The information in this article was last updated on Jan. 6, 2021. This article relates to the tax laws enacted during the COVID-19 pandemic. These laws may have expired or reverted to their original state.
Self-employed individuals make up an important part of the American workforce today, and many have lost income or their jobs entirely due to the COVID-19 outbreak. “Self-employed” refers to anyone who earns income but is not employed in the traditional sense. Gig workers, freelancers, small business owners, and independent contractors are considered self-employed. Taxpayers that are in a partnership and earn self-employed income will also be able to claim the benefits that are available to the self-employed.
The following credits are refundable. This means, if the credit you are claiming is worth more than your tax bill, the government will give you back the difference in your tax refund.
COVID-19 stimulus payments for self-employed
The U.S. government issued two rounds of stimulus checks to assist families and individuals facing hardships due to the ongoing pandemic.
If you were eligible for the first or second payment but did not receive it or you did not receive the correct amount, you can claim the Rebate Recovery Credit for the difference on your 2020 tax return (when you file in 2021).
To estimate your expected stimulus payment amount, use TaxSlayer’s stimulus check calculator.
Qualified paid leave credit
If you had to take sick leave from your job for your own health or to care for a member of your family, you could receive a refundable tax credit to help make up for your loss in income. For the paid sick leave credit, you can claim:
- up to ten days of sick pay at your average rate (maximum value: $511 per day) if you are quarantined due to coronavirus
- up to ten days at two-thirds your average rate (maximum value: $200 per day) if you are caring for a quarantined family member
Erin works full-time as a tutor. On average, she earns $100 per day of self-employed income. She was ill with coronavirus symptoms for six days in March, so she couldn’t teach students online like she had been doing.
$100 x 6 days = $600 refundable tax credit
When Erin files her 2020 taxes, she can claim a refundable tax credit worth $600 for sick leave.
Qualified family leave credit
If you were unable to send your child (or dependent) to school or daycare because the facility closed, you may claim up to 50 days of income, at two-thirds the rate you would typically earn (maximum value: $200 per day).
Let’s say you earn $100 per day on average working multiple side gigs. Suddenly, due to the coronavirus, your child cannot attend school for the next two months. With the family leave credit, you can claim two-thirds your income for 50 days.
$100 x 2/3 = $66.67
$66.67 x 50 days = $3,333 refundable tax credit
Note: Because these credits are refundable, if the credit you are claiming is worth more than your tax bill, the government will give you back the difference in your tax refund.
How do I claim the qualified family leave and sick leave credits?
Your tax credit for qualified family leave and/or sick leave will be calculated on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals. You’ll claim these credits on your Form 1040, U.S. Individual Income Tax Return.
When you file with TaxSlayer Self-Employed, your information will automatically be entered on the correct tax form, and the calculations will be done for you.
How do I know what my average daily income is?
To calculate your average daily earnings, start by adding up all the income you earned for the year. If you earned less in 2020 due to COVID-19, you may use your 2019 self-employment income to calculate the sick leave and family leave refundable credit. This number is your gross income.
Now subtract any ordinary and necessary expenses you paid during the year. This new number is your net income. Divide your net income by 260 to find your average daily income.
What will I need to show to get these credits?
The IRS will require some type of record proving that you are eligible to claim this credit. As a self-employed individual, you may need to provide a statement that includes:
- The date or dates you were unable to work
- The name of the client/company for whom you perform services
- The reason you were unable to work (related to COVID-19)
If you were given a quarantine order or were advised to self-quarantine:
Include the name of the government entity and/or health care professional who recommended the quarantine. If you were taking care of someone else who was required to quarantine, include their name and relationship to you.
If you were unable to work due to a school closing or lack of childcare:
Include the name and age of your child (or children) to be cared for and the name of the school, childcare facility, or program that closed.
When do these tax credits apply?
The sick leave and family leave credit for the self-employed has been extended through March 31, 2021. If you took leave in 2020, the credit(s) will apply to your 2020 return. Any days taken from January 1, 2021 through March 31, 2021 should be claimed on next year’s return.
Social Security tax deferral
If you have employees, under the CARES Act you were able to defer the 6.2% employer portion of Social Security tax for March 27, 2020 through December 31, 2020. You were also allowed to postpone the payment of 50% of the Social Security portion of your self-employment tax for the same period.
In this case, remember that half of the amount you deferred is due on December 31, 2021, and the other half will be due on December 31, 2022.
The tax credits described here are part of the CARES Act, which modified the Families First Coronavirus Response Act. The provisions have been extended by the Consolidated Appropriations Act, passed by Congress and enacted on December 27, 2020.