Breaking Down the FFCRA Tax Credits for Gig Workers: What They Are and How To Qualify

 
 

What are FFCRA tax credits?

"FFCRA tax credits" denote the tax relief provisions established by the Families First Coronavirus Response Act (FFCRA). Initially enacted in 2020, this legislation aimed to assist small businesses in offsetting the expenses associated with providing paid sick leave to employees who needed time off due to COVID. In 2021, the scope of the FFCRA was broadened to encompass self-employed individuals, extending government-subsidized paid sick leave to a category of workers who previously lacked the privilege of paid time off.

Eligible individuals can potentially receive up to $32,220 in tax credits from the IRS. Depending on your existing tax obligations, these credits will either be applied to reduce your tax liability or disbursed directly to you through a check or direct deposit.

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

1. Providing Financial Relief: The FFCRA tax credits deliver financial relief to freelancers and gig workers facing the economic impact of the COVID-19 pandemic. These credits play a crucial role in mitigating the expenses associated with offering paid sick leave and expanded family and medical leave to individuals affected by the virus.

2. Securing Paid Protection for the Self-Employed: Self-employed individuals, including freelancers and gig workers, often lack the safety nets available to traditional employees, such as employer-sponsored benefits. Understanding and utilizing the FFCRA tax credits empower self-employed individuals to access comparable protections and assistance while managing their own businesses.

3. Maximizing Tax Benefits: These credits have the potential to reduce your tax liability, enhance your tax refunds, or even provide a direct cash injection through a check or direct deposit from the IRS.

4. Distinguishing from PPP Loans: Unlike PPP loans, which offered low-interest loans to self-employed individuals during the pandemic, the FFCRA operates as a tax credit. This crucial distinction means that FFCRA tax credits never require repayment, and there are no restrictions on how the funds can be utilized, providing greater flexibility for those who qualify.

2. Eligibility requirements for the FFCRA

To qualify for FFCRA tax credits, you must meet the following criteria:

1. **Self-Employment Classification:** You must be classified as a self-employed individual, encompassing independent contractors, freelancers, sole proprietors, or those otherwise self-employed. If you've filed a Form 1040 with your 2020 or 2021 taxes, you are eligible to apply. (Note: If you filed both a W-2 and Form 1040, eligibility depends on whether your W-2 employer applied for FFCRA on your behalf; consult your tax professional.)

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

- Subject to a federal, state, or local quarantine or isolation order related to COVID-19.

- 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.

- Caring for an individual who is subject to a quarantine or isolation order or advised to self-quarantine by a healthcare provider.

- Caring for a child whose school or place of care is closed due to COVID-19.

FFCRA encompasses two types of leave:

1. Emergency Paid Sick Leave: 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: Offers 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.

Qualifying scenarios for FFCRA tax relief include:

- A freelance photographer advised to self-quarantine by their healthcare provider.

- A rideshare driver caring for their child due to school closure.

- A self-employed e-commerce shop owner experiencing COVID-19 symptoms and seeking a medical diagnosis.

- A handyman unable to work due to state-mandated lockdowns.

- A hairstylist unable to see clients due to salon closure.

- An event staffer taking time off to recover from a reaction to the COVID-19 vaccine.

- A nanny taking a day off for the COVID-19 vaccine.

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

To secure the FFCRA refunds rightfully owed to you, you have two options:

1. Submit IRS Form 7202:

- Calculate your average daily self-employed income (yearly income divided by 260).

- Determine whether it surpasses or falls below the default amounts set by the IRS ($511 for paid sick leave, $200, or 67% of your daily income, respectively).

- Note that Form 7202 involves intricate calculations, which can become overwhelming quickly.

- Correcting errors requires waiting for IRS feedback and resubmitting the application from scratch.

2. Simplify with FFCRA credits:

- FFCRA credits is a comprehensive platform tailored for self-employed individuals.

- Developed in collaboration with CPAs and tax experts, it streamlines the FFCRA filing process.

- Allows you to proceed at your own pace without waiting for an expensive tax professional.

- Guides you through the entire application process and directly submits your FFCRA application to the IRS.

- Monitors your application status, promptly notifying you of any required attention.

- Simple, fast, and effective—calculate potential returns with FFCRA credits using our free 3-minute pre-qualification quiz!

4. Potential challenges and considerations

1. Documentation Challenges:

- Freelancers often encounter difficulties in providing essential documentation to validate their eligibility for FFCRA tax credits. Unlike employees with pay stubs or official records, self-employed individuals rely on self-generated invoices and contracts, complicating the verification process.

2. Income Fluctuations:

- The variable nature of self-employed income, changing from month to month, poses a challenge in calculating the required average daily self-employment income for FFCRA tax credits. This inconsistency can impact the claimed credit amount, especially when navigating the calculations independently.

3. Limited Tax Rule Understanding:

- Tax laws are intricate, and understanding the specific rules and regulations related to FFCRA tax credits can be overwhelming. Many freelancers may not be familiar with the complexities of the tax system, making compliance with all requirements a daunting task.

Fortunately, freelancers can address these issues effortlessly by leveraging FFCRA credits. This platform accurately calculates the maximum tax credit, retrieves tax records directly from the IRS, and manages the FFCRA filing on behalf of freelancers. Click here to determine the potential refund owed.

The Bottom Line:

Freelancers and gig workers can alleviate the financial impact of income loss from COVID by comprehending and utilizing FFCRA tax credits.

Ready to begin? Our new FFCRA platform, crafted by tax experts, empowers freelancers to maximize their FFCRA refund through a step-by-step guidance process. FFCRA credits even monitors your application's status and alerts you to any changes, allowing you to focus on the crucial task of growing your business.

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Intro to the FFCRA - A Powerful Tax Credit for Freelancers and Sole Proprietors