COVID-19 Tax Credits (And How Self-Employed Workers Benefit)

Congress recently passed the Families First Coronavirus Response Act (FFCRA) in order to provide relief to taxpayers and companies that are struggling to keep business running due to the spread of the coronavirus (COVID-19.)

Several of the provisions in the FFCRA included protections for self-employed workers, who do not have guaranteed sick leave from an employer. And as many Stride’s members know, being a 1099 worker usually doesn’t come with some protections that traditional employees are used to, like paid sick leave or paid time off.

1099 Workers and COVID-19

Because many Americans are advised or required to stay home to help stop the spread of the coronavirus, they’re often not able to continue working. Anyone working a side job or working full time for on-demand companies like Uber or Postmates is no exception.

This puts gig economy jobs like rideshare and delivery in a tough position. Your income is based on your ability to leave your home, but you’ve been advised to stay home to decrease your risk of exposure to coronavirus. This means you’ll be potentially choosing between your health and making money.

In an effort to help 1099 workers with the financial issues caused by staying home, Congress included two key protections in the FFCRA for self-employed workers specifically.

1. Tax Credit for Sick Leave

When a traditional employee needs to stay home from work because they’re sick, they’re usually eligible to receive payment for that day’s work. Now that more Americans are qualifying for sick leave, an employer might be seeing more employees stay home, while the costs of operating a business stay the same.

To offset those costs, Congress has created a payroll tax credit for companies with under 500 employees. This payroll tax credit can be claimed by companies once per quarter when they pay their payroll taxes. These tax credits are available until December 31, 2020, and can be claimed if your employee has to miss work in order to:

• Self-isolate because of coronavirus diagnosis

• Obtain a medical diagnosis or care for coronavirus symptoms

• Quarantine based on the recommendation or order of a public official or health care provider

What Does This Mean for 1099 Workers?

If self-employed workers find themselves in circumstances that would normally qualify them to take sick leave from a traditional employer, they’ll now be eligible to take a similar individual tax credit that employers could take.

The credit that you can claim per day is equal to your average daily earnings and covers up to 10 days. If you typically earn about $200 per day while driving for Uber, then you could take a credit of $200 for each day that you’re not able to work due to coronavirus related reasons.

The daily credit maxes out at $511 per day, which means if you earn earn $512 per day or more, then you can only take a credit of up to $511 per day.

2. Tax Credit for Family Leave

There’s also a new tax credit for those who find themselves missing work in order to care for their family due to the coronavirus, and this credit also applies to the self-employed. A self-employed American can claim a “family leave” tax credit if they are:

• Quarantining on the recommendation or order of a public official or health care provider and cannot perform their work while they are at home

• Caring for an at-risk family member who is in quarantine on the recommendation or order of a public official or health care provider

• Caring for a minor child whose school or place of care has closed, or whose child-care provider is unavailable due to coronavirus

The family leave tax credit is calculated in the same way as the sick leave credit, meaning the amount of your daily tax credit is equal to your typical earnings for a day. However, one difference is that the sick leave credit is limited to a maximum of $511 per day for 10 days, while the family leave credit is limited to $200 for 50 days. 

How To Access These Tax Credits

You’ll claim these credits on your tax return when you file your taxes for 2020, and they’ll typically be calculated for you by the tax software or tax preparer you’re using.

Stride Tip → This year, be sure to keep track of how many days you’re not able to work (and for what reasons), and then claim those sick leave or family leave days on your 2020 tax return.

Don’t worry, even though they won’t be claimed on your tax paperwork until next year, you can still benefit from the new tax credits now since they can help reduce your quarterly tax bill.

Quarterly Taxes and the Families First Coronavirus Response Act

When you pay your quarterly taxes, you calculate how much you owe by estimating how much money you’ll make for the year. Based on that estimated income, you figure out how much you owe in taxes, and then subtract your tax credits from any amount that you owe. These new sick leave and family leave tax credits will help to reduce how much you owe in quarterly taxes.

Let’s take a look at an example, if you had calculated that you would owe $600 in taxes at each quarterly tax deadline, but you will now be able to take a tax credit of $1,000 for the year because you had to self-quarantine due to the coronavirus, then you could reduce your tax bill at every quarterly tax deadline. Here’s what that would look like:

• Typical quarterly tax bill: $600

• Total sick leave credit for 2020: $1,000

• Total sick leave credit, divided by 4 quarterly tax deadlines: $250

• Typical quarterly tax bill, minus one quarter of your total sick leave credit: $350

In this example you’d save $250 on each quarterly tax bill for 2020.

What If I Usually Get A Tax Refund?

The sick leave and family leave tax credits are refundable, which means if your tax bill is $0 (or if you typically get a tax refund), you’ll receive the credit added onto your tax refund. For example, if you typically get a tax refund of $1,000, but also qualified for $2,000 in sick leave credits, you’ll now receive a $3,000 tax refund.

The coronavirus pandemic can cause a lot of stress, particularly when it comes to your taxes, healthcare, and finances. For more information on how to stay healthy and safe during the coronavirus crisis, head to Stride’s COVID-19 Resource Guide for Independent Workers, or reach out to us at support@stridehealth.com or at 415-930-9110.