Covid-19 Related Tax Breaks for Self-Employed Individuals

Under the American Rescue Plan Act of 2021, self-employed individuals have the opportunity to claim two refundable credits that can total up to over $17,000.

Who qualifies for these credits?

Anyone who can be considered a self-employed individual, which is defined as an individual who regularly carries on any trade or business within the meaning of section 1402 of the Internal Revenue Code. This includes anyone who is a 1099 independent contractor that is actively seeking a profit as well as a member of a partnership that carries on a trade or business.

What are the credits called?

The first credit is called the qualified sick leave equivalent credit, and its purpose is to provide a tax break for self-employed individuals who were unable to work because they had to quarantine, believed they had Covid-19 and were awaiting test results, comply with a recommendation to self-isolate due to Covid-19, or obtained a Covid-19 vaccination and experienced side effects due to the vaccine. Essentially this means anyone who had Covid and anyone who was unable to work due to Covid like symptoms while ill or from receiving a vaccine.

The second credit is called the qualified family leave equivalent credit, and its purpose is to provide a tax break for self-employed individuals who were unable to work due to the need to care for a child whose school or place of care is closed (or the child's care provider is unavailable) due to Covid-19 related reasons, or an individual who believed they had Covid-19 and were awaiting test results, comply with a recommendation to self-isolate due to Covid-19, or obtained a Covid-19 vaccination and experienced side effects to the vaccine.

How are they calculated?

In their simplest form, the credits are calculated as below (however there are restrictions and reductions that have to be applied in specific situations):

The qualified sick leave equivalent credit is equal to the number of days during the taxable year that the individual could not work multiplied by the lesser of $511 or 100% of the "average daily self-employment income" of the individual for the taxable year OR the prior taxable year. (maximum of 10 days)

The qualified family leave equivalent is equal to the number of days during the taxable year that the individual could not work multiplied by the lesser of $200 or 67% of the "average daily self-employment income" of the individual for the taxable year OR the prior taxable year. (maximum of 60 days)

How do you claim them?

Both of these credits are claimed on your Form 1040 US Individual Income Tax Return by filing Form 7202 Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals.

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