In March 2020, the federal government passed the Families First Coronavirus Response Act (“FFCRA”) which provided a refundable tax credit for eligible self-employed individuals who were unable to work or telework because they or a family member had COVID-19. The tax credit can be claimed by completing and attaching new IRS Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, to your 2020 Form 1040 federal income tax return.
Who is Eligible? A taxpayer is eligible to claim the FFCRA credit if they: (1) conduct a trade or business that qualifies as self-employment income, and (2) are eligible to receive qualified sick or family leave wages under the Emergency Paid Sick Leave Act (“EPSLA”) as if the taxpayer was an employee. A person is eligible under the EPSLA for the following reasons: (A) the person is subject to a federal, state or local coronavirus quarantine or isolation order, or is caring for someone subject to a quarantine or isolation order; (B) the person has been advised by a health care provider to self-quarantine due to concerns related to the coronavirus, or is caring for someone who has been so advised; (C) the person is experiencing symptoms of the coronavirus and is seeking a medical diagnosis, or the person is otherwise experiencing any other substantially similar conditions as specified by the Secretary of Health and Human Services in consultation with the Secretaries of Treasury and Labor; or (D) the person is caring for a son or daughter if the school or daycare has been closed or is unavailable due to COVID-19 precautions. Some restrictions apply.
How Much is the Credit? A self-employed individual claiming the credit for the individual’s own condition or quarantine may claim up to 10 days (80 hours) of sick leave wages (i.e., net self-employment income), up to $511 per day and $5,110 in the aggregate. A self-employed individual claiming the credit for caring for a family member who contracted COVID-19 may claim up to 10 days (80 hours) of sick leave wages (i.e., net self-employment income) at two-thirds the normal rate of pay, up to $200 per day and $2,000 in the aggregate.
In addition, a person can claim a separate credit for Family Leave if the person was unable to perform services as a self-employed individual because a son’s or daughter’s school or place of care was closed or a childcare provider was unavailable for reasons related to COVID-19. The amount of the credit is up to 50 days, paid at two-thirds of the normal rate of pay, up to $200 per day and $10,000 in the aggregate.
Note that days for which a person can claim a credit may be counted only once, and a person cannot receive more than one credit for the same day.
Procedures to Claim the Credit. Taxpayers should complete Form 7202 and attach it to their Form 1040 federal income tax return. If filing a joint tax return and both spouses are eligible self-employed individuals, each spouse must attach a separate Form 7202 to the joint tax return. Since Form 7202 requires you to enter the total credit on Schedule 3, you must also attach Schedule 3 to your income tax return. The credit is refundable, which means it could result in a refund if the person’s tax liability is less than the credit amount.
Each person claiming the credit should maintain records supporting the credit, such as documents showing the person is an eligible self-employed individual, evidence of a positive COVID-19 test for themselves or a family member, written directions from a health care provider to self-quarantine, documentation of a child’s daycare or school closure, or similar records showing the person is eligible for the credit.