A Guide To Collecting Unemployment When You're Self-Employed
Typically, self-employed professionals are ineligible for unemployment benefits because they generally don't contribute to the unemployment taxes from where these benefits come. This may vary depending on the state where you live. Learning about unemployment and the self-employed can help you understand if you might qualify in this situation.
In this article, we discuss types of self-employment, along with several financial support programs available for collecting unemployment benefits when you're self-employed.
What is self-employment?
Self-employment generally means you work for yourself as a business owner or an independent contractor, where you're the sole entity responsible for finding clients and completing work. Being self-employed can be challenging because you're not working for an employer and, therefore, aren't always subject to or eligible for some of the same taxes or benefits as traditional employees are.
Your self-employed status can also differ depending on your work and self-employment type. The following types of self-employment may help you determine the category in which your work is. Here are the common types of self-employment:
Small business owner
Small business owners are commonly self-employed individuals who operate small-scale businesses with less than 500 employees. Many business owners are sole proprietors, which means they're the only employee. For instance, a food caterer who works individually from a home office can be a small business owner, and as well as a business owner who owns a larger catering franchise can still be a small business owner.
Independent contractor
Independent contractors work with clients in many types of industries. While they complete work according to client directives, independent contractors determine how they acquire their clients, general liabilities like insurance and taxes, and the overall operation of their work. Independent contractors are commonly service providers, but they may also work with clients to sell physical products.
Gig worker
Gig workers are similar to independent contractors in that they seek out and acquire their clients, but their work is commonly short-term rather than long-term or permanent with clients. Gig workers can work with clients to complete short projects and tasks, which people also call gigs, for payment before acquiring new client gigs. For instance, gig workers may work on short-term projects like organizing a law firm's computer filing system, transcribing court hearings, or recording weddings on film.
Freelancer
Freelancers are similar to gig workers and often identify as independent contractors, but they may also work as subcontractors. Freelancers work in creative niches like web design, content writing, or software development. Though they can work in diverse industries, many freelancers perform services for businesses and organizations, such as content development, software design, and business consultation.
What are the eligibility requirements for collecting unemployment when self-employed?
The eligibility for collecting unemployment when self-employed varies by the state where you live. For example, some states may offer benefits but not the traditional total amounts you might earn if you were fully unemployed. Consider researching your state requirements to see what benefits you might receive.
Types of unemployment benefits for self-employed and freelance workers
If you identify as a self-employed individual, there are several benefits and programs for which you may be eligible. Use the following unemployment aids as a guide to help you determine which option may be the best fit for your unique situation:
Tax Credits
Depending on your situation, you may be eligible for the Self-Employed Tax Credit (SETC) in one or more categories as follows:
Self Care
A self-employed individual who is unable to work (including telework) because of coronavirus quarantine or self-quarantine or has coronavirus symptoms and is seeking a medical diagnosis is entitled to paid sick leave for up to ten days up to $511 per day but no more than $5,110 in total.
Caring for someone with Coronavirus
A self-employed individual who is unable to work due to caring for someone with Coronavirus, or caring for a child because the child's school or place of care is closed, or the paid childcare provider is unavailable due to the Coronavirus is entitled to paid sick leave for up to 10 days, up to $200 per day, but no more than $2,000 in total.
Care for children due to daycare or school closure
A Self-employed individual who is unable to work because of a need to care for a CHILD whose school or place of care is closed or whose child care provider is unavailable due to the Coronavirus is also entitled to paid family and medical leave equal to 50 days, up to $200 per day and $10,000 in total in 2020.
A Self-employed individual who is unable to work because of a need to care for a CHILD whose school or place of care is closed or whose child care provider is unavailable due to the Coronavirus is also entitled to paid family and medical leave equal to 60 days, up to $200 per day and $12,000 in total in 2021.
The Internal Revenue Service (IRS) provides eligibility guidelines for specific tax-based benefit programs. You may be eligible for this assistance program if you're a self-employed, freelance, or gig worker.
Company Benefits
Some companies and organizations may provide relief assistance and funding to support gig workers, freelancers, independent contractors, and hourly employees who usually wouldn't qualify for traditional unemployment insurance.
If you're self-employed as an independent contractor for a company that operates much like a franchise, research the company to see if it offers any relief funding for its contractors. The benefits can depend on the company, your location, and the industry you work in.
Freelancers' Relief Fund (FRF)
The Freelancers' Union provides the Freelancers' Relief Fund, a financial assistance program that provides up to $1,000 to gig and freelance workers experiencing economic hardships. According to the Freelancers' Union, you may be eligible if your sole income is through freelance work and you've experienced a loss of at least 50% of your regular income.
Disaster unemployment and assistance
Depending on your state, you may qualify for the Disaster Unemployment Assistant Program.
(DUA), which the federal government funds and assists people who have lost work due to a significant disaster. To qualify for DUA program assistance, the disaster must be a presidential declaration, and you must be ineligible for other unemployment compensation forms.
Self-Employment Assistance Program (SEAP)
The Self-Employment Assistance Program (SEAP) has federal endorsement and provides a particular type of unemployment aid to displaced people or those out of work while starting a new business.
Additionally, SEAP provides a weekly allowance similar to regular unemployment benefits, but instead of actively seeking full-time employment, SEAP requires you to engage in your self-employment activities full-time. Those include building your business, marketing to clients, and completing other activities that help establish your business and your status as a self-employed business owner. Check with your state's unemployment office to see if your state offers SEAP benefits.
Considerations when collecting unemployment
If you already collect unemployment, starting self-employed work may affect your eligibility. For example, working freelance or gig may cause you only to receive partial benefits. These stipulations can vary depending on the state where you live. Many states also require that you be willing to work and actively pursue potential job opportunities.
FAQs
IRS' FAQ: Special Issues for Employees
Families First Coronavirus Response Act (FFCRA)
Department of Labor Families First Coronavirus Response Act (FFCRA) Frequently Asked Questions
Also See