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

Running your own business is akin to selecting the "hard" mode—every task rests squarely on your shoulders, and responsibilities extend far beyond the typical 9 to 5. With the primary focus on generating income and sustaining your business, it's likely that staying abreast of the latest IRS updates, including new tax credits for 1099 workers and sole proprietors, isn't your top priority.

That's where we come in! Congress has recently amended existing COVID-19 tax relief laws to encompass individuals like you who encountered financial challenges due to the pandemic. Let's delve into the details of this update and outline the steps you need to take to secure your tax refund.

What is a tax credit?

Tax credits and deductions are often bundled together, creating confusion because each comes with distinct rules and implications for your final IRS obligations.

A tax deduction serves as an incentive allowing you to decrease the amount of taxes you owe. The IRS and state governments offer numerous deductions, covering aspects like property ownership, outstanding loans, and your employment structure. Deductions are subtracted when filing your annual returns, typically applicable only to the specific tax year.

On the other hand, a tax credit functions as a reimbursement for taxes you've already paid. These refunds can be retroactive based on new legislation from the US or state governments, necessitating a direct application (the government doesn't automatically issue the refund; you must request it). Tax credits span various categories and are accessible for parents, college students, small business owners, and 1099 workers. If you have outstanding tax liability, credits act as deductions, offsetting the refund against your taxes owed. However, if your taxes are up to date, the IRS will issue an actual check or direct deposit for the amount owed. Since it's a refund of previously paid taxes, the tax credit doesn't count as income and carries no restrictions on its use.

This sounds complicated, why should I care about tax credits?

Leveraging tax credits as a freelancer can be a game-changer in navigating your tax responsibilities. These credits have the potential to substantially enhance your financial standing, enabling you to retain more of your well-earned income. Whether you're a freelancer or gig worker, seizing opportunities for tax breaks is essential, and tax credits should not be overlooked.

What is the FFCRA?

The Families First Coronavirus Response Act (FFCRA), enacted in 2020 to aid businesses in recovering sick leave expenses for employees during the COVID-19 pandemic, underwent expansion in 2021 through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This extension broadened the FFCRA's reach, allowing freelancers, 1099 workers, and sole proprietors to access its tax credits. The FFCRA was implemented in direct response to the COVID-19 crisis, aiming to offer financial support to individuals and businesses affected by the pandemic.

Within the framework of the FFCRA, eligible self-employed individuals can seek tax credits for paid sick leave and expanded family and medical leave. If you're a freelancer or sole proprietor unable to work due to COVID-19-related circumstances, such as quarantine or caring for a child affected by school or daycare closures, you may be eligible to claim these valuable tax credits.

How much can I get back in tax credits?

You could receive a maximum refund of $32,220 through the FFCRA! Unlike PPP loans, there are no restrictions on how you can utilize your tax credits, and the best part is, you won't ever have to repay them.

How it breaks down

As a self-employed individual, you have the opportunity to claim a total of up to 110 days for family and childcare-related reasons, in addition to 20 days of paid sick leave. While there is no limit on the number of days you can claim, it's important to note that you cannot use the same date for both childcare reasons and sick leave (i.e., you can claim a day for either childcare reasons or for sick leave, but not both).

The reimbursement amount is contingent on your self-employment income reported on your 2020 or 2021 Schedule SE (Form 1040). Paid sick leave is eligible for a maximum of $511 per day, while family and childcare-related reasons are eligible for $200 per day or 67% of your average daily income, whichever is lower.

We understand that this may seem complex. Fortunately, we can assist you in determining what you are owed through our quick 3-minute pre-qualification quiz.

What does it mean to be self-employed?

Determining whether you fall under the self-employed category can be challenging, especially with multiple jobs. Fortunately, the IRS has simplified this classification with one key criterion:

Did you file a Form 1040 (also known as a Schedule SE) in 2020 or 2021? If you did, the IRS considers you self-employed!

If you're unsure, here are examples of individuals who likely filed a Form 1040:

• Handyman

• Hairstylist

• Event staffer

• Real estate agent or Realtor®

• Freelancer

• Gig worker

• Rideshare driver

• Food delivery driver

• Independent contractor

• Sole proprietor

(Note: If you received both a W-2 and 1099, you may still qualify for FFCRA relief, but eligibility can be complex due to potential employer claims. Consult a CPA for personalized guidance.)

How do I know if I'm eligible for the FFCRA?

To be eligible for FFCRA, your self-employment income must have been affected by COVID-19, possibly due to restrictions or illness affecting you or someone under your care. Qualifying reasons include:

• Required isolation or subject to a quarantine order from governments.

• Healthcare provider advising self-quarantine due to COVID-19.

• Experiencing COVID-19 symptoms and seeking a medical diagnosis.

• Waiting for COVID-19 test results.

• Getting vaccinated for COVID-19.

• Recovering from COVID-19 vaccine side effects.

• Child's school or daycare closure due to COVID lockdowns.

• Caring for a loved one with COVID-19.

FFCRA relief is applicable for specific periods:

• Childcare-related reasons: Max 50 days (April 1, 2020 - March 31, 2021) and max 60 days (April 1, 2021 - September 30, 2021).

• Paid sick leave: Max 10 days (April 1, 2020 - March 31, 2021) and max 10 days (April 1, 2021 - September 30, 2021).

While it may seem overwhelming, the Adesso360 portal guides you through the entire application process, ensuring you receive the maximum refund.

The bottom line

In essence, staying informed about tax opportunities, such as FFCRA, is crucial for freelancers and sole proprietors. Adesso360, a comprehensive platform, facilitates the application process, helping you access valuable tax credits and sustain your freelance career or small business.