Credit Solutions for Freelancers & Self-Employed

Freelancer Loans are becoming increasingly important as more individuals choose self-employment over traditional employment.

In this article, we will explore the various tax credits and deductions available to freelancers and self-employed individuals in the United States.

Understanding these financial tools can greatly reduce tax liabilities and provide vital support, especially in challenging times like the COVID-19 pandemic.

From the Self-Employed Tax Credit (SETC) to deductions for self-employment tax and Qualified Business Income (QBI), we will delve into how these benefits can empower independent workers financially.

Overview of Tax Credits for Independent Workers

Freelancers and self-employed individuals in the United States benefit from a variety of tax credits designed to ease the financial burden of working independently.

These tax credits serve as a direct reduction of the taxes owed, making them significantly more valuable than deductions alone.

Among the most impactful is the IRS business tax credit program, which provides targeted relief through incentives tailored to independent workers.

For example, during the COVID-19 pandemic, the Self-Employed Tax Credit (SETC) offered up to $32,200 to qualifying individuals for lost income due to illness or caregiving responsibilities.

Additionally, eligible filers can also claim the Qualified Business Income (QBI) deduction, which allows a 20% write-off of net business income.

These credits ensure that independent professionals receive comparable support to traditional employees while maintaining financial resilience in unpredictable markets.

Self-Employed Tax Credit (SETC)

The Self-Employed Tax Credit (SETC) is a valuable financial relief offered to freelancers and independent contractors who were unable to work due to specific COVID-19-related reasons.

Structured under the American Rescue Plan Act, the credit acknowledges income loss from illness, quarantines, or childcare disruptions.

Eligible individuals can claim significant refundable credits for qualified sick and family leave—up to $32,220 depending on circumstances.

To access it, taxpayers must complete IRS Form 7202 and follow the application process accurately with supporting financial records.

• You must be self-employed in 2020 or 2021
• You reported positive net income on a Schedule C
• You experienced work interruption due to COVID-19 symptoms or caregiving
• You filed a Schedule SE tax form

For example, a freelance web designer who missed ten days of work due to a COVID-19 infection could calculate lost income during that period and apply the credit through the SETC form.

This reduction would directly impact the tax owed, resulting in a relevant tax refund that offsets loss of income and supports financial stability for independent workers.

Refunds for Qualified Sick and Family Leave

The U.S. tax code provides substantial support for freelancers and self-employed individuals who must take time off due to illness or family responsibilities.

Through the IRS Self-Employed Tax Credit (SETC) for Sick and Family Leave, eligible workers can claim a refundable credit designed to offset their lost income during such periods.

This relief became especially important during the pandemic, recognizing that the self-employed do not have access to traditional employer-provided benefits.

Per IRS guidelines, workers may claim up to $32,200 in credits depending on the number of qualified leave days and their average daily income.

Applicants must demonstrate that they were unable to work due to one of the qualifying reasons and report those days accurately.

• Step 1: Determine your eligibility based on days you were unable to work due to sickness or family care
• Step 2: Calculate your average daily self-employment income using IRS instructions
• Step 3: Complete Form 7202 with relevant sick or family leave data
• Step 4: Attach the completed form to your federal tax return (Form 1040)
• Step 5: Submit your return electronically or by mail and monitor refund status with the IRS refund tracking tool

Deductions for Self-Employment Tax

Freelancers and independent workers in the United States can significantly reduce their tax burden through strategic use of self-employment tax deductions.

The IRS allows individuals to deduct the employer-equivalent portion of their self-employment tax—essentially half—which directly lowers their adjusted gross income, not just the taxable portion.

This distinction becomes highly valuable when calculating both income tax and eligibility for other credits.

For example, a freelancer earning $90,000 annually can deduct approximately $6,800 just for this reason.

Additionally, the IRS Self-Employed Tax Center offers detailed guidance on how other expenses related to business operations—such as home office costs, health insurance premiums, and retirement contributions—qualify as deductions, further shrinking the tax bill.

When claimed correctly, these reduce taxable income and ease the burden of the 15.3% tax freelancers owe for Social Security and Medicare.

Through the TurboTax guide to tax write-offs, many professionals find overlooked opportunities to save.

Including the Qualified Business Income deduction, which can reduce up to 20% of income, offers additional relief.

Combining multiple self-employment tax deductions can result in substantial tax efficiency and strong financial positioning

Qualified Business Income Deduction

The Qualified Business Income (QBI) deduction is a valuable tax benefit for self-employed individuals, freelancers, and owners of pass-through entities, allowing them to deduct up to 20 percent of their qualified income from taxable business activities.

Established by the Tax Cuts and Jobs Act of 2017, this deduction applies to most U.S.-based businesses operated as sole proprietorships, partnerships, S corporations, and LLCs.

To qualify, the income must come from a “qualified trade or business,” and personal services like those from lawyers or consultants may face limitations if income goes beyond set thresholds.

According to the IRS official QBI deduction guidance, thresholds impact whether the full 20% applies or becomes reduced or phased out.

Deduction limits depend on taxable income and filing status.

For the 2024 tax year, the income threshold to claim the full deduction is shown below:

Above these levels, limits apply based on business type and wage or property factors.

For example, if a freelancer earns $80,000 in net income from their solo design business, they could potentially deduct $16,000 under QBI, significantly reducing their taxable income while staying within the threshold.

This provides meaningful tax relief and encourages entrepreneurial activity.

Strategies to Lower Tax Liabilities for Independent Workers

Independent workers can significantly reduce their tax burdens by applying critical strategies such as record keeping and making consistent quarterly estimated taxes payments.

Maintaining detailed and accurate income and expense records not only ensures compliance but also enables freelancers to confidently claim all legitimate deductions.

This includes commonly overlooked deductions like home office expenses, business mileage, and professional development costs.

It’s also vital to take advantage of available tax credits such as the Self-Employed Tax Credit (SETC), which offers financial relief for qualified sick and family leave.

Freelancers may further lower their tax bills by leveraging the Qualified Business Income deduction.

Regularly setting money aside and aligning income timing with deductible expenses helps create stronger financial control.

Consulting with trusted tax advisors remains essential to navigate complex requirements and optimize all opportunities available.

In conclusion, leveraging available tax credits and deductions is essential for freelancers and self-employed individuals.

By understanding and utilizing these financial benefits, independent workers can significantly lower their tax bills and secure a more stable financial future.

Learn About Form 7202