If you were sick in 2020 or the beginning of 2021 due to COVID-19, or you had to take time away from your freelance business to care for a sick family member or to take care of your child due to school closure or other loss of childcare, you’ll want to see if you are eligible for qualified sick and family leave equivalent tax credits with IRS Form 7202, “Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals.”
Form 7202 is a new federal form that aims to help those who are self-employed claim sick and family leave tax credits under the Families First Coronavirus Response Act (FFCRA). You may be able to claim these credits on your 2020 tax return for leave taken between April 1 and Dec. 31, 2020, and on next year’s tax return (for 2021) related to leave taken between Jan. 1 and March 31, 2021.
Note that you cannot claim these credits for the same period as any PPP loan forgiveness you may be eligible for.
The FFCRA, passed last March, gives refundable tax credits to eligible self-employed individuals who, due to COVID-19, can’t work or telework for reasons relating to their own health or to caring for a family member. The credits can offset your federal freelance income tax and are equal to either your qualified sick leave or family leave equivalent amount, depending on your specific situation.
Here are the eligibility requirements from the IRS:
· You must conduct a trade or business that qualifies as self-employment income and be eligible to receive qualified sick or family leave wages under the Emergency Paid Sick Leave Act as if you are an employee.
· You must maintain appropriate documentation establishing your eligibility, such as a letter from your doctor, letter from your childcare facility explaining their closure, etc.
IRS.gov has instructions to help you calculate the qualified sick leave equivalent amount and qualified family leave equivalent amount you may be eligible for. In brief, the sick leave credit is calculated using your average daily self-employment income from the previous tax year and can be claimed for up to 10 days of lost work. The family leave credit is calculated at 67% of your average daily income and can be claimed for up to 50 days.
Now that tax filing season is here, it is important to look at any potential tax savings you may be eligible for. If COVID-19 impacted your ability to work either directly due to your own illness or indirectly because you cared for a family member who was ill, you’ll want to check out these potential tax credits to lower your taxable income for both 2020 and next year in 2021.
Jonathan Medows is a New York City-based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He provides tax, accounting and business articles for freelancers on his website, http://www.cpaforfreelancers.com, which also features a blog and a comprehensive freelance tax guide. Please note, due to the high volume of inquiries in regard to COVID-19, Jonathan is not able to respond to individual requests for information at this time.