The pandemic has dealt a devastating blow to millions of US households. The most vulnerable among the affected have been the self-employed. Devoid of a guaranteed regular income and the allied healthcare and insurance benefits, millions of self-employed individuals have been in financial dire straits.
To make it easy for them, the Internal Revenue Service has come out with form 7202 that provides tax credits to the self-employed.
Tax credits for COVID-19 care
The federal government, through the Families First Coronavirus Response Act (FFCRA), has sought to make it easier for some self-employed individuals by giving them tax credits for family leave or sick leave due to COVID-19.
According to the act that was passed in March, a self-employed individual can claim tax credits if they or someone in their family had COVID-19 and required care. These refundable tax credits are applicable for the period from April 1 to December 31, 2020.
Defining sick leave
The IRS defines sick leave as the “Number of days you were unable to perform services as a self-employed individual because of certain coronavirus-related care you required” or “…certain coronavirus-related care you provided to another.”
The agency explains family leave as the “Number of days you were unable to perform services as a self-employed individual because of certain coronavirus-related care you provided to a son or daughter.”
Who can qualify for the tax relief?
Those individuals who conduct a business or trade that comes under the definition of self-employed are eligible to apply for the tax credits.
The individual should also qualify to avail of family or sick leave wages under the Emergency Family and Medical Leave Expansion Act, or the Emergency Paid Sick Leave Act, assuming the individual was employed by someone else.
Detailed instructions can be found here.
Frequently asked questions about form 7202 tax relief
Q: Do federal or state government employers qualify for tax credits?
A: No, federal, state, or their instrumentalities, authorities, or agencies cannot claim tax credits as an employer for giving paid sick leave wages.
Q: How do you define qualified sick leave wages?
A: The IRS defines it as “that an employer pays under the EPSLA to an employee who is unable to work or telework because of either the employee’s personal health status (that is, the employee is under COVID-19 quarantine or self-quarantine or has COVID-19 symptoms and is seeking a medical diagnosis) or the employee’s need to care for others (that is, the employee is caring for someone with COVID-19 or for a child whose school or place of care is closed or child care provider is unavailable).”
Q: How many days’ sick leave wages are covered under the act?
A: The tax relief covers paid sick leave for a maximum of two weeks with a limit of 80 hours in total.
Q: How does an employer claim the tax credits?
A: Employers can document the qualifying sick leave wages on their quarterly tax return form.