Under normal circumstances, or at least any time before the spring of 2020, the short answer to that question would have been “Not really.”
Then COVID-19 happened, and with it, trillions in federal government aid and financial protection affected the way unemployment benefits were distributed for self-employed workers.
Some of that coronavirus aid went to the CARES Act, which funded unemployment programs like the Pandemic Unemployment Assistance program. Self-employed people were eligible for PUA, meaning states could pay benefits to gig workers, independent contractors, and other self-employed people out of work for up to 39 weeks, giving them an extra $600-per-week.
COVID-19 persists, but the CARES Act has expired. And that means — unfortunately — that the answer to the question of whether the self-employed can collect unemployment has gone from “Not really” to “You bet!” to “It’s complicated. ”
How do Unemployment Benefits Work?
Again, this typically won’t apply to people who work for themselves, but unemployment benefits provide workers who find themselves 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, for a set amount of time.
According to the Department of Labor, it’s a good idea to file for unemployment as soon as possible after being let go, giving your state unemployment office 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’re looking for work. The Department of Labor has a map on its site that lets users view the programs in each state.
Can Self Employed Get Unemployment?
Our research points to one possible way self-employed workers can receive benefits now that federal funding from the CARES Act has ended.
The idea is for self-employed people to set up an S corporation and treat themselves as an employee. And like any employee of a corporation, you’d deduct taxes — state and federal — from your own paycheck, including unemployment taxes.
The problem is that this method appears to be a long shot. Even though an S corp employee qualifies, in theory, for unemployment, they may run into trouble in states that list “actively looking for work” as part of the eligibility criteria to collect benefits.
Courts have ruled that S corp owners –in this case, the self-employed worker — are not actively pursuing work because new work could technically show up at any time. That means the self-employed worker will need to show their state that their S corp has stopped being a viable business and that they are 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 workers who are unemployed to start their own small businesses.
Under these programs, States can pay a SEA allowance, rather than regular unemployment insurance benefits, to help unemployed workers while they are setting up businesses and becoming self-employed. Participants get weekly allowances while they are getting their businesses up and running.
SEA allowances are the same weekly amounts as the worker’s regular unemployment benefits. The only difference is that instead of working on finding a new job, participants work full-time on launching their business.
Self Employment Vs. Gig Economy Worker Vs. Independent Contractor
There are many different types of self-employment. These include gig workers, such as 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 collect weekly benefits during the height of the COVID 19 outbreak.
And then there’s the self-employed jobs category of independent contractors, like people who own their own business or hire out their professional services to another company. (For example, a business that employs an outside software technician.)
How do I File for Unemployment if I’m Self Employed?
Again, in most cases, you can’t. Employers contribute to their state’s fund for unemployment, meaning their workers fit the eligibility requirements to collect benefits — in other words — regular unemployment compensation – if they lose their job.
But if you fit into one of the self-employment income categories we’ve discussed, chances are you didn’t have unemployment dedicated to your wages.
There may be special circumstances, such as people who were paid as an independent contractor and received a 1099 form. But otherwise, minus the return of something like the PUA program, it’s difficult to collect unemployment benefits if your employer isn’t paying onto the unemployment insurance fund.
Collecting Unemployment While Self Employed
While it might be difficult to collect unemployment benefits when your sole source of income comes from working for yourself, you may be able to receive unemployment benefits in certain circumstances if you have a side job in addition to your main source of income.
The maximum benefit amount is going to depend on your state’s laws and your prior earnings. In some states, you can earn up to a certain percentage of your total weekly benefits from a part-time job without it cutting into your unemployment compensation.
Earning too much, however, could bar you from receiving benefits. And don’t be tempted to not report this side income, as hiding it could be a violation of state or federal law. Different state programs have different rules, so be sure to visit your state’s website to learn more.
How much are unemployment benefits for self-employed?
Again, the end of things like PUA benefits and disaster unemployment assistance made it much harder for gig workers and other self-employed people to collect benefits.
But things could be changing, at least for some workers. Washington State, for example, recently passed a law that gives more rights to Uber and Lyft drivers. The bill also sets up a task force to study how those workers would be paid out of the state’s unemployment insurance program. And in Pennsylvania, the state’s supreme court has ruled that Uber drivers are not self-employed and as such should receive unemployment.
Are unemployment benefits taxable?
While there was an exemption to this rule during the pandemic, unemployment benefits are normally considered taxable income by the federal government. So if you collected unemployment benefits between March and November of 2022, you’d receive a Form 1099-G from your state unemployment office in January that told you how much you’d earned the previous year. Keep that form safe so you can record that information when it’s time to file your taxes.