Is there unemployment for the self-employed?

Under normal circumstances, or at least before spring 2020, the short answer to that question would have been, “Not really.”

Then COVID-19 happened, and with it trillions of federal government aid and financial protections affected the way unemployment benefits were distributed for the self-employed.

Some of that corona aid went to the CARES Act, which funded unemployment programs such as the Pandemic Unemployment Assistance program. Self-employed workers were eligible for PUA, meaning states could pay benefits to gig workers, independent contractors and other self-employed workers who were unemployed for up to 39 weeks, giving them an additional $600 per week.

COVID-19 continues, but the CARES law has expired. And that means – unfortunately – that the answer to the question of whether self-employed workers can collect unemployment from “Not really” to “You bet!” went. to “It’s complicated. †

How do unemployment benefits work?

Again, this generally doesn’t apply to self-employed people, but unemployment benefits provide workers who are out of work through no fault of their own with a temporary source of income. The weekly benefit amount is typically 30 to 50% of your weekly income, over a period of time.

According to the Department of Labor, it’s a good idea to file an unemployment claim as soon as possible after you’re fired, providing your state unemployment office with as much and as accurate information as possible to ensure your claim is filed in a timely manner.

You must meet certain income requirements to receive unemployment, and some states may have additional requirements, such as proving that you are looking for work. The Department of Labor has a map on its site that allows users to view the programs in each state.

Can the self-employed become unemployed?

Our research points to a potential way for self-employed workers to receive benefits now that federal funding for the CARES Act has ended.

The idea is that self-employed persons set up an S company and treat themselves as employees. And just like any employee of a company, you would deduct taxes — state and federal — from your own paycheck, including unemployment taxes.

The problem is that this method seems to go a long way. While an S corp employee is theoretically eligible for unemployment, they can run into trouble in states that list “actively seeking work” as part of the eligibility criteria to receive benefits.

Courts have ruled that S-corps owners – in this case the self-employed – are not actively working because technically new work can appear at any time. This means that the self-employed person has to show that his S corp is no longer a viable business and that he is looking for new work.

Self-employed unemployment benefits

There is also a program in some states known as self-employment assistance, which is designed to encourage unemployed workers to start their own small business.

Under these programs, states can pay SEA benefits, in lieu of regular unemployment benefits, to help unemployed workers set up businesses and become self-employed. Participants receive weekly allowances as they start up their businesses.

The SEA benefits are the same weekly amounts as the employee’s regular unemployment benefits. The only difference is that participants don’t work on finding a new job, but work full-time on starting their business.

Self-employment vs. Gig Economy Worker Vs. Independent contractor

There are many different forms of self-employment. These include gig workers, like the people who drive for Uber or Lyft or make deliveries for companies like DoorDash. There are freelancers, like the people who offer their services on Fiverr or Upwork. All of these workers were able to receive weekly benefits during the height of the COVID 19 outbreak.

And then there’s the category of self-employed jobs from independent contractors, such as people who own their own businesses or rent out their professional services to another company. (For example, a company that employs an outside software engineer.)

How do I submit unemployment benefits if I am self-employed?

Again, in most cases you can’t. Employers contribute to the State Unemployment Fund, which means that their employees meet the eligibility requirements for benefits — in other words — regular unemployment benefits — if they lose their job.

But if you fall into one of the self-employed income categories we’ve discussed, chances are you didn’t have unemployment that was spent on your pay.

There may be special circumstances, such as people who are self-employed and have received a 1099 form. But otherwise, minus the return of something like the PUA program, it’s hard to collect unemployment benefits if your employer doesn’t pay the unemployment insurance fund.

Collecting unemployment as a self-employed person

While it can be difficult to collect unemployment benefits when your only source of income comes from working for yourself, under certain circumstances you can receive unemployment benefits if you have a side job in addition to your main source of income.

The maximum benefit amount will depend on the laws of your state and your previous earnings. In some states, you can earn up to a certain percentage of your total weekly benefit from a part-time job without a reduction in your unemployment benefits.

However, if you earn too much, you will not be able to receive benefits. And don’t be tempted not to report this side income because hiding it could be a violation of state or federal law. Different state programs have different rules, so be sure to check your state’s website for more information.

How much is the unemployment benefit for the self-employed?

Again, the end of things like PUA benefits and disaster unemployment assistance made it much harder for handymen and other self-employed people to collect benefits.

But things can change, at least for some employees. For example, Washington state recently passed a law that gives drivers of Uber and Lyft more rights. The bill also establishes a task force to study how those workers would be paid from the state’s unemployment insurance program. And in Pennsylvania, the state Supreme Court has ruled that Uber drivers are not self-employed and as such should be unemployed.

Are unemployment benefits taxable?

While there was an exception to this rule during the pandemic, unemployment benefits are normally considered taxable income by the federal government. So, if you received unemployment benefits between March and November 2022, you would receive a Form 1099-G from your state unemployment office in January that told you how much you earned in the previous year. Keep that form safe so you can record that information when it comes time to file your tax return.

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