The outbreak of COVID-19 led to unprecedented global disruptions, impacting not only health but also the livelihoods of millions. In response, the U.S. government enacted the Families First Coronavirus Response Act (FFCRA) in 2020, which includes a beneficial provision for self-employed individuals such as freelancers, 1099 contractors, and gig workers. This provision allows them to claim a tax credit for income lost due to COVID-19 related reasons, applicable retroactively to the tax years 2020 (expired April 15, 2024) and 2021.
Who Qualifies for the FFCRA Tax Credit?
The tax credit under the FFCRA is designed for self-employed individuals who experienced an inability to work or a reduction in earnings due to various COVID-19 related disruptions. This broad categorization ensures that a significant portion of the gig and freelance economy can benefit from this provision.
Qualified Reasons for Leave
Eligibility for the credit hinges on several specific COVID-19 related reasons that might have prevented individuals from working. These include:
- Being diagnosed with COVID-19 or recovering from it.
- Being required to quarantine due to exposure to the virus.
- Awaiting or seeking a diagnosis for COVID-19 symptoms.
- Receiving a COVID-19 vaccine or recovering from its side effects.
- Caring for a child whose school or daycare was closed due to the pandemic.
- Caring for a person who is sick or considered at-risk due to COVID-19.
These criteria are designed to cover a broad range of circumstances that might have impacted self-employed individuals during the pandemic.
Credit Details: Direct Reduction in Tax Owed
Unlike standard deductions that reduce the amount of income subject to tax, the FFCRA tax credit directly reduces the tax owed by the self-employed individual. This makes the credit more valuable than a typical tax deduction, as it directly decreases the total tax bill, dollar-for-dollar.
The credit amount is calculated based on the earnings of the individual and the number of days they were unable to work. There are two categories of claims under the FFCRA tax credit:
- Sick Leave Credit: For days when the individual couldn’t work due to personal health issues related to COVID-19. This includes time taken off for illness, quarantine, or vaccination. The credit can be claimed at 100% of the average daily income, up to a maximum of $511 per day.
- Family Leave Credit: Applies when a self-employed person needs to care for a family member or a child whose school or care facility is closed. This credit covers 67% of the daily income, up to $200 per day.
How to Claim the Credit
To claim the FFCRA tax credit, self-employed individuals must document their eligibility and calculate the total credit on their tax returns. This includes maintaining records of their work schedule, days unable to work, and any correspondence or documentation related to COVID-19 diagnoses or care responsibilities. The IRS Form 7202, “Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals,” is used to calculate and file the credit with annual tax returns.
In summary, the FFCRA tax credit offers substantial financial relief to self-employed individuals affected by the COVID-19 pandemic, recognizing the unique challenges faced by freelancers and gig workers. By directly reducing tax liabilities based on lost working days due to COVID-19, the government provides a much-needed financial boost to those in the freelance sector, helping them manage the economic implications of the pandemic.
To calculate your credit and get help filing, click here: https://lif.onl/setc
