In a NutshellIf you’re self-employed and are out of work because of the coronavirus pandemic, you may be able to get unemployment benefits thanks to the CARES Act. Here’s what you need to know about qualifying for unemployment as a self-employed filer.
Being self-employed usually means you can’t get unemployment benefits when your business income dips or dries up. But coronavirus legislation has changed that — at least temporarily.
The federal government has made it possible for states to pay unemployment benefits to self-employed people who’ve seen their business suffer because of the COVID-19 pandemic. But it’s up to the states whether they want to implement the federal guidelines.
So before you apply for unemployment, it’s important to know what benefits — if any — your state has extended to self-employed people. Keep reading to learn more.
- Can I get unemployment if I’m self-employed?
- What is Pandemic Unemployment Assistance?
- How do I apply for unemployment benefits?
- How much might I get?
- How long might my benefits last?
- Are my unemployment benefits taxable?
Can I get unemployment if I’m self-employed?
Under normal circumstances, self-employed people — like sole proprietors, independent contractors, freelancers and gig workers — don’t typically qualify for unemployment benefits.
But the Coronavirus Aid, Relief and Economic Security Act, or CARES Act (which became law on March 27, 2020) opens the door for states to pay unemployment to self-employed people — if states choose to do so.
What is Pandemic Unemployment Assistance?
The CARES Act created the Pandemic Unemployment Assistance program, which allows states to disburse unemployment benefits for those who generally wouldn’t qualify for them. For example, people with limited work history or those who haven’t earned enough wages might not ordinarily be eligible for unemployment.
The legislation also covers certain people whose unemployment has run out and who are still unemployed because of the pandemic — and it specifically covers people who are self-employed.
The act says that states can provide up to 39 weeks of Pandemic Unemployment Assistance to eligible people. But it also leaves the door open to additional weeks if legislators choose to extend pandemic benefits further.
How do I apply for unemployment benefits?
Unemployment insurance is a joint program between the federal and state governments. The federal government sets guidelines for how state programs can operate, and states set their own rules within those guidelines.
If you’re self-employed and seeking unemployment benefits during the pandemic, you’ll need to file a claim with your state unemployment office. You’ll typically file in the state where you worked. But if you live in one state and work in one or more other states, your home state’s unemployment agency should be able to guide you on how to file.
You can search for a state’s unemployment website through the U.S. Department of Labor’s CareerOneStop website. Depending on the state and its rules, you may be able to submit an online application, or file by phone or in person at a state unemployment office location. Check your state’s website to learn about its application process.
Take note that if you previously tried to file for unemployment and were denied, it may be worth contacting the state about your claim. The Department of Labor has directed states to review claims denied after Jan. 27, 2020, to identify people who may be eligible for Pandemic Unemployment Assistance.
How much might I get?
States determine unemployment insurance benefit amounts based on multiple factors, including past earnings during a certain period of time, called a base period, set by the state.
Generally, states also have maximum and minimum amounts for weekly benefits. For example, as of January 2020, Massachusetts had a maximum benefit amount of $1,234 (the highest in the country) and Mississippi’s maximum benefit amount was $235 (the lowest in the country).
In addition to the weekly benefit amount you qualify for through the state’s program, you can also get an additional $600 per week through July 31, 2020, thanks to federal coronavirus legislation. The CARES Act also created the Federal Pandemic Unemployment Compensation program, which provides the extra weekly amount.
How long might my benefits last?
The CARES Act allows states to pay unemployment benefits to self-employed people for up to 39 weeks. The additional $600-per-week Federal Pandemic Unemployment Compensation program ends on July 31, 2020 (though the date can vary by state).
Are my unemployment benefits taxable?
Generally, unemployment benefits are taxable. But they’re only subject to income tax — federal and possibly state, depending on where you live.
If you’re self-employed and receive unemployment because of COVID-19, you won’t have to pay federal self-employment tax on your unemployment compensation. Normally, income you make through self-employment is subject to federal (and potentially state) income and self-employment taxes.
What is self-employment tax?
Self-employment tax applies to net earnings and is made up of Social Security (12.4%) and Medicare (2.9%) taxes.
Under normal circumstances, you probably wouldn’t qualify for regular unemployment insurance benefits if you’re self-employed. But federal coronavirus legislation has paved the way for states to pay unemployment to many people who ordinarily wouldn’t qualify for it — including those who work for themselves. So, if your self-employment income has dried up as a result of COVID-19, you may be able to receive pandemic emergency unemployment compensation.
But be aware that pandemic unemployment benefits aren’t forever, and they are taxable. Pandemic Unemployment Compensation payments ended on July 31, 2020, and PUA benefits will wrap up on or before Dec. 31, 2020. Just keep in mind that these deadlines are the maximum time allowed for these programs under current federal law and your state may end these programs earlier.