What are FFCRA tax credits?

"FFCRA tax credits" refer to the tax relief provided by the Families First Coronavirus Response Act (FFCRA). Originally passed in 2020, this bill was designed to help small businesses cover the cost of providing paid sick leave to their employees who had to take off because of COVID. In 2021 the FFCRA was expanded to cover self-employed workers, essentially offering government-subsidized paid sick leave for a group of people who never had the luxury of a paid day off before!

Eligible applicants can receive up to $32,220 in tax credits from the IRS. Depending on your outstanding tax liability, your credits will either be used to reduce your tax burden or be paid directly to you in the form of a check or direct deposit.

Why you need to pay attention to FFCRA tax credits if you're self-employed

1. They offer financial relief: The FFCRA tax credits provide financial relief to freelancers and gig workers impacted by the COVID-19 pandemic. These tax credits help offset the costs associated with providing paid sick leave and expanded family and medical leave to individuals affected by the virus.

2. They give paid protection to the self-employed: Freelancers and gig workers often lack the same safety nets as traditional employees, such as employer-sponsored benefits. Understanding the FFCRA tax credits allows self-employed individuals to access similar protections and support while still running their own businesses.

3. They maximize your tax benefits:  These credits can reduce your tax liability, increase the amount of your tax refunds, or even provide a cash infusion in the form of a check or direct deposit straight from the IRS.

4. They're not PPP loans: The Paycheck Protection Program (PPP) was extended to include self-employed individuals after the initial wave of applications and offered financial aid in the form of low-interest loans that could be used as a replacement for the income lost during the pandemic. They also had the option to be forgiven by the federal government based on need, otherwise were to be paid back at a 1% interest rate over three years. The FFCRA is different than PPP loans because it's a tax credit and not a loan, so it will never need to be paid back, and there are no restrictions on how it can be used.

2. Eligibility requirements for the FFCRA

To be eligible for FFCRA tax credits you'll need to meet the following requirements:

1. You must be classified as a self-employed individual. This includes individuals who work as independent contractors, freelancers, sole proprietors, or are otherwise self-employed. If you've filed a Form 1040 with your 2020 or 2021 taxes, you're eligible to apply.

(One note - If you filed both a W-2 and Form 1040, you may be eligible, but it will depend on whether or not your W-2 employer filed for the FFCRA on your behalf. Contact your tax professional to determine your eligibility.)

2. You must have been unable to work, telework, or provide services due to one of the following reasons:

• Were subject to a federal, state, or local quarantine or isolation order related to COVID-19.
• Were advised by a healthcare provider to self-quarantine due to concerns related to COVID-19.
• Experienced symptoms of COVID-19 and were seeking a medical diagnosis.
• Were caring for an individual who is subject to a quarantine or isolation order or had been advised to self-quarantine by a healthcare provider.
• Were caring for a child whose school or place of care is closed due to COVID-19.

The FFCRA covers two types of leave:

1. Emergency Paid Sick Leave: This provides up to 20 days of paid sick leave for eligible gig workers. The pay rate is based on the minimum wage in your state, or $511. This leave can be used for any of the qualifying reasons mentioned earlier.

2. Expanded Family and Medical Leave: This provides up to 110 days of paid leave at 67% of the gig worker's average daily self-employment income or $200, whichever is lower. This leave is specifically for those caring for a child whose school or place of care is closed due to COVID-19.

Here are a few scenarios that qualify for FFCRA tax relief:

• A freelance photographer who is unable to work because they have been advised to self-quarantine by their healthcare provider.
• A rideshare driver who is caring for their child whose school has closed due to the pandemic.
• A self-employed e-commerce shop owner who is experiencing symptoms of COVID-19 and needed to temporarily stop accepting orders to seek a medical diagnosis.
• A handyman who was unable to enter homes and lost work because of state-mandated lockdowns and isolation orders.
• A hairstylist whose salon closed during the pandemic and was unable to see clients.
• An event staffer who had a bad reaction to the COVID-19 vaccine and needed to stay home to recover.
• A nanny who took a day off to get the COVID-19 vaccine.

3. How to claim FFCRA tax credits as a gig worker

To get the FFCRA refunds you deserve you have two options:

1. Submit IRS Form 7202 and wait for the IRS to respond regarding your eligibility. You'll need to calculate your average daily self-employed income (your yearly income divided by 260)  and determine whether it's higher or lower than the default amounts given by the IRS ($511 for paid sick leave, $200 or 67% of your daily income, respectively). As with all things IRS-related, Form 7202 is complex and requires a lot of calculations that can get overwhelming quickly. There's also no way to correct any errors without waiting to hear back from the IRS and resubmitting your application from scratch.

2. Skip the headache and use Madison Tax Group. Madison Tax Group is a robust platform designed for self-employed people like you. We worked with a team of CPAs and tax experts to make the process of filing for the FFCRA as simple as possible. With Madison Tax Group you can go at your own pace without having to wait for an expensive tax professional to get around to your application. We'll guide you through the entire process and submit your FFCRA application directly to the IRS. Plus, we'll keep an eye on your application status and let you know right away if there's anything that needs your attention. It's simple, fast, and effective. Calculate how much Adesso360 can get you back by using our 3-minute pre-qualification quiz (it's free!)

4. Potential challenges and considerations

1. Lack of documentation: Freelancers may struggle to provide the necessary documentation to prove their eligibility for FFCRA tax credits. Unlike employees who may have pay stubs or other official records, people working for themselves often have to rely on self-generated invoices and contracts.

2. Inconsistent income: We don't need to tell you that self-employed income can fluctuate every month, making it challenging to calculate the average daily self-employment income required for FFCRA tax credits. This inconsistency can affect the amount of credit you can claim, especially if you're trying to figure it out on your own. 

3. Limited understanding of tax rules: Let's face it, tax law is complicated. Most of us are probably not familiar with the specific tax rules and regulations related to FFCRA tax credits. It can be overwhelming to navigate the complex tax system and ensure compliance with all requirements.

Luckily, all of these problems are easily solved for freelancers who use Madison Tax Group. We'll accurately calculate your maximum tax credit, pull your tax records directly from the IRS, and even check and file the FFCRA on your behalf. Click here to calculate how much you're owed.

The bottom line

Freelancers and gig workers can find financial relief from the income lost from COVID by understanding and utilizing FFCRA tax credits. 

Want to get started? We can help thanks to our new FFCRA platform. Built by tax experts, Madison Tax Group can help you maximize your FFCRA refund by guiding you through the process step by step. We'll even keep track of your application's status and notify you of any changes so you can focus on what matters most: growing your business.

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