SETC BACKGROUND
The SETC (Self-Employed Tax Credit) is a specialized tax credit created to help self-employed individuals, including small business owners, freelancers, and 1099 contractors, during the COVID-19 pandemic.
The IRS announced the SETC program back in 2021, but it has flown under the radar for the past few years.
The credit is for eligible self-employed individuals or independent contractors who were unable to work or telework due to COVID-19-related reasons.
Self-Employed 1099 Workers ‘Gig Workers’
This tax credit is designed to assist self-employed individuals, small business owners, freelancers, and 1099 contractors only. These workers were often termed ‘gig workers’ by the media. These self-employed individuals worked in a wide number of occupations, including:
- Freelancers: Workers who remotely earned income as content writers, web designers, web developers, and other outsourced workers, etc.
- Independent Contractors: Workers on per-project basis, usually in construction, transportation, or delivery jobs
- On-Demand Workers: Workers who earned income as ride-sharing drivers, food delivery drivers, household cleaners, etc.
- Temporary / Seasonal Workers: Workers who were hired during busy seasons or for special events (catering, bartending, guards, security clerks, etc.)
- Consultants: Workers who earned income for their specialized knowledge and expertise to businesses or organizations on a project basis, typically in fields like management, finance, or marketing.
To be eligible for the SETC, individuals must meet the following criteria:
- Self-Employed Status: The individual must have been self-employed in 2020 and/or 2021, including sole proprietors who run businesses with employees, 1099 subcontractors, and single-member LLCs. They should have filed a "Schedule C" or a Partnership (1065) on their federal tax returns for the respective years.
- Impact of COVID-19: The individual must have been unable to work or telework due to COVID-19-related reasons, such as illness, caregiving responsibilities, quarantine, or other related circumstances.
- Tax Filing: Eligible individuals need to report the qualified sick and family leave equivalent amounts on their 2019, 2020, or 2021 tax returns, depending on when the leave was taken. Amended tax returns may be required to claim the credit.
- Documentation: The individual is typically required to provide their 2019, 2020, and 2021 tax returns, including the Schedule C, and a copy of their driver's license for identification