smaller. For personal COVID-related issues or caregiving, the calculation involves 2/3 of your average daily self-employment income or $200, whichever is smaller.
What is the average SETC refund people receive?
On average, Legacy Tax & Resolution Services customers have received an SETC refund of $9,400.
How long does it take to receive a refund? After the IRS acknowledges the acceptance of your SETC credit application, it can take up to 20 weeks to receive your refund via check or direct deposit.
Why haven't I heard of the SETC tax credits before?
Initially focused on W-2 employees, the SETC's expansion under the CARES Act to include the self-employed was not widely publicized. Research indicates that over 80% of self-employed individuals are unaware of their entitlement to SETC tax credits.
Are there any deadlines for claiming the SETC tax credits?
Yes, the deadline to amend 2020 and/or 2021 tax returns for SETC credits is three years from the original due date or within two years from the tax payment date, whichever is later.
What if I already filed my taxes for 2020 & 2021?
If you've filed, Legacy Tax & Resolution Services can assist by amending your tax returns. The necessary documents include copies of your 2019, 2020, and 2021 tax returns and your driver's license.
Is this similar to the PPP program?
No, SETC and PPP are distinct initiatives. PPP provides loans with potential forgiveness for small businesses, while SETC is a tax credit for individuals, not a loan.
What is the Sick & Family Leave Tax Credit?
The Sick and Family Leave Tax Credit, under the FFCRA, provides eligible self-employed individuals a refundable tax credit for qualified sick and family leave equivalent amounts due to COVID-19-related reasons.
Is SETC a loan or a grant?
SETC is a tax credit, not a loan or grant. It refunds taxes already paid, compensating for lost income during COVID-19-related periods of sick leave.
What documentation do I need to provide?
Required documents include your 2019, 2020, and 2021 tax returns, including Schedule C, and a copy of your driver's license.
How much are your processing fees?
Legacy Tax & Resolution Services charges no upfront fee. Processing fees apply after calculating the tax credit, and an additional 20% is due after receiving your IRS refund.
Does filing for SETC tax credits impact filing my 2023 income taxes?
No, filing for SETC tax credits won't impact your 2023 income taxes. The process involves amending previously filed returns for 2020 and/or 2021.
Do I have to fill out a ton of paperwork?
No, the process is streamlined. A simple agreement letter, along with your tax returns and driver's license, is required. Legacy Tax & Resolution Services handles the filing process.
Do I have to be self-employed to file for the tax credit refund?
Yes, SETC tax credits are exclusively for self-employed individuals, including small business owners, freelancers, and 1099 contractors.
How much of a tax credit can I expect to receive?
The tax credit amount depends on factors like net income, days missed due to COVID-19, and caregiving responsibilities. The online Tax Credit Calculator provides a quick estimate.
If the taxpayer and spouse both have self-employed income, can they both get the SETC?
Yes, both can receive the credit individually, but they cannot share qualifying COVID days.
Is the Self-Employed Tax Credit (SETC) taxable?
No, unlike the Employee Retention Tax Credit (ERTC), SETC is not taxable.
How long before I will receive my cash refund?
The process usually takes 12–16 weeks after Legacy Tax & Resolution Services receives necessary paperwork.
Terminology Questions
What is the definition of a dependent?
The IRS defines a dependent as a qualifying child or relative of the taxpayer, meeting specific criteria related to age, student status, or disability.
What happens in cases of divorce after filing 2020/2021 taxes?
For those who filed as Married Filing Joint, both spouses' signatures are required for amended returns in cases of divorce. Different rules apply if filing as Head of Household or Married Filing Separate.
What does it mean to be self-employed?
Self-employed individuals, as defined by the IRS, engage in a trade or business independently, either as a sole proprietor, independent contractor, or business owner.
Do I qualify for SETC tax credit if I already received unemployment benefits?
Yes, you can still qualify for SETC tax credits, but days receiving unemployment benefits cannot be claimed.
Can I claim SETC tax credits if I am also a W2 employee?
Yes, if you earned self-employment income in addition to your W2 salary, you may still be eligible for SETC tax credits.
Do weekends count as days I can claim?
Yes, if you missed self-employment work on weekends due to COVID-19, you can claim those days.
Can I use days I took care of a child other than my own?
Yes, caring for a child other than your own qualifies under the "Caring for others" section of the portal.
What if my child's school moved to online instruction/classes?
Is it considered "closed" for the purpose of the credit? Yes, if the physical location is closed, even with online instruction, it is considered "closed" for the purpose of paid sick leave.
Why do I have to have positive net earnings to qualify for SETC income tax credit?
Positive net earnings are required by the IRS to qualify for the SETC income tax credit, indicating taxable income against which the credit can be applied.
Form Questions
What is a Form 1040?
IRS Form 1040 is the standard individual income tax form in the U.S., used to report annual income and calculate tax liability.
What is a Form 1040X?
IRS Form 1040X is used to amend previously filed individual tax returns, necessary for claiming SETC tax credits.
What is a Schedule SE Form 1040?
Schedule SE is used by self-employed individuals to calculate self-employment tax, essential for eligibility in the SETC tax credit program.
What is a Schedule C?
Schedule C is a tax form used by sole proprietors and self-employed individuals to report business income and expenses.
What is a Form 7202?
IRS Form 7202 is used to claim SETC tax credits for self-employed individuals due to COVID-19-related reasons.
What is a Form 8821?
IRS Form 8821 is the Tax Information Authorization form, allowing third-party access to tax information for a specified period. It enables Legacy Tax & Resolution Services to process SETC tax credit claims.
These FAQs provide comprehensive information about the SETC tax credit program, eligibility, claiming process, and related terminology.
