On Friday, the U.S. Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of Labor announced two new refundable tax credits that offer relief to employees, small and midsize businesses, and the self-employed under the Families First Coronavirus Response Act, signed by President Trump on March 18, 2020.
How will these credits help freelancers who can’t work due to their own illness or because they have to care for a family member who is ill or a child whose school is closed because of the coronavirus?
In a nutshell, the IRS will take your taxable profit (based on your 2020 income), prorate it for 10 days (the equivalent of two 40-hour sick pay periods), and make that amount exempt from both income tax and self-employment tax. This ensures that self-employed individuals will get the same benefits as those who are employed.
Here are the specifics of these tax credits as they apply to the freelance community:
Self-employed individuals who experience a coronavirus emergency are able to claim this tax credit against their 2020 federal income tax bill, including the self-employment tax portion of it. If the credits exceed your tax bill, you will receive a payment for the excess amount.
The credit will be