Understanding Self-Employment Tax Credits: A Guide for Self-Employed Individuals

Are you familiar with these small business tax credits?

As a small business you understand how hard it is to earn money. Here are some credits you may be able to take advantage of as a small business.

1. Self-Employed Sick and Family Leave Credit (SFLC/SE)

Authorized by the Families First Coronavirus Response Act (FFCRA) and extended by the American Rescue Plan Act of 2021 (ARPA), this credit allows eligible self-employed individuals to claim refundable credits for sick and family leave equivalent amounts based on their average daily self-employment income. The applicable dates for FFCRA are April 1, 2020, through December 31, 2020, and ARPA extended the credits for leave taken from April 1, 2021, through September 30, 2021.

2. Premium Tax Credit (PTC)

Self-employed individuals who purchase health insurance through the Health Insurance Marketplace may be eligible for the Premium Tax Credit, which helps cover the cost of premiums. The American Rescue Plan Act of 2021 temporarily modified eligibility for the PTC for tax years 2021 and 2022, eliminating the requirement that household income not exceed 400% of the federal poverty line.

3. Earned Income Tax Credit (EITC)

Self-employed individuals with low to moderate income may qualify for the Earned Income Tax Credit. The credit amount varies based on income, filing status, and the number of qualifying children. The American Rescue Plan Act of 2021 made temporary changes to the EITC for tax year 2021, including increasing the credit for individuals without qualifying children and modifying the age requirements.

4. Child and Dependent Care Credit (CDCC)

Self-employed individuals who pay for the care of a qualifying individual to enable them to work or look for work may be eligible for the Child and Dependent Care Credit. The American Rescue Plan Act of 2021 made the CDCC fully refundable for tax year 2021 and increased the maximum credit amount.

Conclusion

Understanding and utilizing these tax credits and deductions can significantly reduce your overall tax liability, providing financial relief and support for your business activities. Always consult with a tax professional to ensure you are maximizing your benefits and complying with all tax regulations.

By staying informed and proactive, you can make the most of the tax credits available to you as a self-employed individual.