The Families First Coronavirus Response Act (FFCRA) was established in March 2020 to provide paid sick and family leave benefits related to COVID-19. Initially, only companies with W-2 employees were eligible for these benefits.
Congress later expanded the FFCRA tax credit to eligible self-employed individuals. As an independent contractor, you can now also receive this tax credit up to $32,220 for both the 2020 and 2021 tax years.
What Constitutes ‘Self-Employed’?
Under the expanded scheme, self-employed individuals, including freelancers, independent contractors, and gig workers, are all now eligible for the FFCRA tax credit.
An eligible self-employed individual is defined as “an individual who regularly carries on any trade or business”. Partners in a partnership carrying on a trade or business are also accepted. Check out Section 1402 of the Internal Revenue Code for further clarification about who is considered to be self-employed.
Eligibility for this tax credit extends to individuals with LLCs who filed a Form SE, as well as individuals with both W-2 and self-employment income.
Sometimes real estate professionals work as employees (receiving W-2s) and many work as independent contractors (receiving 1099s). You can find further resources to help you determine if you are an employee or a self-employed independent contractor on the IRS website.
Understanding the Tax Credit
The FFCRA tax credit is not a tax deduction. It is a credit in every sense of the word. This means that the entire amount is available, it does not need to be paid back, and it is not considered a loan. When you receive the tax credit, you are not bound to use it for any specific purposes.
The FFCRA tax credit is divided into two categories:
- Sick Leave
If you are self-employed and were unable to work due to COVID-19 in 2020 and/or 2021, you can receive up to 10 days of sick leave per tax year if you meet one of the following criteria:
- You were subject to a Federal, State, or local quarantine or isolation order related to COVID-19.
- You were advised by a healthcare provider to self-quarantine due to concerns related to COVID-19.
- You were experiencing symptoms of COVID-19 and seeking a medical diagnosis.
- You were seeking or awaiting the results of a COVID-19 diagnostic test and were exposed to the virus or unable to work pending the results.
- You were obtaining an immunization related to COVID-19 or recovering from any injury, disability, illness, or condition related to the immunization.
- Family Leave
Eligible self-employed individuals can also receive up to 60 days of family leave per tax year if unable to work because of any of these reasons:
- You were caring for an individual who was subject to a Federal, State, or local quarantine or isolation order related to COVID-19 or were advised by a healthcare provider to self-quarantine.
- You were caring for a child if the child’s school or place of care had been closed, or the child care provider was unavailable due to COVID-19 precautions.
- You had to accompany an individual to obtain an immunization related to COVID-19, or you had to care for an individual who was recovering from an injury, disability, illness, or condition relating to the immunization.
How to Apply for the Tax Credit
If you want to apply for the FFCRA tax credit, here’s how:
STEP ONE: Visit the IRS Website
At the time of publishing this blog*, self-employed individuals may need to file these forms to apply for the FFCRA tax credit:
- Form 7202: Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals
Self-employed individuals who are also employees will need to find out the amount of qualified sick and family leave their employers reported on the Form W-2, Wage and Tax Statement to be able to complete this form. - Form 1040: U.S. Individual Income Tax Return
Use the calculated credit from Form 7202 and add it to this form. You will use this form to claim the tax credit for sick leave and family leave. - Schedule SE: Self-Employment Tax
This form is required for reporting self-employment income and tax liabilities, which is relevant to claiming the FFCRA tax credit.
*Internal Revenue Service (IRS) instructions and forms may change over time. CRES recommends that you visit the IRS website to access the latest instructions and the most up-to-date versions of the forms.
STEP TWO: Consider Engaging Professional Help
These forms are complex. CRES recommends that you consult with your Certified Public Accountant or tax professional to obtain guidance tailored to your specific situation, so you can complete the forms correctly.
As an alternative, online platforms, such as www.cresinsurance.com/taxcredit, offer free calculators to determine eligibility for this tax credit. If you are eligible, these platforms can assist with e-filing for a fee.
To learn more about applying, watch the FFCRA webinar, listen to the podcast, or view the transcript.
How to Use the Tax Credit
Once your tax credit is received, you can use it to offset your federal income tax. If your tax credit is higher than your tax liability when you file your tax return, you will even get a refund.
Tax Credits for the 2020 Tax Year Expire in April 2024
Be sure to apply for your FFCRA credit as soon as possible before the program expires, because IRS processing can take some time.
Tell Your Family and Friends
The FFCRA tax credit is not limited to the real estate industry. So, if you have a self-employed spouse, or other family and friends who work for themselves, they can also apply to receive their own tax credit. Spread the word so all eligible self-employed individuals can access the support they deserve.
CRES Specializes in Helping Real Estate Professionals
As a company that specializes in helping real estate professionals, the CRES team wants to help increase awareness about this tax credit. It has not been widely advertised and we don’t want our valued clients and blog followers to miss out.
CRES is also part of one of the largest insurance brokers in the world, with access to more real estate company Errors and Omissions options than just about anyone else. So, if you need assistance to find the best protection for your real estate business, give us a call at 800-880-2747. Our expert team can tailor an insurance policy to suit your needs.
