On March 18, 2020, President Trump signed the Families First Coronavirus Act (FFCA). The FFCA provides employers with certain refundable tax credits, including the Credits for Sick Leave and Family Leave. These particular credits provide small to midsize businesses a dollar-for-dollar reimbursement for the cost associated with paying sick or family leave wages to their employees for leave related to COVID-19. Interestingly, certain self-employed individuals are also eligible for this credit.
While the FFCA has many provisions benefiting all businesses, let's look at the benefits it provides for self-employed individuals in terms of Credits for Sick Leave and Family Leave. It is important to note that the IRS defines a self-employed individual as someone who regularly carries on any trade or business within the meaning of section 1402 of the Internal Revenue Code (IRC).
The Credits for Sick Leave and Family Leave can be broken down into two separate cases: (1) Credits for Sick Leave and (2) Credits for Family Leave. Each case has its own set of requirements and benefits. Additionally, both credits require individuals to file a Form 1040 with the IRS.
Following are the eligibility and benefit guidelines outlined by the IRS.
Case 1:
For an eligible self-employed individual who is unable to work or telework because the individual:
• 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; or
• 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 the applicable trade or business for one of the three above reasons, multiplied by the lesser of $511 or 100% of the “average daily self-employment income” of the individual for the taxable year.
Case 2:
For an eligible self-employed individual who is unable to work or telework because the individual:
• 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 if the child’s school or place of care has been closed, or child care provider is unavailable due to COVID-19 precautions; or
• 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,
the qualified sick leave equivalent amount is equal to the number of days during the taxable year that the individual cannot perform services in the applicable trade or business for one of the three above reasons, multiplied by the lesser of $200 or 67% of the “average daily self-employment income” of the individual for the 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 (10).
Note: The only days that may be taken into account in determining the qualified sick leave equivalent amount are days occurring during the period beginning on April 1, 2020, and ending on December 31, 2020.
Questions about the Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals? Give a call or email and one of our tax preparers will reach out!
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