Who is eligible for the SETC Tax Credit?

Eligibility Criteria for SETC Tax Credit

The fact that you're self-employed is only the first step for eligibility for the SETC Tax Credit.
Certain requirements exist you must satisfy to qualify.
Specifically, you must have earned a positive net income from your self-employment activities as reported on IRS Form 1040 Schedule SE for 2019, 2020, or 2021.

This indicates you should have had higher earnings than expenses in your business.
However, if your earnings were not positive 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 particularly beneficial for those who are self-employed who experienced financial setbacks during the pandemic.

Additionally, if both you and your partner are self-employed and file a joint return, you can each qualify for the SETC Tax Credit.
Nonetheless, you are not allowed to claim the same COVID-related days for eligibility.
Additionally, be aware that even if you received unemployment benefits, you are still eligible for the SETC Tax Credit.

It’s prohibited to claim the days you received unemployment benefits as days when you were unable to work due to COVID-19.
These days are treated separately from other pandemic-related work absences.

Requirements for Self-Employment Status

The term ‘self-employed’ includes a wide range of professionals, such as self-employed taxpayers.
To qualify for the SETC tax credit, self-employed status includes:

Sole proprietorships
Independent entrepreneurs
1099 contractors
Freelancers
Gig workers
Single-member LLCs treated as sole proprietorships

It is essential for these individuals to be aware of their self-employment tax obligations.

So, whether you’re a freelancer working from the comfort of your home, a gig worker navigating the fast-paced world of on-demand services, or a sole proprietor running your own business, you could potentially be eligible 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 are also potentially eligible for SETC.
For example, partners in partnerships that are taxed as sole proprietorships and partnership general partners may be eligible for SETC, given that they meet other required criteria.

What is required for U.S. citizens, permanent residents, or qualifying resident aliens who are self-employed is to submit 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 approved years (in the years 2019, 2020, or 2021).

Nevertheless, if you didn’t have positive earnings in 2020 or 2021 due to COVID-19, your 2019 net income can be used to qualify for the SETC Tax Credit.

Additionally, the SETC employed tax credit, commonly referred to as the SETC tax credit, is capable of offsetting your self-employment tax liability or may be refunded if it surpasses your tax liability.

It’s important to note 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.
Here’s where the self-employed tax credit can significantly help reduce your tax burden.

Furthermore, even though those who received unemployment benefits can claim the SETC tax credit, they are barred from claiming days they were receiving these benefits as days unable to work due to COVID-19.

COVID-Related Business Disruptions and Qualified Sick Leave

The unpredictability of self-employment has been further compounded by the unpredictability 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.

Whether dealing with government quarantine orders to coping with symptoms or attending to family members and struggling with school or childcare facility closures — if your work capacity was impacted during the period from April 1, 2020, to September 30, 2021, you could qualify for the SETC Tax Credit.

It’s important to note that, the SETC Tax Credit has specific caveats.
Those self-employed who were on unemployment 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.

Additionally, it is essential to keep accurate records of how COVID-19 impacted your ability to work, as the IRS could ask for these records during an audit.