FFCRA 101: A Guide to the Best Self-employed Tax credit Available

December 17, 2023

When you’re self-employed, it’s easy to feel like it’s all on you. Whether it’s sales, marketing, bookkeeping, website maintenance, you know you’ve got to keep an eye on things to ensure your business stays afloat.

That’s why it’s no surprise to us at Adesso that so many self-employed people don’t know they’re missing out on one of the most valuable tax credits created for 1099 workers like you! So let’s cover the FFCRA and discuss what it is, how it works, and a few tips for ensuring you get the maximum refund possible.

What is the FFCRA and How Does it Work?

What is the FFCRA Tax Credit?

The FFCRA Tax Credit refers to the tax benefits provided under the Families First Coronavirus Response Act (FFCRA). This act was implemented to support employees and self-employed individuals who were impacted by the COVID-19 pandemic.

How Does it Work?

To qualify for the FFCRA Tax Credit, you must be a self-employed individual or a small business owner with fewer than 500 employees. If you meet this criteria, you may be eligible for refundable tax credits equivalent to providing sick leave or family leave wages to your employees during certain COVID-19-related situations.

You can claim these credits on your federal income tax return against your regular income taxes. The amount of credit depends on factors such as whether an employee took paid leave, their wage rate, and the reason for taking leave.

By utilizing the FFCRA Tax Credits, self-employed individuals can benefit from financial assistance in supporting their workforce during challenging times caused by the pandemic.

Why Didn’t I Hear About This Before?

If this is the first time you’re hearing about the FFCRA, it probably sounds too good to be true. PPP loans were complicated and hard to get and ERC tax credits weren’t available for independent contractors and freelancers. Why would this be any different?

Unfortunately, the truth is that you probably didn’t hear about it because, like other COVID programs, entrepreneurs weren’t considered when Congress was creating it. But thankfully, they realized quickly that the federal pandemic relief programs weren’t helping a considerable part of the economy.

The US Bureau of Labor Statistics (BLS) found that as of June 2023, 9.59 Americans earn their income as self-employed individuals. That’s a huge chunk of the workforce! Consequently, Congress updated language in the CARES Act to ensure the FFCRA would cover:

  • Gig workers
  • Freelancers
  • Independent Contractors

And many other types of workers who are categorized as self-employed.

When the CARES Act was amended, there wasn’t much press coverage about the changes, leaving many eligible candidates in the dark. That’s why we’ve made it our mission to ensure everyone gets the money they’re entitled to (but more on that later).

Eligibility Criteria for Self-Employed Individuals

To be eligible for the FFCRA tax credit, self-employed individuals must meet certain criteria:

  1. Have had a self-employed business during the qualifying period: This includes freelancers, independent contractors, and gig economy workers.
  2. Loss of income: You are eligible if you experienced a significant loss of income due to COVID-19-related reasons outlined in the FFCRA guidelines. These include caring for a child whose school or place of care is closed, experiencing quarantine measures, or being unable to work due to a health condition related to COVID-19.
  3. Documentation: To claim the tax credit, you will need documentation that supports your eligibility and shows how much income you lost due to the pandemic. This can include financial statements, bank records, medical documents, or letters confirming school closures.
  4. Tax filing requirements: It's important that you have filed your federal tax return for the relevant year before claiming the FFCRA tax credit, as it may impact your overall tax liability.

Remember: The FFCRA provides valuable tax benefits for self-employed individuals during these challenging times—take advantage!

How to Claim FFCRA Tax Credit as a Self-Employed Individual

When it comes to claiming the FFCRA tax credit as a self-employed individual, there are a few steps you need to follow. First, make sure you meet the eligibility requirements: you must have been unable to work or had reduced hours due to COVID-19-related reasons. Next, calculate your qualified sick and family leave wages based on your average daily self-employment income.

To claim the tax credit, fill out Form 7202—Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals. Make sure to include all necessary information, such as dates and amounts of qualified leave wages. Once completed, attach this form along with your Form 1040 when filing your taxes.

Remember that documentation is crucial! Keep records of any documents supporting your claim in case of an audit by the IRS. This may include proof of canceled jobs or reduced hours due to COVID-19, medical certificates if seeking sick leave reimbursement, and other relevant financial paperwork.

Sounds like a lot of work, doesn’t it? We get it. That’s why we built Adesso360, a powerful platform built by tax experts to ensure you get the maximum FFCRA funds you deserve. 

Adesso360 takes care of the heavy lifting for you by calculating your refund, amending your tax docs, and submitting your claim to the IRS. We’ll even keep track of the progress so you can focus on what matters most: growing your business.

Click here to find out how much you could qualify to get back, it’s free!

Common Misconceptions about the FFCRA Tax Credit for Self-Employed Individuals

Only employees working for a company are eligible for the FFCRA tax credit. 

Reality: The FFCRA tax credit is also available to self-employed individuals who meet specific criteria. It provides financial relief to those who cannot work or need to take time off due to COVID-19-related reasons, such as caring for a family member or facing significant reductions in workload.

Claiming the FFCRA tax credit will increase my chances of being audited by the IRS.

The Truth: As long as you provide accurate and verifiable information, claiming the FFCRA tax credit should not raise your risk of an audit. However, it’s crucial that you maintain proper documentation and keep records of eligibility requirements fulfilled. 

Using Adesso360 can help you navigate this process. Since it’s built by tax experts who have experience with the FFCRA, we’ll ensure your application is accurate and complete. Click here to find out how much you’re qualified to get back. 

I can claim unlimited credits through the FFCRA on my taxes. 

Realty: The maximum amount of paid sick leave that self-employed individuals can claim under the FFRCA is limited based on their average daily income from self-employment.

Tips for Maximizing FFCRA Tax Credit for Self-Employed

1. Keep track of eligible leave periods and hours

  • Make sure to accurately record the dates and duration of any instances where you were unable to work due to COVID-related reasons.
  • Keep a detailed log of the number of hours that you would have worked during these periods, as this information will be crucial when calculating your tax credit.

2. Familiarize yourself with qualifying reasons for leave

  • Understanding the specific circumstances that qualify you for FFCRA tax credits is key. These include being subject to a quarantine order or caring for a child whose school or daycare is closed due to COVID-19.
  • Knowing what situations are covered can help ensure that you don't miss out on any potential tax benefits.

3. Seek professional advice

  • As a self-employed individual, navigating tax credits can sometimes be complex. If you're unsure about how to maximize your FFCRA tax credit, using a platform like Adesso360 can ensure you get the amount you deserve.

Remember, understanding how the FFCRA tax credit works and taking proactive steps is essential in unlocking its full potential as a self-employed individual!

Common mistakes to avoid when claiming the FFCRA Tax Credit

Common mistakes to avoid when claiming the FFCRA Tax Credit:

  • Incomplete documentation: Make sure you gather all the necessary documents, such as pay records and proof of leave taken, to support your claim. Having incomplete or missing documentation can delay the processing of your tax credit.
  • Inaccurate calculations: Double-check your math! Incorrect calculations can lead to miscalculations in your tax credit amount. Take the time to carefully calculate each employee's eligible wages and properly compute the credits.
  • Failure to meet eligibility criteria: Ensure that both you (as a self-employed individual) and your employees meet the eligibility requirements for the FFCRA tax credit. Not meeting these criteria could result in an invalid claim and potential penalties.

Remember that understanding these common mistakes can help you navigate through the claiming process more smoothly, increasing your chances of successfully obtaining this beneficial tax credit.

Using Adesso360 can help you avoid these common mistakes and ensure the IRS processes your application quickly. It only takes 3 minutes to find out if you qualify, click here to get started for free.

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