Understanding the FFCRA tax credits for freelancers
The Families First Coronavirus Response Act (FFCRA) is a federal law enacted in response to the COVID-19 pandemic. Its purpose is to provide financial support to businesses and self-employed individuals who are affected by the pandemic.
Under the FFCRA, there are two specific tax credits available for freelancers:
1. Emergency Paid Sick Leave Credit: This credit allows freelancers to receive a refundable tax credit for up to 10 days of sick leave at their regular rate of pay if they are unable to work due to certain COVID-19-related reasons. The maximum credit amount is $511 per day for the freelancer's own care and $200 per day if they are caring for someone else.
2. Emergency Family and Medical Leave Expansion Act (EFMLEA) Credit: This credit allows freelancers to receive a refundable tax credit for up to 10 weeks of paid family and medical leave at two-thirds of their regular rate of pay if they are unable to work due to having to care for a child whose school or childcare provider is closed or unavailable due to COVID-19. The maximum credit amount is $200 per day or $10,000 in total.
To qualify for the FFCRA tax credits as a freelancer, you must meet the following general eligibility requirements:
1. Self-employment status: You must be classified as a self-employed individual for tax purposes. This means that you work for yourself and do not have an employer-employee relationship.
2. Income threshold: There is no specific income threshold mentioned in the FFCRA for freelancers. However, the tax credits are designed to provide financial support to individuals who are unable to work due to COVID-19-related reasons. Therefore, if the pandemic has directly impacted your ability to work and earn income, you may be eligible for the tax credits.
3. Impact of the COVID-19 pandemic: You must have been unable to work or have had your work substantially reduced due to COVID-19-related reasons. These reasons can include being subject to a federal, state, or local quarantine or isolation order related to COVID-19, being advised by a healthcare provider to self-quarantine due to COVID-19 concerns, or experiencing symptoms of COVID-19 and seeking a medical diagnosis.
Here are a couple of examples to help clarify the criteria, though it's a good idea to keep in mind that every situation is unique, which is why we recommend going through our Madison Tax Group portal to determine how much you qualify to get back:
Example 1: Jane is a freelance graphic designer. Due to the COVID-19 pandemic, many of her clients have canceled or postponed their projects, resulting in a significant reduction in her income. As a result, she is unable to work as much as before. Jane may be eligible for the FFCRA tax credits because the pandemic has directly impacted her ability to work and earn income.
Example 2: John is a freelance writer. He has not been directly affected by the COVID-19 pandemic and continues to work and earn income as usual. However, his child's school has closed, and he needs to take time off to care for his child. Since John's inability to work is not directly caused by the pandemic but rather the closure of his child's school, he may not be eligible for the FFCRA tax credits.
To determine if you qualify for the FFCRA tax credits as a freelancer, you can follow these steps:
1. Review your income: Assess how the COVID-19 pandemic has affected your ability to work and earn income. If you have experienced a significant reduction in work or have been unable to work due to COVID-19-related reasons, you may be eligible for the tax credits.
2. Determine your self-employment status: Confirm that you are classified as a self-employed individual for tax purposes. This means that you work for yourself and do not have an employer-employee relationship. Not sure if you qualify as a freelancer or self-employed? Read our blog post about what it means to be self-employed for more details.
3. Consider COVID-19-related circumstances: This can include being subject to a quarantine or isolation order, being advised by a healthcare provider to self-quarantine, or experiencing symptoms of COVID-19 and seeking a medical diagnosis.
Determining eligibility for the FFCRA tax credits as a freelancer may come with certain challenges or exceptions. Here are some potential issues to consider:
1. Mixed income sources: If you have both self-employment income and income from other sources, such as a part-time job or investment income, determining your eligibility for the FFCRA tax credits may be more complex. If this is the case for your financial situation, it's best to contact your CPA or tax professional to have them assess your eligibility.
2. Lack of documentation: To claim the FFCRA tax credits, freelancers may need to provide documentation or evidence of their eligibility. This can include quarantine or isolation orders, healthcare provider advisements, or documentation of COVID-19 symptoms. Don't worry, though, as Madison Tax Group can help you figure out which documents you need and can pull your tax records directly from the IRS on your behalf.
Determining eligibility for the FFCRA tax credits as a freelancer can be complex, but it is important to understand the requirements and exceptions to ensure an accurate determination. Luckily, we built Madison Tax Group to do the heavy lifting for you.Madison Tax Group can help you navigate all things FFCRA, including determining your eligibility, estimating your tax credits, and even getting your application over to the IRS. Click here to take our easy 5-question quiz to determine how much you're owed.
