Prior to the COVID-19 pandemic self-employed people likely felt they were overlooked. The availability of financing under the paycheck protection program and certain tax credits have shone a light of hope for the self-employed individual. A self-employed individual may be eligible to claim a tax credit under the qualified sick leave and qualified family leave provisions of COVID-19 legislation. The income tax credit may be used to offset federal self-employment tax for any taxable year equal to their qualified sick leave equivalent amount or qualified family leave equivalent amount. For purposes of this article we will focus on the qualified sick leave equivalent amount.
To be considered for the credit you must be an eligible self-employed individual. To meet that criteria you must regularly carry on a trade or business and if you were an employee of an Eligible Employer (other than yourself) who is subject to the requirements of the Families First Coronavirus Response Act (FFCRA) you would be entitled to receive qualified sick leave wages under FFCRA.
If you have been unable to work or telework because you were:
- Subject to a Federal, State or local quarantine or isolation order related to COVID-19
- Been advised by a health care provider to self-quarantine due to concerns related to COVID-19
- Have experienced symptoms of COVID 19 and are seeking a medical diagnosis
The qualified sick leave equivalent amount is equal to the number of days during the taxable year that you cannot perform services in your applicable trade or business for one of the three above reasons, multiplied by the lesser of $511 or 100% of the average daily self-employment income of the individual for the taxable year.
A qualified sick leave equivalent amount of the lesser of $200 or 67% of the average daily self-employment income of the individual is available if you have been unable to work or telework because you:
- Have been caring for an individual who is subject to a Federal, State or local quarantine or isolation order related to COVID-19 or have been advised to self-quarantine due to concerns related to COVID-19
- Have been caring for a child if the child’s school or place or care has been closed or childcare provider is unavailable due to COVID-19 precautions
- Has experienced any other substantially similar condition specified by the Secretary of Health and Human services in consultation with the Secretary of the Treasury and Secretary of Labor
The maximum number of days that may be taken into account in determining the qualified sick leave equivalent amount is ten and the only days to be considered are those occurring between the period that began April 1, 2020 and ends on December 31, 2020.
If you’ve read this and think it just seems to be complicated, you are not wrong. Your Henry+Horne tax advisor can assist you in determining your eligibility and potential credit under the provisions as written. This has been a rough year but there are provisions within the tax code to help mitigate some of the upheaval of the pandemic.
Cheryl Dickerson, CPA