How does unemployment for the self-employed work, and how do you apply?
Please note, the material contained in this article is for informational purposes only, is general in nature, and should not be relied upon or construed as a legal opinion or legal advice. Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. It can and likely will change. Although we will be monitoring and updating this as new information becomes available, please do not rely solely on this for your financial decisions. We encourage you to consult with your lawyers, CPAs and Financial Advisors.
In this article we describe the programs that may be available to those who are self-employed and suffering unemployment or reduced employment due to COVID-19. The following programs are all part of the CARES Act, a federal law that was signed March 27, 2020. (Keep in mind, these programs provide benefits that may be available to other workers, not just the self employed.) In addition, certain benefits were extended and added by the stimulus legislation enacted December 27, 2020.
It’s important to understand that your state will choose when it makes these unemployment benefits available. Some states have acted more quickly than others to extend the full range of unemployment benefits to those who are self-employed. ( See this state by state chart .)
The Federal Pandemic Unemployment Assistance (“PUA,” or sometimes referred to as “FPUA”) program expands state unemployment benefits to individuals who do not qualify for regular unemployment compensation and are unable to continue working as a result of the coronavirus, including self-employed workers, independent contractors, and gig workers. Under PUA, you may be able to collect unemployment benefits available in your state even though you are self employed.
PUA has been extended through March 14, 2o21 as part of the stimulus bill. Individuals may be eligible for up to 50 weeks of PUA, but no one will be eligible for PUA after April 5, 2021.1
Under the CARES Act, states administered an additional $600 weekly payment to certain eligible individuals who are receiving other benefits through July 31, 2020. These benefits were in addition to state benefits. Self-employed workers may be eligible.
The stimulus bill reduced these additional PUC benefits to $300 per week beginning after December 26, 2020, and ending before March 14, 2021, for up to 24 weeks of unemployment.
Most states provide up to 26 weeks of unemployment, though a few provide less and even fewer provide more. (See this chart for information about your state.) Under the CARES Act, states are permitted to extend unemployment benefits by up to 13 weeks under Pandemic Emergency Unemployment Compensation (PEUC) followed by weeks of additional assistance under Extended Benefits when unemployment levels are high. 2 These benefits are generally available to those who have exhausted other compensation and are available to work, able to work and actively seeking work, although states must offer flexibility on “actively seeking work” where there are COVID-19 impacts and constraints. 3
New: The stimulus bill adds another $100 weekly benefit for “mixed workers” who receive at least $5000 annually in self employment income but who are getting reduced unemployment due to some W-2 income. This benefit must be adopted and administered by states, however.
In general, PUA provides up to 39 weeks of unemployment benefits to individuals not eligible for regular unemployment compensation or extended benefits, including those who have exhausted all rights to such benefits . 4
Under the CARES Act , 5 you must certify that you are otherwise able to work and available for work except you are unemployed, partially unemployed, or unable or unavailable to work because:
It does not include:
States administer unemployment, although the U.S. Department of Labor (DOL) oversees the system and states follow federal guidelines. States that participate in the pandemic-related unemployment programs above will be reimbursed for benefits paid through the federal government. States administer these unemployment programs using their own computer systems, and since many states traditionally don’t offer unemployment benefits to the self employed, many are experiencing problems implementing these new programs.
According to guidance from the Department of Labor , “Self-employed individuals … means individuals whose primary reliance for income is on the performance of services in the individual’s own business, or on the individual’s own farm. These individuals include independent contractors, gig economy workers, and workers for certain religious entities.”
One of the most common misconceptions is that 1099 independent contractors are “employees.” Contractors and employees are very different. Here’s how the IRS explains it: 6
“Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.”
Those who are independent contractors may qualify for unemployment under the programs listed above if they meet the requirements.
Gig workers may be eligible for these benefits as well. The Department of Labor states;
“ A gig economy worker, such as a driver for a ride-sharing service, is eligible for PUA provided that he or she is unemployed, partially employed, or unable or unavailable to work for one or more of the qualifying reasons provided for by the CARES Act.”
It also goes on to describe examples of circumstances that may make this individual eligible, for example, they were:
You generally file for unemployment insurance benefits in the state in which you work. Here’s how to contact your state unemployment agency . However, the Department of Labor advises: “if you worked in a state other than the one where you now live or if you worked in multiple states, the state unemployment insurance agency where you now live can provide information about how to file your claim with other states. 7 ”
Your state will explain the documents needed to apply as a claimant for unemployment if you are self employed. You may need to supply proof of self-employment earnings such as:
Again, check with your state unemployment agency to determine what documentation is needed to apply.
You may be able to receive some unemployment benefits if you are partially employed. Those who receive partial PUA payments can also receive the additional $600 per week benefit through the Federal Pandemic Unemployment Compensation through July 31, 2020. 8 Check with your state unemployment agency for more information.
Employers pay into unemployment insurance and so generally regular unemployment benefits are available to those with a job where they receive wages reported on Form W-2. According to the DOL, “in processing claims for PUA, states must verify that individuals have no regular Unemployment Insurance (UI) entitlement. If the individual is not eligible for regular UI because there are insufficient covered wages or the individual has an active UI claim with a definite or indefinite disqualification, then a state does not need to require the individual to file a regular UI initial claim.” 9 Check with your state unemployment agency to find out which options are available to you.
According to DOL guidance , PUA must be paid starting with weeks of unemployment beginning on or after January 27, 2020 (with some adjustments in states where the unemployment week ends on Saturday or Sunday) if the individual meets PUA’s eligibility requirements. PUA claims may be backdated to February 2, 2020, the first week of the Pandemic Assistance Period (PAP), if the individual otherwise meets the eligibility requirements.
Yes these payments are considered taxable income. The IRS advises that “If you received unemployment compensation during the year, you should receive Form 1099-G , showing the amount you were paid. If you received unemployment compensation, you may be required to make quarterly estimated tax payments . However, you can choose to have federal income tax withheld.” 10 You will need to report these payments on both your federal tax return and your state tax return. Benefits you receive in the 2020 calendar year will be reported on your 2020 tax return.
When you file an initial claim, your state unemployment agency is required to promptly determine if you are eligible, and if so, the weekly and maximum amounts of PUA payable. If you are denied PUA, you must be issued a determination you can appeal. You have the right of appeal and opportunity for a fair hearing to claims for PUA. 11 Consult an experienced employment attorney if you have additional questions about PUA appeals.
While there has not been specific guidance released by Treasury, the SBA or the Department of Labor on this point, most experts agree you can’t double dip by using similar benefits during the same period of time. Some believe you can file for unemployment for the periods before or after you receive and use your PPP funds to pay payroll, however it’s important to note that there is no guidance yet from the federal government specifically supporting that position.
Guidance provided by Treasury and SBA states:…”you should be aware that participation in the PPP may affect your eligibility for state administered unemployment compensation or unemployment assistance programs, including the programs authorized by Title II, Subtitle A of the CARES Act, or CARES Act Employee Retention Credits.”
Keep in mind that PPP is specifically designed to help pay payroll, including for self-employed individuals. If you use PPP to pay yourself you may be considered employed during that time period. Also note that the Economic Injury Disaster Loan (EIDL) and grant can be used for a range of purposes explored in this article and not just payroll.
This article was originally written on April 30, 2020 and updated on January 4, 2021.
This article currently has 93 ratings with an average of 4.5 stars.
Education Consultant, Nav
Known as a financing and credit expert, Gerri Detweiler has been interviewed in more than 4000 news stories, and answered over 10,000 credit and lending questions online. Her articles have been widely syndicated on sites such as MSN, Forbes, and MarketWatch. She is the author or coauthor of five books, including Finance Your Own Business: Get on the Financing Fast Track. She has testified before Congress on consumer credit legislation.
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I was working as an inhome care provider but lost my clients due to covid 19.I as also cleaning houses as a self employed business am I alidgable to file a claim for pandemic unemployment and have it backdated and get pandemic employment even if it’s after Sept 4,2021
Gerri Detweiler says:
Barbara – You’ll have to check with your state unemployment agency. Each one handles unemployment somewhat differently.
Eric Bennett says:I have my own on-line small business, but to make ends meet I had gig jobs (air bnb & as a lyft drive), both of which I stopped at the start of the pandemic. I then filed for PUA. Am I now in trouble. I hadn’t done any gig work since mid March of 2020 and without it I couldn’t pay the bills.
Gerri Detweiler says:
Pandemic unemployment may be available to gig workers such as uber drivers. I’m not sure why you are worried you are in trouble, if you stated accurate information on your application and were qualified. You can check with your state unemployment agency if you are concerned.
greta puuri says:i need help. i have put in a claim twice for the 11 wks of the cares act for 2020 that i never recievd, i get no response or help from the employment of virginia.
Gerri Detweiler says:
Greta – Unfortunately we aren’t able to help with unemployment claims. I’d suggest you reach out to your state or federal legislators. They should have staff members who help constituents with problems collecting government benefits.
clifford says:I was receiving PUA benefits up to April 24, 2021, when I recieved a letter from the OREGON STATE UNEMPLOYMENT Office, stating that I must show proof of employment or proof that I wasnt working for those claimed weeks that I filed for benefits. Now I have a Drive way that I work on Automobiles for friends, Friends of friends and others thru word of mouth or what ever trying to build up enough work to open my own business, but this Covid -19 tore it from my grasp let alone the self – quarintine leaving me left with no chance in accomplishing this dream or goal of mine. My work wasnt enough or big enough to save or have records worth saving. I only had one person there part-time or when he felt like helping out around there cleaning up or doing minor things for me I couldnt really pay him a salary, most the time I would buy him lunch, soda, or couple beers. Now the State wants me to show proof? This was basicly Gig work I didnt even make enough to file Taxes Im going to file an appeal I guess and hope for the best. suggesttions please. Thanks Cliff ( AC ) .
Brian says:I became unemployed in February of last year but was unable to gain employment due to a pandemic. When I filed for unemployment in August of that year I did not mark because of a pandemic. Is there a way to correct this?
gerri says:
Unfortunately Brian you’ll need to work with your state unemployment agency. Each has its own processes.
Deborah says:I worked as a babysitter for 1 1/2 yrs while on SDDI I was paid 100 a week until the end of Oct 2019 I got Covid 19 and the lady lost job. I babysit again for her in Late Nov part time for 50 a week until March when she could no longer work from Covid therefore I lost my job. Do I qualify for PUA
Gerri Detweiler says:
Deborah – My best advice is to apply. Your state unemployment agency manages and administers PUA so they’ll need to make the determination. But you won’t know if you don’t apply.
Johhny says:When they ask me if i was required to establish a LLC if im a gig worker a sole proprietor i dont get that question at all and dont wanna lose benifits if i answer wrong would i need a LLC i wasnt told anythinfmg about a LLC
Gerri Detweiler says:
I am not sure who asked you about an LLC but an LLC is not required for unemployment benefits, including pandemic unemployment.
Tonya M Mcclusky says: I neeedhelp can some.one please help meGerri Detweiler says:
I’m sorry Tonya, we aren’t able to help with unemployment benefits. (Our primary expertise at Nav is small business financing and credit for entrepreneurs.) I haven’t found a great solution for individuals who need help with unemployment and I know it can be difficult to get help from state agencies. You might want to try the National Law Employment Project.
TAWAHNA Y HAWKINS says: What does “available credit” means in the PUA? How does that differ from Available Balance? Jan Weitzl says:I am an independent contractor in hospitality business. I received PUA in 2020 & did not “technically” work from mid-March thru now. However, I was receiving payments for previous work. Example; I help groups book hotel rooms & receive commission but do not receive payment for several months after the group checks out. So I was receiving PUA & payment for past work. Is this wrong? I am wondering if I should reapply for PUA as available again. I exhausted all money in early December. Technically the only work I had last year was from Jan-mid March. I made $2500 during this time which was paid at later date & also received payment for previous work, not performed Jan-mid March for approx. $50k. This is very confusing. Please let me know your thoughts.
Gerri Detweiler says:
I wish I could help but PUA is complicated and I don’t have enough expertise to advise you. It is administered by the states and you’ll need to check with your state.
Kim Cadigan says:A friend. Of mine really needs unemployment assistance but doesnt have a license or id number. Does that mean she doesnt qualify? Can’t she just use her social and thaws enough to apply please Im trying to help her but I Dont know how to get around that part of the application
Gerri Detweiler says:
Kim – I know it’s hard to get information from your state unemployment agency but each one administers unemployment and they have their own procedures so you’ll have to try to check with them. I just don’t know details for all 50 states unfortunately.
Maggie Gonzalez says:Hi there! I never worked before and I am a college student do I still qualify for PUA or any other financial help?
Gerri Detweiler says:
Maggie – I’m not aware of unemployment benefits for those who haven’t worked. You’ll need to check with your state unemployment office.
Tammy L Whiteman says:Hi there! I quit my job in September of 2020 and then became an independent contractor. Will I still qualify for PUA even though my 2019 wages were from my W-2 employment?
Gerri Detweiler says:
You’ll want to apply through your state unemployment agency. I can’t comment on whether you will qualify as it goes through state unemployment agencies but you won’t know if you don’t try!
Andy S says: When pua ends & you haven’t received all your money from them what will they do ?Gerri Detweiler says:
Andy, Not sure I understand your question but for unemployment questions I’ll have to refer you to your state unemployment agency as they administer pua. The Department of Labor also has a lot of information about PUA here.
Sylvia martin says: I I like to know why been six months still waiting for my benefits Debra Iannuzzi says:Why does the receipt I get from BofA (when taking out my unemployment money from the EDD card) say “cash advance”?
Gerri Detweiler says:
I don’t know Debra – you’ll need to ask your bank. Heather Miller says:Hi the so I only got the PUA unemployment and I had them take the 10% tax out so do I still need to go file
Gerri Detweiler says:
I’m sorry I don’t understand your question. Richard Maida says:I am receiving Pandemic Unemployment Assistance from Massachusetts as an unemployed independent contractor. I may receive business income some weeks which is required to be reported to the state and deducted from my benefit. Should I calculate that income the same way I calculate my profit from my business on Schedule C of my income tax return? That is, should I apply a pro-rated week’s worth of ongoing expenses to deduct from the pay received from a client, such as rent, telephone, depreciation, travel expense?
Gerri Detweiler says:
Richard – I wish I could advise but you’ll need to ask your state unemployment agency as they administer unemployment benefits. I can’t speak for them unfortunately.
Leonora Christaldi says:Unfortunately I have found myself in a quite terrible situation. I unintentionally filed for both Unemployment and PUA because I was told by a friend who is affiliated with a political party in the state I live in that I should absolutely file for the $600 a week additional funds .. he described as PUA. when I went to file I saw that area of the website and truly believed I wasnt doing anything wrong. I believed I had to apply for it so I did. I started receiving PUA and requested that they deduct taxes out.. I always choose that option. I dont want to end up owing money when I go to file the years’ end taxes. As it were I was starting to see deposits to my bank account and thought nothing of it.. why? because everyone was to receive this $600 a week .. Then, on or about July 5th went to the certification claim page and indicated that I WOULD have made X amount IF work was available .. and if I didnt work what would I have made.. so I answered.. because work was NOT available but I’m going on what I knew I was making from both part time jobs.. well next thing I know, it was showing an issue with my claim.. then it showed ‘missed hours’ I never missed any hours and that had to be the ‘issue’ .. so I havent received any more payments as my claim is under review. I read an article recommending people to contact their state representative when they just could not get past a busy signal at the unemployment office phone numbers. Today I was told that I was not supposed to file a claim for PUA while getting Unemployment. I’m receiving neither at this time. Payments have been halted .. I couldnt understand why.. and repeatedly spent an enormous amount of time calling emailing, you name it to find out what the issue was or how it was that it could be corrected. I obviously did not miss hours or just choose not to work.. so I thought that was the cause of this ‘issue’ .. but now I’m frantic because the state rep employee said it’s like you were double dipping. I did not do this intentionally .. I thought I was doing the right thing. Now I’m freaked out. I believed the PUA WAS the $600 a week additional funds being sent .. that would end by July 25th.. I havent received either in about 3 weeks now. and now, I’m frightened because my one job hired me back with only 6 hours out of the week. Both jobs I had I was working a good 35 hours a week. so that is quite a deduction in income for anyone , let alone a mom of two teenagers to be only earning $60 a week in income. I’m so stressed out. I never intentionally filed with notions of fraud or anything like that. I am scared that I will be having to pay back the state for funds I believed I was eligible to receive. If I wasnt eligible why would PUA not have declined my filing in the first place? I truly thought this extra $600 a week WAS the PUA. Based on information from my friend who suggested I file for it. who is also involved in the political scene. I’m very worried. what is going to happen?
John D. says:i am self employed and have been receiving benefits most weeks because of lack of work. the follow question has been discussed with other small business owners:
as for reporting income as a small busness owner…do i report income on the day worked, the day billed, or the day the funds are received? ex: worked on the 5th of the month, billed on the 31st of the month, received payment on the 10th of the following month.
do i claim income for the 1st week of the month, the last week of the month, or the 2nd week of the next month?
thanks,
john d.
