On Friday, the U.S. Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of Labor (Labor) announced two new refundable tax credits which offer relief to employees, small and midsize businesses, and the self-employed under the Families First Coronavirus Response Act (Act), signed by President Trump on March 18, 2020.
How will these credits help freelancers who can’t work due to their own coronavirus illness or because they have to care for a family member with the virus or a child who is not in school because of the corona virus?
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), then make it 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:
A few other important points:
There are likely to be additional details about these credits in the days to come so watch for updates. You can also find more information about these credits and other coronavirus relief, visit the IRS website.
Jonathan Medows is a certified public accountant licensed in New York, New Jersey, Maryland, and Pennsylvania. He is also a recognized expert in taxation for freelancers and the self-employed—often tapped for his expert knowledge and perspective on self-employment taxation by national and regional publications such as The New York Post, BusinessWeek, Forbes taxation blog, WebCPA, CPA Practice Advisor, and others. You can read some of Jonathan’s press coverage here.
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