Whether you have a business alongside your day job or you work for yourself full time, your side hustle can be both a blessing and a curse.
If you’re one of the millions of Americans who are out of a job as a result of the coronavirus crisis, you can apply for unemployment insurance. But if you have a side business or are self-employed, your unemployment benefits might not be as high as those of other types of workers. Here’s what to expect if you have your own small business and you’re looking to collect unemployment.
What are unemployment benefits?
Unemployment benefits are a form of unemployment insurance meant to provide temporary financial assistance when you lose your job through no fault of your own. It’s a joint program between states and the federal government to provide out-of-work Americans with cash.
Each state has its own set of rules and requirements for unemployment benefits, including how long you’ve been out of work, how much you earned and the conditions in which you lost your job. For instance, if you were fired for poor performance, you’re not eligible for unemployment benefits.
How to collect unemployment during the coronavirus pandemic
The initial process for collecting unemployment during the coronavirus pandemic has not changed much; you still apply for unemployment through your state’s unemployment board. However, the Coronavirus Aid, Relief, and Economic Security (CARES) Act has changed a few things about who is eligible for unemployment benefits and how long the benefits last.
Under most regular unemployment insurance regulations, independent contractors and self-employed workers can’t collect unemployment benefits. But the CARES Act provides relief to freelance workers, independent contractors, self-employed workers and small-business owners who wouldn’t otherwise qualify.
These funds, known as Pandemic Unemployment Assistance (PUA), are available through each state’s unemployment board. To collect Pandemic Unemployment Assistance if you have a side business, you will apply either in-person, over the phone or online through the unemployment office in the state where you live.
Things to consider about collecting unemployment with a side business
If you have a side business in addition to or instead of employment, you’ll want to consider these factors when applying for unemployment insurance.
Where you live is one of the biggest factors in not only how much money you receive, but for how long you receive that money.
Under the CARES Act, benefits have been extended an extra 13 weeks in some states. That means for states like Florida and North Carolina, where unemployment insurance lasts 12 weeks, you could get benefits for up to 25 weeks. Massachusetts provides benefits for a maximum of 30 weeks under regular circumstances.
Type of work
Not all side hustles are treated the same by unemployment offices. For instance, selling goods on the internet isn’t the same as delivering groceries or building websites.
States view different types of work differently, which means the work you do could have an impact on how much you earn or if you earn anything at all. When you file for unemployment, you’ll need to provide proof of income, whether that’s from 1099 forms, pay stubs or a W-2. Each state has its own filing requirements, so make sure you know what you need before you get started. The website of your state’s unemployment office is a good place to start.
Gross vs. net income
Right now, self-employed filers are seeing different calculations than their full-time counterparts. States are using net — rather than gross — income for self-employed workers. Those with traditional day jobs are evaluated based on gross income.
This matters when evaluating how much you should receive in benefits. Generally the amount of unemployment benefit you receive is a percentage of your income. A higher income means higher unemployment benefits. But since self-employed workers are evaluated based on their net income, the amount of your unemployment benefit will be reduced depending on any expenses you claim. Luckily, the CARES Act allows states to pay out PUA even if you do not meet the minimum threshold of income.
FAQ about collecting unemployment with a side business
What types of financial relief is there for side-hustle workers?
Under normal circumstances, people with side businesses are not eligible for unemployment benefits. However, the CARES Act expanded coverage for nontraditional workers, including freelance workers, independent contractors, small-business owners, freelancers and other types of workers who are self-employed. Even if you do your side business only a fraction of the time, you’re eligible to receive some compensation if you lost work.
How do I know if I qualify for unemployment benefits?
The Pandemic Unemployment Assistance (PUA) program was made to help workers who wouldn’t otherwise qualify for unemployment insurance, like self-employed and freelance workers. If you don’t otherwise qualify for regular unemployment insurance, you may qualify for benefits under PUA. If you can prove that you’ve lost work due to the COVID-19 crisis or otherwise had to stop work to care for a family member, you might be able to get benefits. If you believe you are eligible, you should apply in the state where you last worked.
How long will I receive benefits?
The number of weeks you are able to receive unemployment benefits varies by state, though the CARES Act extended the timeline by 13 weeks in many states. PUA benefits are capped at 39 weeks, ending December 31, 2020.
How much unemployment money will I get?
How much money you receive from unemployment benefits depends on where you live and how much money you earned according to your most recent tax returns and pay stubs. You’ll get at least your state’s minimum unemployment amount.
The bottom line
Normally, freelancers and self-employed workers are not eligible for unemployment benefits. However, the CARES Act has changed several things about the unemployment process, including who is eligible to receive benefits. If your side business or freelance work has been affected by the COVID-19 pandemic, you may be eligible for unemployment assistance, even if you do not have traditional employment.
To take advantage of the CARES Act and the Pandemic Unemployment Assistance as someone with a side business, you’ll want to apply through the unemployment office of the state where you last worked. Your unemployment benefits will be calculated based on the net income of your side business, so make sure to have proof of income before starting your application.