Are you a self-employed individual wondering how to maximize your tax benefits? You’re not alone! The FFCRA tax credits offer an excellent opportunity for those who had to take time off in 2021 due to the pandemic. Whether you’re trying to understand eligibility or need help calculating the credits you’re entitled to, this guide will walk you through everything step-by-step. Don’t miss this chance to get the tax credits you deserve!
What Are FFCRA Tax Credits for Self-Employed Individuals?
So, let’s talk about the FFCRA tax credits for self-employed individuals. You know how tricky taxes can get if you are self-employed. It’s like one giant maze that changes every year. Now, throw in a global pandemic, and it’s a whole new ballgame. The Families First Coronavirus Response Act (FFCRA), which you may have heard about, was passed in 2020 to help people cope with COVID-19’s impact on our lives. While most headlines were about employees and big companies, the media failed to report relief for self-employed people.
Overview of the FFCRA (Families First Coronavirus Response Act)
The FFCRA was one of the first federal responses to COVID-19, aiming to provide immediate support to workers impacted by the pandemic. It included paid employee leave, extended unemployment benefits, and tax credits for self-employed individuals. Think of it as a safety net designed to keep us from falling too hard when we had to stop working due to illness, quarantine, or even taking care of a sick family member. Many clients were still determining if they could take advantage of it. As a company focused on supporting the self-employed, we understand that you may like to navigate things independently and may have overlooked this credit since it was branded for traditional W2 employees. But the FFCRA was different. It recognized that even though they don’t punch a clock or answer to a boss, they still get sick, have families, and definitely still have bills to pay!
Now, why were these tax credits created? Simple: to keep people afloat during an unpredictable time. The goal was to encourage people to stay home when they were sick (or had to care for someone who was) without worrying about losing their income. For self-employed individuals, this was crucial because, unlike employees who might get paid sick leave, they typically don’t have that luxury. If they don’t work, they don’t get paid—period. And the IRS knew that. This tax credit, including others we will cover separately, helped bridge that gap by giving the self-employed a way to recover some of the income lost during those weeks or months when work came to a screeching halt. Whether you were quarantining, sick yourself, or staying home to care for a loved one, the FFCRA tax credits were there to give you a little breathing room financially.
How the FFCRA Applies to Self-Employed Individuals
Here’s how it works for the self-employed (and believe me, we dove deep into this when we found out). If you could not work due to COVID-19 or had to take time off to care for someone, you could qualify for a tax credit. It’s calculated based on your average daily self-employment income, which means they look at what you typically made before everything went haywire.
Quick Comparison with Employee Tax Credits Under the Same Act
You might be wondering, “How does this stack up against what employees got?” Under the FFCRA, employees also got paid sick leave or family leave benefits through their employers. The critical difference is that employees had their employers handling most of the paperwork. They didn’t have to wait until tax time to get their benefits—their paychecks were covered in real-time, thanks to their employer claiming the credit.
It’s not automatic for self-employed folks, and they have to be more proactive. It shows up as a credit on your tax return, which means you’ll have to fill out some extra forms (yay, more paperwork) and wait until tax time to claim it. But hey, it’s still money in your pocket when you need it most.
Types of Leave Covered Under the FFCRA
The FFCRA tax credits cover two main types of leave: sick leave and family leave. This means you can claim a tax credit whether you are ill or caring for someone else, like a child or family member.
- The first type of sick leave is for those who had to stop working because of COVID-19-related health issues—whether a diagnosis, quarantine, or even waiting for test results.
- The second type, family leave, applies if you have to care for someone else, like a family member with COVID-19 or a child whose school or daycare shut down. This is super important because, as you know, when schools closed, many people had to step up as full-time caregivers while also trying to keep their businesses going.
Health-Related Reasons for Qualifying
When it comes to health-related reasons, the FFCRA tax credits are fairly comprehensive. If you were diagnosed with COVID-19, were told by a doctor or health official to quarantine, or even just had symptoms and were waiting for test results, you could qualify for the sick leave credit.
Let’s say you got sick with COVID-19 and were down for the count for two weeks (like a friend was). You’d be eligible to claim the credit for each of those days you couldn’t work, up to $511 per day, as long as it was directly tied to your illness. If you were in quarantine or isolation but not sick, you could still qualify—again, up to $511 per day. It’s meant to cover the time you couldn’t work while keeping you financially afloat.
Family Care-Related Reasons for Qualifying
Family care is another big one, especially if you’re juggling work and home responsibilities. Under the FFCRA, you could also claim the family leave credit if you had to care for someone else, like a spouse or child, because they were sick with COVID-19. This applies to caring for someone who was subject to a quarantine order or had symptoms.
However, one of the more common scenarios for self-employed folks was school closures. When schools shut down, many of us found ourselves in a tough spot—trying to work and manage full-time childcare simultaneously. If your child’s school or daycare was closed due to COVID-19, and you had to stay home to take care of them, you could be eligible for the family leave credit. This one’s capped at $200 per day for up to 50 days, which can really add up if you are stuck in this situation for an extended period.
How to Calculate Your FFCRA Tax Credits
If you’re like many of our clients, as soon as you hear the words “tax credit calculation,” your brain might freeze up a little. But don’t worry—we have been there and promise it’s not as intimidating as it sounds. Calculating your FFCRA tax credits as self-employed is pretty straightforward once you break it down. Let’s walk you through it step-by-step, explain the caps for sick and family leave, and even give examples to show you how the math works. Let’s dive in.
Step-by-Step Guide to Calculating Credits
First, to calculate your FFCRA tax credits, you’ll need some essential information. Mainly, you need to know your average daily self-employment income. This is essentially what you were making on a typical day before the pandemic hit.
Here’s a quick breakdown of how to get that number:
- Add up your net self-employment income for the year (either 2019 or 2020 works, whichever you feel represents your typical earnings best).
- Divide that annual net income by 260. Why 260? Because that’s roughly the number of workdays in a year.
For example, if your net self-employment income in 2019 were $78,000, you’d divide that by 260, which gives you $300 per day. That daily rate is the foundation for calculating your FFCRA credits.
Daily Cap for Sick Leave
The FFCRA allows daily sick leave credit, but there’s a cap. If you’re claiming sick leave for yourself (meaning you were sick with COVID-19 or had to quarantine), the cap is $511 per day. So even if your average daily income was more than that, $511 is the max you can claim.
Let’s go back to that $300-per-day example. If you were sick for 10 days, you could claim $300 per day for those 10 days, totaling $3,000. However, if your average daily income were $600, you’d still only be able to claim the $511 per day because of the cap. So, for 10 days, you’d claim $5,110.
Family Leave Calculations
Now, family leave works a little differently. The daily cap for family leave is lower—$200 per day—and it’s for situations where you have to care for someone else, like a sick family member or a child whose school was closed. And there’s a longer time frame for family leave, up to 50 days.
Let’s say your average daily income is still $300 per day. If you had to stay home for 15 days to care for your child whose daycare closed, you’d only be able to claim the family leave rate of $200 per day, not your full $300. So, for those 15 days, you’d claim $3,000.
If you needed to take more time off and max out the 50-day limit, you could claim up to $10,000 (50 days at $200 per day). It’s not going to cover all your lost income, but it’s definitely better than nothing, especially during such a tough time.
Understanding the Maximum Credit Amounts
The total amount you can claim depends on how long you were unable to work and whether you were sick or caring for someone else. But here’s the big takeaway:
- The maximum amount for sick leave (if you were personally sick) is $5,110 (10 days at $511 per day).
- The maximum for family leave (if you were caring for someone else) is $10,000 (50 days at $200 per day).
These caps are designed to keep the credit within reason but still provide enough relief to help. The IRS isn’t cutting million-dollar checks, but these credits can take a big chunk of your lost income.
Examples of How the Credits Apply to Different Income Levels
Let’s look at a couple of scenarios:
- Lower Income Example:
- You made $52,000 in 2021, meaning your average daily income was $200 ($52,000 divided by 260).
- You were sick with COVID-19 for 8 days. Since your daily income is below the $511 cap, you’d claim your full $200 per day for those 8 days.
- That would give you a credit of $1,600 ($200 x 8 days).
- Higher Income Example:
- You made $130,000 in 2021, so your average daily income was $500 ($130,000 divided by 260).
- You had to take care of your child for 30 days due to school closures. Since family leave caps out at $200 per day, you’d claim $200 per day for those 30 days,
- Resulting in a credit of $6,000 ($200 x 30 days)
- Mixed Leave Example:
- Let’s say you got sick for 5 days and then had to care for a family member for another 10 days.
- Your daily income is $350. For the 5 days you were sick, you’d claim your full $350 (since it’s under the $511 cap), giving you $1,750 for sick leave.
- For the 10 days of family leave, you’d claim the $200 per day cap, which would give you $2,000.
- Altogether, you’d claim $3,750 in credits.
IRS Tools and Calculators to Assist in the Calculation
If math isn’t your strong suit (and no shame there), the IRS actually provides some tools to help you calculate your FFCRA tax credits. Their website has worksheets and instructions that guide you through the process. You can also work with our tax partners to help you go through the paperwork. They will help you get the full credit that you may be entitled to without missing any details.
How to Claim Your FFCRA Tax Credits
So, you’ve done the math and figured out how much you’re eligible to claim, and now it’s time for the next step: getting those FFCRA tax credits into your pocket. If you’re anything like our other clients, the thought of filling out IRS forms might make you want to procrastinate, but trust us, once you have everything in order, it’s a pretty smooth process. Here is the necessary documentation, plus a few common mistakes to avoid because we’ve all been there, right?
Documentation Required to Claim Credits
Before you even think about starting the paperwork, gather your documentation. The IRS loves proof (no surprise there), so you’ll need to be prepared to back up your claim.
Here’s a quick list of what you’ll need:
- Daily income records – You’ll need to show your average daily income before the pandemic based on your 2020 or 2021 net income. This is crucial for calculating the credit accurately.
- Proof of your inability to work – If you were sick or had to quarantine, a doctor’s note or test results can help show why you couldn’t work. If you were caring for someone, any documentation showing their illness or school closures would also be helpful.
- Days you were unable to work – Keep a record of the exact dates you were out of commission, whether because of your illness or needing to care for someone else.
- Tax forms – You’ll need your tax return from the year you’re claiming the credits (usually 2021), as the FFCRA credits apply to that tax year.
Once you have everything gathered, UBS will guide you through the forms, including creating Form 7202 and updating your Schedule 3 (Form 1040). Then, UBS will process your entire packet with the IRS to ensure all the boxes are ticked.
Common Mistakes to Avoid When Claiming FFCRA Credits
Like with anything involving taxes, there are some common pitfalls you’ll want to avoid to make sure your claim goes through smoothly. Here are a few mistakes I’ve seen (and made myself):
- Not calculating your average daily income correctly – This is a big one. Ensure you’re using the right net income figure from 2020 or 2021 and dividing it by 260 to get an accurate daily rate. If this number is off, the IRS might question your claim.
- Claiming more than the daily cap – Remember, the FFCRA limits your sick leave credit to $511 per day and your family leave credit to $200 per day. If you claim more than that, you’re going to run into trouble.
- Not keeping documentation – The IRS doesn’t ask for proof up front, but they might if you’re audited. Just in case, keep those doctor’s notes, test results, and school closure notices handy.
Misunderstanding the time limits – The FFCRA credits only apply to specific periods in 2021. Make sure the days you’re claiming fall within those eligible windows. UBS can help.
FAQs About FFCRA Tax Credits for Self-Employed Individuals
Regarding FFCRA tax credits, there’s a lot of confusion, especially for self-employed folks who don’t have an HR department to guide them through the process. I’ve seen (and asked!) a lot of questions along the way, so I thought I’d compile some of the most common FAQs and provide clear, straightforward answers. We have covered everything from determining if you qualify to what to do if the IRS flags your claim.
Commonly Asked Questions
Yes! As long as you were unable to work due to COVID-19-related reasons—whether it was because you were sick, quarantining, or caring for someone else—you’re eligible. Just remember, you need to have been actively earning self-employment income before the pandemic to apply for these credits.
For sick leave due to your own illness or quarantine, you can claim up to $511 per day. If you were caring for someone else (such as a family member or child whose school was closed), the maximum is $200 per day. The total number of days you can claim depends on your situation, but for family leave, you can claim up to 50 days.
You’ll need records that show your average daily self-employment income, proof that you couldn’t work due to COVID-19 (like doctor’s notes, quarantine orders, or school closure notifications), and the exact dates you were out of work. It’s essential to keep everything organized in case the IRS asks for additional documentation.
To calculate your average daily income, take your net self-employment income from either 2019 or 2020 and divide it by 260 (the approximate number of workdays in a year). This will give you your daily rate, which you’ll use to determine your credit.
Yes, if you haven’t claimed your FFCRA credits yet, you can still do so when you file your 2024 tax return, as long as the leave you’re claiming occurred in 2020 or 2021. If you’ve already filed your 2021 taxes but didn’t claim the credits, you can amend your return for up to three years, giving you until April 2027 to claim them retroactively.
Final Thoughts
At first, the whole thing seemed daunting, and navigating IRS forms during a pandemic was not our idea of a good time. But once we dug into it, the process wasn’t as bad as we expected. And the relief? Absolutely worth it. If you’re self-employed and were impacted by COVID-19, it’s worth looking into. Every bit helps, and the FFCRA tax credits were created to help people like you weather the storm.
