The Families First Coronavirus Response Act authorized a tax credit for Qualified Sick Leave and Qualified Family Leave for self-employed taxpayers.
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A refundable tax credit is allowed for the “Qualified Sick Leave Equivalent” (QSLE) amount incurred by self-employed persons during the taxable year. The QSLE is limited to the first 10 days, or 80 hours, the individual is unable to perform services in any trade or business for the following reasons:
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- You were subject to a federal, state, or local quarantine or isolation order related to COVID-19.
- You were advised by a health care provider to self-quarantine due to concerns related to COVID-19.
- You were experiencing symptoms of COVID-19 and seeking a medical diagnosis.
- You were caring for an individual who was subject to a federal, state, or local quarantine or isolation order related to COVID-19.
- You were caring for an individual who was advised by a health care provider to self-quarantine due to concerns related to COVID-19.
- You were caring for a son or daughter because the school or place of care for that child was closed or the childcare provider for that child was unavailable due to COVID-19 precautions.
The credit is capped at the lesser of $511 per day or 100% of the “Average Daily Self-Employment Income” for points 1, 2, and 3, and is capped at the lesser of $200 per day or 67% of the “Average Daily Self-Employment Income” for points 4, 5, and 6. “Average Daily Self-Employment Income” is net earnings from self-employment for the taxable year divided by 260.
A refundable tax credit is also allowed for the “Qualified Family Leave Equivalent” (QFLE) amount incurred by self-employed persons during the taxable year. The QFLE is limited to 50 days the individual is unable to perform services in any trade or business for the following reasons:
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- You were unable to perform services as a self-employed individual because of certain coronavirus-related care you provided to a son or daughter. This can be due to elementary and secondary school closures, child care provider closures/cancellations, and/or day care closures or cancellations. The child must be under the age of 18.
The credit is capped at the lesser of $200 per day or 67% of the “Average Daily Self-Employment Income”. The total credit claimed cannot exceed $10,000, or 50 days.
The QSLE and QFLE credit can both be claimed on Form 7202. The Consolidated Appropriations Act of 2021 included a provision to allow the taxpayer to use his or her prior year net earnings from self-employment to calculate the credits. This could be advantageous if the taxpayer’s self-employment income was higher in 2019 as compared to 2020
Payroll Tax Deferral for Self-Employed Taxpayers
Self-employed individuals may defer the payment of 50 percent of the Social Security tax on net earnings from self-employment income for the period beginning on March 27, 2020 and ending December 31, 2020. Self-employed individuals may use any reasonable method to allocate 50 percent of the Social Security portion of self-employment tax attributable to net earnings from self-employment earned during March 27, 2020, through December 31, 2020. For example, an individual may allocate 22.5% of the individual’s annual earnings from self-employment to the period from January 1, 2020, through March 26, 2020, and 77.5% of the individual’s annual earnings to the period from March 27, 2020, through December 31, 2020. The IRS will not assess a penalty for failure to timely pay taxes under the deferral arrangement. The taxes are to be paid in two equal installments with the first due on December 31, 2021 and the second due on December 31, 2022. They can be paid back earlier if the taxpayer wishes to do so.
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