Important: There is no separate tax credit officially called the “Self-Employed Tax Credit” (SETC). The term is a marketing name for a much more limited credit: the Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, claimed on IRS Form 7202. In July 2024, the IRS warned taxpayers about misleading social media claims promising payments of up to $32,000, and said many people who are told they qualify do not (IRS News Release IR-2024-187).
This guide explains what the credit really is, who qualified, and why you should be careful with anyone promising a large refund.
What Is the “Self-Employed Tax Credit”?
It is the sick leave and family leave credit for self-employed people. It was created under the Families First Coronavirus Response Act, signed on March 18, 2020, to help self-employed people who couldn’t work for specific COVID-19-related reasons.
A tax credit reduces the income tax you owe dollar for dollar. This credit applied only to the 2020 and 2021 tax years. The IRS has confirmed it is not available on 2023 tax returns (IRS).
Which Reasons Actually Qualify? What We Found When We Tested the Rules
Many self-employed people ask our team whether they qualify after seeing an online ad. We check every request the same way: we match the reason the person couldn’t work against the specific reasons the credit allows.
We tested the eligibility rules against the five reasons people most often give us. Here is what we found:
- “I had COVID-19 or symptoms and couldn’t work.” Can qualify, for the days you were actually unable to work.
- “I had to quarantine under an order or a doctor’s advice.” Can qualify.
- “I cared for someone who was sick or under a quarantine order.” Can qualify.
- “My child’s school or daycare closed because of COVID-19.” Can qualify as family leave.
- “My business slowed down because of the pandemic.” Does not qualify. A drop in sales or clients is not, by itself, a qualifying reason.
In other words, 1 of the 5 most common reasons, and often the one people mention first, does not qualify at all. The IRS also notes that some people wrongly used Form 7202 to claim the credit based on employee (W-2) wages, rather than self-employment income (IRS).
In our experience, the credit is real but narrow. It depends on specific days you couldn’t work for a qualifying reason, not on how much your business lost.
Who Was Eligible for the Credit?
To qualify, you generally needed to:
- Be self-employed, such as a sole proprietor, freelancer, or independent contractor, with self-employment income
- Have been unable to work or telework on specific days in 2020 or 2021 for a qualifying COVID-19 reason
What Were the Qualifying Reasons?
- Your own illness: You had COVID-19, had symptoms and were seeking a diagnosis, or were under a quarantine or isolation order.
- Caring for someone else: You cared for a person who was sick with COVID-19 or under a quarantine or isolation order.
- Caring for a child: You cared for a child whose school or place of care was closed, or whose childcare was unavailable, because of COVID-19.
Which Form Is Used?
The credit is figured on IRS Form 7202, “Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals.” It is filed with your individual tax return for the year the leave was taken.
What Income Is Used?
The credit is based on your net self-employment income. Special rules allowed some people to use their prior year’s self-employment income if it was higher, which is why 2019 income could matter for 2020 or 2021 claims.
Can You Still Claim the Credit?
For most people, probably not. Because the credit only applies to 2020 and 2021, it can only be claimed on an original or amended return for those years. An amended return claiming a refund generally has to be filed within 3 years of when you filed the original return, or within 2 years of when you paid the tax, whichever is later. For most taxpayers, those windows have now closed.
If you think you may still be within the window, for example because you filed your original 2021 return late, talk to a tax professional before filing anything.
Why Should You Be Careful With SETC Promoters?
The IRS has warned that promoters on social media have pushed people to claim this credit when they don’t qualify. People who file these claims do so at their own risk. If the claim is wrong, the IRS can deny it, recover any refund paid, and charge interest and possible penalties (IRS).
Warning signs include:
- A promise of a specific large amount before anyone reviews your situation
- Fees based on a percentage of your refund
- Little or no question about the specific days you couldn’t work
- Encouragement to claim the credit because your business lost money
The IRS urges taxpayers to consult a trusted tax professional before filing or paying anyone to file these claims.
How Did We Help a Freelancer Who Saw an SETC Ad? (Example From Our Work)
This is a representative scenario based on the clients we support. Details are generalized to protect client confidentiality.
Situation: A freelance graphic designer saw an online ad promising a large SETC refund. A promoter had told her she qualified because her client work dropped in 2020. She wanted a second opinion before paying their fee.
What we did:
- Asked about each period in 2020 and 2021 when she couldn’t work, and why.
- Confirmed that the drop in client work alone did not qualify.
- Found one qualifying period: she had cared for her child during a COVID-19 school closure.
- Checked whether she was still within the time limit to amend her return for that year.
- Explained what records she would need to support only the days that qualified.
What changed: She avoided filing a claim based on lost business, which would not have qualified and could have led to the refund being clawed back with interest. She also got a clear, honest answer on the narrow part that might qualify, instead of a promised number.
In our experience, the most useful thing we do for SETC questions is separate the real, narrow credit from the marketing around it.
What Should You Do Next?
If you were self-employed in 2020 or 2021 and couldn’t work for a qualifying COVID-19 reason, check whether you are still within the time limit to amend that year’s return. Be cautious with anyone promising a large refund before reviewing your situation.
For an honest review of your eligibility, contact ProfitsView.
This article is for general information only and is not tax advice. Check current IRS guidance or talk to a tax professional about your situation.
