Understanding COVID-19 Tax Credits for the Self-Employed

The coronavirus pandemic has sent shockwaves throughout the global economy. Among those hardest hit have been self-employed workers, such as freelancers, independent contractors, and entrepreneurs. For many, the inability to work means a loss of essential income. But there may be some relief in sight. A federal law implemented in 2021 to help those affected by the crisis. This post will provide an in-depth look at the tax credits available to the self-employed and how to calculate them.

How Do These Tax Credits Work?

The federal government recognizes the unique challenges self-employed individuals faced during this period. To offset the financial strain, tax credits have been introduced for those unable to work due to specific coronavirus-related reasons.

Calculating Your Credits:

1. Determine Your Average Daily Self-Employment Income

To calculate the credit, you must first know your average daily self-employment income. This is obtained by dividing your net earnings from self-employment for the taxable year by 260.

2. Eligibility Period

Remember, these credits are only applicable for days you couldn’t work due to a covered reason between April 1, 2020, and September 30, 2021.

Types of Tax Credits:

Sick Leave Tax Credit:

• 100% Credit: If you have coronavirus symptoms and are in the process of getting a medical diagnosis, are under a quarantine or isolation order, or have been advised to self-quarantine, you can receive a tax credit equal to 100% of your average daily self-employment income. The maximum you can receive is $511/day or a total of $5,111 for up to 10 days.
• 67% Credit: If you need to care for your child due to school or childcare closures or if you’re caring for someone under a quarantine order or advised to self-quarantine, you can receive 67% of your average daily income. The cap here is $200/day or a total of $2,000.

Family Leave Tax Credit:

If you cannot work because your child’s school or childcare facility has closed, you can take advantage of the family leave tax credit. This offers 67% of your average daily income, with a maximum limit of $200/day or a cumulative total of $10,000 for up to 50 days.

For those eligible, it’s possible to claim both the sick leave and family leave credits, though there’s a cap of 60 combined days. If you have both a traditional job and a self-employment venture, any paid leave you avail from your job for COVID-19 reasons might affect the tax credits you can claim for your self-employment.

In Conclusion:

While the coronavirus pandemic has been challenging, it’s heartening to see measures in place to support self-employed workers. If you belong to this group, it’s crucial to understand your rights and the financial assistance available to you.

To have a professional help you claim this credit in as little as 24 hours, click here.