If You are Self Employed and Couldn't Work due to Coronavirus

Photo by Kelly Sikkema

If you are unable to work or engage in your business as a result of quarantines, shutdowns, getting sick, school/daycare closings or various other reasons, you might be entitled to one or both of credits for sick leave or family leave. These credits are for employers to recoup payments they make to their employees who are unable to work for the above reasons. But, if you would have been entitled to these credits as an employee doing what you do, you qualify for them as the employer of yourself. In this case the government pays you for being unable to work for yourself. 

Exactly how to define what makes the work you do qualifying as an employee is a bit nebulous, but it seems like a fairly liberal interpretation is appropriate, so I would go into conversations with you tax guy assuming you might qualify, and have the information required for them to calculate the credit rather than waiting to find out if you qualify. There were ways to get this money in advance, by reducing estimated payments, but it’s pretty much too late for that to be effective, though you can reduce your Estimated Payment due on January 15^th to account for the amount of credit you are entitled to. Either way, you claim the credit on your 2020 tax return and it reduces your balance due or increases your refund. 

This sucker gets complicated, so I’m going to start with a link to the IRS FAQ on the subject: 

https://www.irs.gov/newsroom/special-issues-for-employees#specific-provisions-related-self-employed-individuals 

I’m going to try my best to simplify how these work, but you absolutely need professional help to get these right. After discussing the various credits, I’m going to list the information you want to have available for when you file taxes. 

Qualified Sick Leave Wages Credit: 

1. You get up to 10 days worth of this credit.

2. If YOU are unable to work or telework because the government shut you down, ordered a quarantine, a doctor quarantined you due to being exposed, you had symptoms and were waiting for a diagnosis, or you actually had the disease you are entitled to $511 per day or 100% of your average daily earnings, whichever is lower, for each day you could not work.

3. If you cannot work because you are caring for SOMEONE ELSE due to conditions similar to the above, or due to the closing of a school, daycare or other facility, or your daycare provider is unable to work, you are entitled to $200 per day or 67% of your average daily earnings, whichever is lower, for each day you could not work.

4. Average daily earnings are your net earnings from your business divided by 260. You get this number when you prepare your taxes as the bottom line on Schedule C.

5. If you received sick wages as an employee with a regular job, you have to reduce these credits by the amount of wages you were paid while not working (no double dipping).

6. This credit is not counted as income, even though it technically replaces income.

 Qualified Family Leave Wages Credit: 

1. This is VERY similar to the situation described in 3 above, but basically takes over where the 10 days above end.

2. You get 50 days worth of this credit.

3. You get this credit for any day you would have been qualified for Family Leave wages due to COVID if you were an employee (basically the situation described in 3 above). You are entitled to $200 per day or 67% of your average daily earnings, whichever is lower, for each day you could not work.

4. Average daily earnings are your net earnings from your business divided by 260. You get this number when you prepare your taxes as the bottom line on Schedule C.

5. If you received family leave wages as an employee with a regular job, you have to reduce these credits by the amount of wages you were paid while not working (no double dipping).

6. This credit is not counted as income, even though it technically replaces income. 

Information you should provide to your tax dude: 

1. Proof, as best you can get, of the situations discussed above. This could be doctor’s notes, notices from schools or daycare facilities, quarantine or shutdown notices, COVID test results, copies of government statements regarding allowed working conditions, or even newspaper articles reporting on work rules and quarantines.

2. The number of days you were unable to work due to YOU being affected by quarantines, shutdowns etc. as previously discussed.

3. The number of days you were unable to work due to caring for someone else as a result of quarantines, closures etc. as discussed previously.

4. The detailed reasons you were unable to work or make money for the days discussed above.