Don’t forget to File Form 7202 for Self employed clients

If you have self-employed clients who were affected by Covid-19, they may be eligible for tax credits.  This article discusses when you may File Form 7202 to claim the sick and family leave equivalent tax credit with respect to self employed individuals.

Initially,  Families First Coronavirus Response Act (“FFCRA”) and the COVID-related Tax Relief Act (the “Relief Act”) included a sick and family leave equivalent tax credit that was effective from April 1, 2020 to March 31, 2021.  However, American Rescue Plan Act of 2021 (the “ARP”) amended and extended the tax credit for individuals that were affected by COVID from April 1 to September 30, 2021.

Self-employed individuals may qualify for a REFUNDABLE sick leave tax credit of up to $5,011 or a family leave credit of up to $12,000.

THE SICK LEAVE CREDIT

The sick leave credit is available to a self-employed individual who is unable to work or telework because the individual:

  1. Is subject to a Federal, State, or local quarantine or isolation order related to COVID-19
  2. Has been advised by a health care provider to self-quarantine due to concerns related to COVID-19 OR
  3. is experiencing symptoms of COVID-19 and seeking a medical diagnosis.

The qualified sick leave equivalent amount is equal to the number of days during the taxable year that the individual cannot perform services in any trade or business for one of the three above reasons, multiplied by the lesser of $511 or 100 percent of the “average daily self-employment income” of the individual for the taxable year, or the prior taxable year.

Between April 1 and September 30, the ARP expanded the eligibility to include COVID-19 vaccinations or sickness related to immunizations or COVID- 19 testing waiting periods.

A separate credit is available for individuals who are unable to work or telework because the individual:

  1. Is caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19, or has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  2. Is caring for a child if the child’s school or place of care has been closed, or child care provider is unavailable due to COVID-19 precautions; or
  3. Is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor,

After March 31, this was expanded to include taxpayers accompanying an individual to obtain immunizations related to COVID-19 or caring for an individual who is recovering from any injury, disability, illness, or condition related to the immunization.

In these cases, the qualified sick leave equivalent amount is equal to the number of days during the taxable year that the individual cannot perform services in any trade or business for one of the three above reasons, multiplied by the lesser of $200 or 67 percent of the “average daily self-employment income” of the individual for the taxable year, or the prior taxable year.

In either case, the maximum number of days a self-employed individual may take into account in determining the qualified sick leave equivalent amount is ten.

Average daily self-employment income is an amount equal to the net earnings from self-employment for the taxable year 2021, or prior taxable year 2020, divided by 260.  A taxpayer’s net earnings from self-employment are based on the gross income that he or she derives from the taxpayer’s trade or business minus ordinary and necessary trade or business expenses.

WHO IS ELIGIBLE FOR THE FAMILY LEAVE CREDIT?

Prior to April 1, 2021, the family leave credit is only available to a self-employed individual who is unable to work or telework because the individual was caring for a child if the child’s school or place of care has been closed, or child care provider is unavailable due to COVID-19 precautions.

 The ARP expanded to address all qualifying reasons for paid sick leave including circumstances where the self-employed individual is unable to work because he/she:

  • Is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
  • has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  • is:
    • experiencing symptoms of COVID-19 and seeking a medical diagnosis,
    • seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19 and the employee has been exposed to COVID-19 or the employee’s employer has requested the test or diagnosis, or
    • obtaining immunization related to COVID–19 or recovering from any injury, disability, illness, or condition related to the immunization;
  • is caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19, or has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  • is caring for a child of the employee if the school or place of care of the child has been closed (including the closure of a summer camp, summer enrichment program, or other summer program), or the child care provider of the child is unavailable due to COVID-19 precautions; or
  • is experiencing any other substantially similar condition specified by the Secretary of HHS in consultation with the Secretary of the Treasury and the Secretary of Labor. The Secretary of HHS has specified, after consultation with the Secretaries of Treasury and Labor, that a substantially similar condition is one in which the employee takes leave:
    • to accompany an individual to obtain immunization related to COVID-19, or
    • to care for an individual who is recovering from any injury, disability, illness, or condition related to the immunization.

HOW MUCH IS THE FAMILY SICK LEAVE CREDIT

The qualified family leave equivalent amount with respect to an eligible self-employed individual is an amount equal to the number of days (up to 50) during the taxable year that the self-employed individual cannot perform services multiplied by the lesser of two amounts: (1) $200, or (2) 67 percent of the average daily self-employment income of the individual for the taxable year, 2021 or the prior taxable year 2020.

The ARP expanded this credit from 50 days to 60 days for the period April 1 to September 30.

If the self-employed individual is also an employee and has received benefits from their employer, special rules apply.

A self-employed individual will determine the sick and family leave equivalent tax credit to which he or she is entitled by completing Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals. 

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