This article has been updated with January 1, 2021 with information from the stimulus bill signed by the President December 27, 2020.
The CARES Act creates three programs that offer unemployment benefits for the self employed that may provide financial relief to those who are contractors, gig workers or self-employed and can’t work due to coronavirus:
- Pandemic Unemployment Assistance (PUA)
- Pandemic Unemployment Compensation (PUC)
- Pandemic Emergency Unemployment Compensation (PEUC)
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.)
Pandemic Unemployment Assistance (PUA)
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
Pandemic Unemployment Compensation (PUC)
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.
Pandemic Emergency Unemployment Compensation (PEUC)
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.
Who Qualifies for Pandemic Unemployment Assistance?
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:
- You have been diagnosed with COVID–19 or are experiencing symptoms of COVID–19 and seeking a medical diagnosis;
- a member of your household has been diagnosed with COVID–19;
- You are caring for a family member or a member of your household who has been diagnosed with COVID–19;
- a child or other person in your household for whom you have primary caregiving responsibility is unable to attend school or another facility that is closed as a direct result of the COVID–19 public health emergency and such school or facility care is required for you to work;
- You are unable to reach your place of employment because of a quarantine imposed as a direct result of the COVID–19 public health emergency;
- You are unable to reach your place of employment because you have been advised by a health care provider to self-quarantine due to concerns related to COVID–19;
- You were scheduled to start employment and you don’t have a job or can’t reach the job as a direct result of the COVID–19 public health emergency;
- You have become the breadwinner or major support for a household because the head of the household has died as a direct result of COVID–19;
- You have to quit your job as a direct result of COVID–19;
- Your place of employment is closed as a direct result of the COVID–19 public health emergency; or
- You meet any additional criteria established by the Secretary for unemployment assistance under this section; or
- You are self-employed, are seeking part-time employment, do not have sufficient work history, or otherwise would not qualify for regular unemployment or extended benefits under State or Federal law or pandemic emergency unemployment compensation under section 2107 and you meet the requirements above.
It does not include:
- an individual who has the ability to telework with pay; or
- an individual who is receiving paid sick leave or other paid leave benefits
What’s the Difference Between Federal vs. State Unemployment?
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.
What Does Self Employed Mean?
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.”
Can 1099 Employees Collect Unemployment?
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.
Can Gig Workers Collect Unemployment?
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:
- Diagnosed with COVID-19 by a qualified medical professional, and although the driver no longer has COVID-19, the illness caused health complications that render the driver objectively unable to perform his or her essential job functions, with or without a reasonable accommodation.
- Forced to suspend operations as a direct result of the COVID-19 public health emergency, such as if an emergency state or municipal order restricting movement makes continued operations unsustainable, or
- Forced to suspend operations due to severely reduced customer demand because of widespread social distancing undertaken in response to guidance from federal, state, or local governments.
How Do I File for Unemployment If I Am Self-Employed?
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”
What Documents Do I Need When Applying for Unemployment Benefits as Self-employed?
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:
- Federal or state income tax returns for the 2019 calendar year
- Copy of Schedule C, F, SE or K with your Form 1040
- Business financial statements/records
- Recent records connected to the business such as a phone or utility bill, current business license or rental agreement for your place of business.
Again, check with your state unemployment agency to determine what documentation is needed to apply.
What If I Am Still Receiving Some Income?
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.
What If I Have a Job and Also Get Self Employment Income?
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.
What If I Didn’t Apply For Unemployment Right Away?
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.
Is Unemployment Taxable?
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.
What If I Am Turned Down for Pandemic Unemployment Assistance?
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.
Can I Get Unemployment and PPP or EIDL?
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.
- Pandemic Unemployment Assistance (PUA) Implementation and Operating Instructions p I-8 and Federal COVID Relief Bill passed by Congress
- Center on Budget and Policy Priorities, accessed April 29, 2020.
- Read the full qualifications in the DOL news release dated April 10, 2020.
- Pennsylvania Unemployment FAQs accessed April 30, 2020.
- CARES Act, Section 2102 edited here for readability. Please refer to the original text for specific guidance.
- IRS.gov accessed April 30, 2020
- Department of Labor Unemployment Insurance information accessed April 30, 2020
- Center on Budget and Policy Priorities, accessed April 29, 2020.
- Department of Labor Pandemic Unemployment Assistance (PUA) Implementation and Operating Instructions, p. I-9.
- Department of Labor Pandemic Unemployment Assistance (PUA) Implementation and Operating Instructions, p. I-11.