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Self Employed? Consider Deducting a Sick Leave Credit From Your Taxes

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Feb. 18 2021, Updated 12:30 p.m. ET

Being self-employed or maintaining a side gig has never been easy. Since the start of the COVID-19 pandemic, it has been even more difficult. Remote freelancers and in-person workers alike have had their fair share of economic and logistical hurdles. During a time when working has been tricky, self-employed sick leave credit is a way to soften the blow on taxes owed.

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Here is what to know about the IRS sick leave credit, including who it applies to and where it stems from.

How the self-employed sick leave credit came to be

Sick and family leave tax credits for self-employed individuals came to fruition under the FFCRA (Families First Coronavirus Response Act).

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The FFCRA passed in March 2020. The act is full of benefits for traditionally employed people. However, due to the burdensome nature of the COVID-19 pandemic and the estimated 30 percent of self-employed and gig workers in the U.S., the government added self-employed benefits as well.

This is similar to the addition of unemployment benefits for self-employed individuals. In the past, unemployment only covered workers under a traditional employer. 

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Who can use the sick leave credit?

The FFCRA required employers to give full or partial payment to employees on sick or family leave during the latter nine months of 2020. However, self-employed individuals either pay themselves or get paid when they're working, which is where the tax credit comes into play.

Any self-employed individual who was sick during this time period and couldn't work (in person or remotely) can apply for the credit. Also, anyone who was caring for a sick family member during this time can do the same.

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Your income must be qualified as self-employed by the IRS, and you must be eligible to receive sick leave wages under the Emergency Paid Sick Leave Act. 

Caveats to know about the sick leave credit

For the leave to be legitimate under credit rules, the sick leave and family leave must have occurred between April 1 and December 31, 2020. The U.S. declared a public health emergency on Feb. 3, so this leaves out about three months of the COVID-19 pandemic in the U.S. 

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How to get the self-employed sick leave credit for your 2020 taxes

You can find the 2020 form 7202 on the IRS website. Maintain all documentation of your sick leave and use it to fill out the form. 

You can also estimate the credit calculation using the method laid out under point 61 on the IRS Special Issue for Employees page. 

The calculation ultimately depends on your personal income, how many days you weren't able to work, and the reason you weren't able to work. If you were sick and not able to work, you could receive as much as $511 per day for 10 days, which equates to a self-employed sick leave tax credit of $5,110. The value might decrease if you weren't able to work for less than 10 days, had a mild reason for not being able to work, or if you were caring for a family member.

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