What the Coronavirus Relief Means for Self-Employed Taxpayers

Self-Employed COVID-19 tax implications

In response to coronavirus, the Treasury, IRS, and federal government have announced several coronavirus relief and stimulus packages for individuals, the self-employed workers and businesses. If you’re self-employed, here’s everything you need to know about what the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Families First Act, Coronavirus Response and Relief Supplemental Appropriations Act, and the recently passed American Rescue Plan mean for you.

You can also visit our Self-Employed Coronavirus Relief Center to get up-to-date information, tax advice and tools to help you understand what coronavirus relief means for you.

Tax Relief for Self-Employed and Small Businesses Under the Families First Coronavirus Response Act

The Families First Coronavirus Response First Act, which was passed March 18, provides relief in the form of refundable tax credits for sick leave and family leave for both eligible self-employed and small business owners.

  • Self-Employed Tax Credit for Sick Leave. If you are self-employed, you may be eligible for a refundable tax credit equivalent to a qualified sick leave amount. Qualified sick leave is based on your average daily self-employment income.
  • Self-Employed Tax Credit for Family Leave. If you are self-employed you may be eligible for a refundable tax credit equal to 100 percent of a qualified family leave equivalent amount for eligible self-employed individuals. 
  • Small Business Tax Credit for Paid Sick Leave. If you are a small business owner and paid sick leave wages to your employees you may be eligible for a refundable tax credit equal to 100 percent of qualified sick leave paid.
  • Small Business Tax Credit for Paid Family Leave. If you are a small business owner and paid qualified family leave wages to employees, you may be eligible for a refundable tax credit equal to 100 percent of qualified family leave wages paid.

The American Rescue Plan, passed on March 11, extends refundable tax credits for sick leave and family leave through tax year 2021 for both eligible self-employed and small business owners. The provision also allows you to use prior year net earnings from self-employment in the calculation of the average daily self-employment income if the prior year net earnings help you arrive at a higher average daily self-employment income.  If you or a family member were impacted by coronavirus and you could not conduct your business, find out if you are eligible for the qualified sick and family leave credits using the Intuit Tax Credit Estimator.

Pandemic Unemployment Assistance (PUA) program

CARES Act

As part of the CARES Act, the Pandemic Unemployment Assistance (PUA) program was announced. PUA program benefits are available for individuals who do not usually qualify for unemployment compensation and are unable to continue working as a result of COVID-19, such as self-employed workers, independent contractors, and gig workers. 

Under the Federal Pandemic Unemployment Compensation (FPUC) program, eligible individuals who were collecting certain UI benefits, including regular unemployment compensation, will receive an additional $600 in federal benefits per week for weeks of unemployment ending on or before July 31, 2020.

The PUA program covered up to 39 weeks of benefits for any eligible individuals and was retroactive for weeks of unemployment, partial employment, or inability to work due to COVID-19 reasons starting on or after January 27, 2020.

Additionally, the Pandemic Emergency Unemployment Compensation (PEUC) program allowed those who exhausted benefits under regular unemployment compensation or other programs to receive up to 13 weeks of additional benefits.

Coronavirus Response and Relief Supplemental Appropriations Act

Under the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, the second relief plan, unemployment benefits were extended by issuing $300 a week for 11 weeks until March 14, 2021.  The bill also affords an additional $100 a week to earners who have a mix of income types. If you earn your income both as an employee and a freelancer or a contractor (doing side gig work for example) you fall into this “mixed earners” category. Certain workers who have at least $5,000 per year in self-employment income, but are disqualified from receiving Pandemic Unemployment Assistance because they also have an employer could be eligible for the additional $100 per week in unemployment benefits.

The first stimulus that was passed in March banned benefits for the mixed earner category of workers. The provision will also cover part-time workers, self-employed, and others that may have fallen into a gray area for unemployment benefits.

American Rescue Plan

Under the American Rescue Plan signed into law on March 11, 2021, unemployment payments will increase by $300 per week and the benefits will be extended through September 6, 2021. The bill also makes the first $10,200 of unemployment income tax-free for households with income less than $150,000. This provision is retroactive to tax year 2020 (the taxes you file in 2021), helping millions of unemployed save on their taxes.

The Coronavirus Response and Relief Supplemental Appropriations Act of 2021 and the American Rescue Plan also both expand unemployment to part-time employees, freelancers, independent contractors, gig workers, and the self-employed.

Paycheck Protection Program (PPP)

The Paycheck Protection Program (PPP) under the CARES Act consisted of approximately $350 billion in government-backed loans to help self-employed and small businesses pay for eight weeks of payroll costs. 

If you are self-employed you may be wondering, how are payroll costs calculated under PPP? Your payroll costs will be based on your income, commission, and net earnings up to $100,000.

If you’re a QuickBooks Payroll customer, Intuit launched QuickBooks Capital, a non-bank SBA-approved lender for the Paycheck Protection Program (PPP). QuickBooks Capital provides a simple application and funding process to allow quick access to relief. 

The Coronavirus Response and Relief Supplemental Appropriations Act of 2021, passed December 27, 2020, provides a second round of payments under the Paycheck Protection Program. 

Self-employed individuals, small businesses, small 501(c)(6) organizations, restaurants, live venues, and EIDL grants will again be eligible. Also, businesses experiencing severe revenue reductions will have the opportunity to apply for a second PPP loan.

Businesses with 300 or fewer employees that have experienced 25% revenue loss in any 2020 quarter and small 501(c)(6) organizations that have 150 employees or fewer would be eligible for a Paycheck Protection Program under the COVID-19 Emergency Relief Package.  

The expanded Paycheck Protection Program, which also broadens the type of business expenses that can be forgiven under the loan to include supplier costs, will allow business expenses paid utilizing PPP proceeds to be tax deductible, and would simplify the loan forgiveness process.

Economic Injury Disaster Loans

Under the CARES Act, small business owners, sole proprietorships, independent contractors, and other self-employed individuals were eligible to apply for Economic Injury Disaster Loans (EIDL), which seeks to alleviate loss of revenue due to COVID-19. 

Under the CARES Act, eligible individuals were able to apply for an EIDL cash advance of up to $10,000. The EIDL loan amount was based on the amount of “economic injury” the individual sustained as a result of the coronavirus epidemic and will not have to be repaid.

Intuit Aid Assist

Intuit, the maker of TurboTax, launched Intuit Aid Assist, a free website with an interactive tool to help eligible small business owners and self-employed assess how much federal relief they are eligible for under the CARES Act, administered by the Small Business Administration.

Intuit Aid Assist is one of three services recently launched by Intuit to help Americans better understand and potentially access billions of dollars through the U.S. government’s Coronavirus aid and relief programs.

Intuit Aid Assist takes the complexity of hundreds of pages of the CARES Act and converts it into an easy-to-understand interview that provides answers to the most pressing questions on small business owners’ minds: What relief am I eligible for? How much of a loan can I get? How much of my loan may be forgiven so I don’t have to repay it?

The interactive tool assesses eligibility, estimates loan amounts, delivers a personalized recommendation, and, for qualified small businesses and other eligible applicants, provides a link to help them take the next step of applying for a loan. Intuit Aid Assist supports both the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) relief programs.

TurboTax Has You Covered

TurboTax has you covered with the most up-to-date information regarding new legislation and tax filing changes and announcements in response to COVID-19. TurboTax Self-Employed will ask you simple questions about you and your business and give you the tax deductions and credits you’re eligible for based on your entries. If you still have questions, you can connect live via one-way video from the comfort of home to a TurboTax Live Self-Employed tax expert with an average 12 years experience to get your tax questions answered. TurboTax Live Self-Employed tax experts are available in English and Spanish and can even review, sign and file your tax return or, new this year, you can fully hand over your taxes to them.

You can find the latest information on the tax changes and announcements in response to COVID-19, here.

 

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