Being self-employed means, you have no unemployment advantages if your business revenue falls or dries completely. However, the pandemic has changed that legislation temporarily.
The federal government has made it simpler for states to offer unemployment benefits even to self-employed individuals who have suffered in their business during Covid-19. But, it depends on the states, if they want to execute federal regulations.
However, before applying for Unemployment, you should know, whether you can apply for it and the benefits you can get from it.
Can I get Unemployment after being self-employed?
Under normal situations, self-employed people- such as freelancers, independent contractors, and sole proprietors are not eligible for unemployment advantages.
However, under the CARES Act or the Coronavirus Aid, Relief, and Economic Security Act, the State can pay unemployment benefits to self-employed individuals.
When are you regarded as an employee?
According to the State laws, you may still be marked as an employee and suitable for unemployment advantages, when appointed as an independent contractor. For instance, in New York, if an employer hires a worker as an independent contractor, as per the law, they are still marked as an employee. Your State or Federal law determines if a person is an independent contractor or employee.
Now that you know what an employee is, you should also know about self-employment
Self-employment, in simple words, means that you work for yourself, either as a sole proprietor or independent contractor, where you represent your business and are responsible for looking for clients and handling work. Your self-employment status may differ on the kind of work you handle and the kind of self-employed individual you are.
Types of Self-Employment
Small business proprietor- Self-employed individuals who run a business on a small scale with employees less than 500. A sole proprietor may be the only employee of their business, such as a caterer who can work from home.
Independent contractors- They work with different clients in different sectors and complete work as per the specifics and directions of the client. They are in charge of their complete work operation.
Gig economy workers- A gig economy worker is like an independent contractor as they acquire clients, but their work time is short. They work with clients to do short projects and assignments and eventually get paid for a specific wedding or case with a law firm.
Freelance workers- Freelancers are also recognized as independent contractors working as subcontractors, doing freelancing as self-employed. They work in different fields and perform services for companies, such as business consulting, software designing, and more.
What is Pandemic Unemployment Assistance?
The 'CARES Act' organized the Pandemic Unemployment Assistance Program that lets States distribute unemployment benefits for those who don't fall in the category. For instance, people with restricted work history who haven't earned good wages may not be eligible for unemployment assistance.
The rules also cover specific people who were unemployed before and remain unemployed because of Covid-19- and it majorly covers a self-employed person.
According to the Act, the States can offer around 39 weeks of pandemic unemployment assistance to those who are eligible. But, there is still room to add more weeks if the legislator wants to offer extended benefits.
How can I file for unemployment benefits?
The unemployment insurance program is a collaborative federal and State program. The federal government decides the federal guidelines of how the program will execute, and the States set their own State law in those guidelines.
You have to file a claim with the State's unemployment office to get unemployment benefits. You can also file the claim online through the State's employment website.
Different unemployment benefits for self-employed people and freelance workers
If you are a self-employed worker, you can enjoy many unemployment advantages you are eligible for. Use the following to guide you and know which option may work the best for your situation.
The US Congress passed the CARES Act, which means Coronavirus Aid, Response and Economic Security Act, along with parts of benefits from Pandemic emergency unemployment compensation, Pandemic unemployment assistance program, and PUC. Some of the provisions outlined in the Act are:
- It offers unemployment advantages to independent contractors who are not eligible for unemployment benefits. The amount the act covers depends on your revenue, location, and other guidelines.
- It involves other aid that can add to additional $600 weekly benefits. The time duration for which you can get supplemental benefits differs by State, and is usually four months.
- It offers additional weeks of benefits if the person remains unemployed even after using the State benefits.
Your State decides whether you can opt for the benefits of the act or not. As per the United States Department of Labor regulations, you can file a claim with the State's unemployment office and collect unemployment benefits after you find out your eligibility. The information needed to file for the CARES program is:
- Driver's license number
- Social Security or Employer Identification Number
- Residence proof
- Details of your bank account
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Paycheck Protection Program
The PPP Program was funded by the Small Business administration that offers pardonable small business loans to business people who are affected because of the Covid-19 outbreak. The program provides financial aid for small businesses, sole proprietors, freelance workers, and gig workers.
As per the SBA, you can file for the Paycheck Protection Program if you are one of these:
- A small business that complied with the SBA's industry-based standard.
- A NAICS Code business that starts with number 72 as it is for the food and hospitality sector working at more than one location with less than 500 workers at every place.
- A sole proprietor, self-employed or independent contractor
According to old revenue and the place where you live, you may file for the US DOL's Families First Coronavirus Response Act that offers sick pay of two weeks at your average earning and around 12 weeks of family leave while paying two-thirds of the normal earnings, if you have kids with their schools closed. According to the IRS, the eligibility criteria for this tax benefit can only be availed if you are self-employed, freelancing, or gig work.
A few companies also offer relief assistance to support freelancing workers, gig workers, and hourly workers who are not eligible for unemployment insurance benefits. If you are self-employed and work for a franchise, you should see if the company offers any relief funding for their workers. You can receive benefits depending on the place you live, the industry you work in, and your company.
Freelancer's Relief Fund
A monetary aid program offers $1000 to freelance and gig workers affected financially because of the outbreak. Offered by the Freelancers' Union, you are eligible for this unemployment compensation if you only earn through freelance work and have suffered a loss of 50% of your usual revenue.
You can file for the program through the Freelancers' Union, and you will need documents like:
- Financial statements of two months from 2020.
- Tax filing for 2019
- Financial documents such as tax returns, profit and loss statements, etc.
Disaster Unemployment Assistance
According to your State, you can be eligible for Disaster Unemployment Assistance Program from the federal government if you have lost your work because of a disaster. To be eligible for the DUA assistance, the president should declare the disaster, and you must not be eligible for any other unemployment compensation.
Self-Employment Assistance Program
The SEAP is a federal program and offers special help to unemployed people displaced out of work when beginning a new venture. If self-employed workers just started to run their business operation when the lockdown order came into action, you may be eligible for the funding. SEAP offers weekly allowance like regular unemployment benefits. However, it would help if you indulged in full-time self-employment activities, such as developing your business, promoting your business to clients, and more.
How much will I get?
States state regular unemployment insurance benefits are based on several factors such as past revenue during a specific period.
Usually, states have high and low amounts, set for weekly benefits, depending on the policy of each state. For instance, in Jan 2020, Massachusetts got a high benefit of $1234, and Mississippi got a high benefit of $235. So, it is different for every State.
Apart from the weekly benefit amount you are eligible for through the State Government program, you can also receive an extra $600 per week because of Federal coronavirus regulations. The CARES act also raised the federal pandemic unemployment compensation program that offers additional weekly pay.
For how long will my benefits last?
The CARES Act offers unemployment advantages for 39 weeks.
Will I be taxed for my unemployment benefits?
Usually, unemployment advantages are taxed. But they are only charged under federal and state regulations.
If you are self-employed and have been unemployed because of the pandemic, you will not have to pay federal self-employment tax. Only the income earned via self-employment is asked for federal and state tax.
You possibly will not be eligible for regular unemployment insurance benefits, if you are self-employed in normal situations. However, the federal Covid laws have created new ways to pay unemployment to many people who normally don't qualify for it. So, if you are self-employed and your income source is dead because of the pandemic, you can receive the pandemic compensation from the State Government.