Being self-employed for some is the American dream. You get to set your own hours, take off when you want and choose who to work with. The downsides are the same things, you get to set your own hours, take off when you want and choose who you work with. That creates some issues for things like tax credits that are directed to businesses. I’m sure you have all heard of the tax credits that employers are getting when their employees are sick with COVID-19 and the employee retention credits they can use against payroll taxes. But how does that work if you are self-employed?
Well, it turns out that for 2021 taxes those who are self-employed are also eligible to qualify for the sick and family leave credits. Now if you have employees, you might also be eligible for the employee retention credit but only on your employee’s wages not on you.
Here we are only going through the sick and family leave credits available to those who are self-employed. To qualify for this, you must be an eligible self-employed individual, which basically means you pay self-employment taxes on your income from a business. You also must either have been sick or under a quarantine imposed by either your health care provider, federal mandate, or local mandate, or have been caring for a child whose school or day-care was closed due to COVID-19 between January 1st and September 30th and been unable to work. In addition, if you were vaccinated between April 1st and September 30th and were sick or unable to work you might qualify for this as well. If you have both self-employment income and regular W-2 income you cannot use the same days that your W-2 employer paid you during that period. In other words, no double dipping.
You also must be able to prove that you were unable to perform your services as a self-employed business owner. You must have the same type of proof you would supply to your employer such as a doctor note or notice from your child’s school. The credit is based on the average income for each day. You take your yearly self-employment income and divide by 260 (the IRS assumes you only work 5 days a week). You are however limited to $511 a day. That number is then multiplied by 67% but cannot exceed $200 a day. If your income in 2020 was higher you can also base this on the 2020 income instead of the 2021
The bottom line is that if you are self-employed and you had COVID, or your children were home due to COVID or because their school was closed you could be eligible for this. But make sure you keep the proof with your taxes for the year. I’m sure these will be very susceptible to audit.
If you have any questions or concerns, please don’t hesitate to schedule an appointment with us so we can go through whether or not you’re eligible.