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What Is the Self-Employed Tax Credit, and How Does It Work?

January 2, 2025

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Were you self-employed, a gig worker, a sole proprietor, a 1099 contractor, or a freelancer during government-mandated shutdowns in 2020 and 2021? If so, you could be eligible for a significant tax credit. Shockingly, an estimated 80 million self-employed Americans who qualify for the Self-Employed Tax Credit (SETC) still haven’t claimed what’s rightfully theirs.

The COVID-19 pandemic turned the world upside down in early 2020, and few felt its impact more deeply than self-employed individuals. The sudden economic shifts thrust countless self-employed individuals into uncharted territory, scrambling to adapt and stay afloat.

To help self-employed individuals recover and thrive, the federal government introduced the Self-Employed Tax Credit (SETC) — a financial lifeline for those who kept the economy moving during tough times. So, what exactly is the SETC, and how can you determine if you qualify?

What Is the SETC?

The SETC is a powerful financial support tool created to help independent workers who faced economic setbacks during the COVID-19 pandemic. It’s more than just a credit — it’s a lifeline for those working through one of the most challenging times in history.

The SETC is rooted in the federal Sick Leave and Family Leave Tax Credits, established under the Families First Coronavirus Response Act (FFCRA) and expanded by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. These measures were designed to recognize the essential role of self-employed individuals and offer them the same kind of relief that traditional employees received from their employers.

Eligibility for the SETC Tax Credit

SETC is available to individuals who meet specific criteria for financial hardships experienced during the COVID-19 pandemic. You could qualify if you worked for yourself in any capacity and faced income loss due to illness, caregiving, or government-mandated shutdowns in 2020 or 2021.

Eligible Workers

The SETC is for all self-employed professionals. Eligibility for the SETC includes United States citizens or qualified permanent residents who are eligible self-employed individuals, such as:

  • Sole proprietors: Individuals who owned and operated their own business without employees.
  • Independent contractors: Workers contracted to provide services but not employed by a company, such as delivery drivers, rideshare operators, or consultants.
  • Freelancers: Self-employed professionals offering services like writing, graphic design, programming, or other creative and technical tasks.
  • Gig workers: Individuals working in the gig economy, including food delivery, rideshare, or task-based platforms like DoorDash, Uber, or TaskRabbit.

Qualifying Circumstances

You may be eligible if:

  • You had to take time off to recover from illness related to COVID-19.
  • You were a caregiver for a loved one impacted by COVID-19.
  • You experienced a loss of income due to government-mandated shutdowns that restricted your ability to work.

Special Cases

Certain conditions could affect your eligibility:

  1. Partial income loss: If your business or income was only partially affected, you may still qualify based on the degree of financial impact.
  2. Previously claimed credits: If you have already claimed Form 7202 for this credit in a prior tax year, you may not be eligible to claim it again.
  3. Minimum income requirement: You must have earned sufficient self-employment income to qualify for the credit under the program guidelines.

The SETC is a refundable credit, meaning you can still receive the benefit even if you don’t owe taxes. It’s not just financial relief — it’s an acknowledgment of the essential role self-employed workers played in keeping the economy moving during a difficult time.

How To Calculate Your SETC Tax Credit Refund Amount

If you’re eligible for the Self-Employed Tax Credit, the next step is figuring out how much you can claim. Don’t worry — it’s more straightforward than it sounds, and we’re here to guide you every step of the way.

Your refund amount is based on two key factors:

  1. Your average daily self-employment income.
  2. The number of workdays you missed due to COVID-19 impacts.

Here’s how it breaks down:

  • For qualified sick leave: If you couldn’t work because you were quarantined, had COVID-19 symptoms, or were recovering from illness, your credit is calculated at 100% of your average daily income — up to $511 per day.
  • For qualified family leave: If you had to stop working to care for a loved one affected by COVID-19 or deal with childcare interruptions, your credit equals 67% of your average daily income, capped at $200 per day.

What About Couples?

If you and your spouse are self-employed, you can each claim up to the maximum SETC credit, provided you don’t overlap on the same qualifying COVID-19 days. That means double the potential relief for households with two self-employed earners.

How To Calculate Your Credit:

To calculate your refund, you must fill out IRS Form 7202. This form will guide you through:

  • Reporting your self-employment income.
  • Documenting the number of qualifying COVID-19-related days you couldn’t work.
  • Applying the credit formulas for sick leave and family leave.

How To Apply for the SETC Tax Credit: A Step-by-Step Guide

Now that you know the Self-Employed Tax Credit, why it matters, and how to calculate your potential refund, it’s time to claim it. The process might seem daunting, but we’ll break it down into simple, manageable steps so you can secure the money you’ve earned.

Step 1: Estimate Your Credit Amount

Use a reliable estimator tool to get a ballpark figure of your potential refund. This will help you understand what’s at stake and motivate you to see the process through.

Step 2: Gather Your Documents

Make sure you have:

  • Your tax returns for the years 2020 and 2021.
  • Proof of self-employment income, such as 1099 forms, invoices, or other records.
  • Documentation of COVID-19-related disruptions, such as missed workdays due to illness, caregiving, or shutdowns.

Step 3: Fill Out IRS Form 7202

This is where the math happens. Form 7202 asks for:

  • Your average daily self-employment income.
  • The number of workdays you missed due to qualified COVID-19 circumstances.
  • Calculations for sick and family leave credits under the FFCRA.

Don’t forget: Accuracy matters. Double-check your numbers and documentation to avoid delays or missed opportunities.

Step 4: Attach and Submit

Once you’ve completed Form 7202, attach it to your tax return for the applicable year and file everything with the IRS. Be sure to include all required documents to back up your claim.

Step 5: Get Expert Help if Needed

This process can feel a little overwhelming. Even seasoned certified public accountants (CPAs) sometimes turn to specialized services for SETC filings. If you’re not confident about tackling it on your own, reach out to experts who can handle the details and ensure you don’t leave any money on the table.

How Gig Worker Solutions Makes SETC Easy for You

At Gig Worker Solutions, we’re all about simplifying the complex so you can focus on what you do best. When claiming the Self-Employed Tax Credit, we’ve got your back with the tools, resources, and expert support you need to make the process a breeze.

  • Start with the SETC estimator tool: Use this tool to calculate your potential refund amount quickly and confidently.
  • Find your tax documents: Lost or missing forms? Visit FindMyTaxReturns.com to retrieve the necessary paperwork.
  • Step-by-step guides: Our comprehensive guides and video tutorials break down the process of filling out IRS Form 7202 in simple terms.
  • Connect with experts: Do you need professional help? We can link you with trusted SETC specialists who’ll handle the details and maximize your credit. Members even get access to discounted rates on these services.

From easy document uploads to secure filing tools and friendly reminders about deadlines, Gig Worker Solutions is here to make claiming your SETC credit smooth and stress-free. Don’t leave money on the table — let’s get started today.

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You May Qualify For Up To $32,200 With The Self Employment Tax Credit.
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