Unemployment for Freelancers? Here's What You Need To Know
For most of the history of unemployment insurance programs, the idea of collecting unemployment benefits as a self-employed worker has been all but unheard of, especially if you are a freelancer who was let go or fired.
Traditional unemployment assistance programs simply did not have conditions of eligibility for independent contractors, leaving gig workers and even small business owners high and dry to fend for themselves when times turned tough.
In the wake of the coronavirus pandemic, however, things have changed.
Unemployment eligibility for self-employment
For the first time ever, the federal government imposed upon the U.S. Department of Labor to acknowledge and provide for the needs of self-employed individuals in times of crisis.
The CARES act is a multi-faceted approach to addressing the crippling economic impact of the pandemic.
It provides potential means of relief for multiple forms of self-employed individuals, including small business owners and freelancers alike.
The Paycheck Protection Program
The PPP is a program that provides forgivable PPP loans to small businesses, helping to keep them afloat and operational during lean times.
This may be helpful for those few of us who have been sufficiently successful in the past to build up an operation with employees of our own, but what about individual freelance workers? Here's the complete PPP form breakdown.
Pandemic Unemployment Assistance
The CARES act also established PUA, a new type of unemployment compensation with expanded guidelines to assist workers who would have never qualified for regular unemployment benefits. But how exactly does it work?
How to get your PUA benefits
If you're looking to collect unemployment insurance benefits as a freelance worker, the first thing you're going to want to do is look up your state's unemployment office.
Unfortunately, the process of filing for unemployment isn't perfectly standardized nationwide, but your state office's website should provide some helpful information on how unemployment claims are handled in your area.
There are a number of factors that are common too many unemployment scenarios, so next we'll go over some frequently asked questions.
FAQ about unemployment for freelancers
What information will I need?
When you make your claim, you will be expected to answer a series of questions to determine whether you qualify for benefits.
While many of the answers will pertain to your work circumstances and be knowledge that you can be reasonably expected to already know, one important factor that you will need is your previous income.
Traditional employees can usually furnish a straightforward response to how much money they made at their previous employment, but freelance work leads to fluctuating income even at the best of times.
Here's a coronavirus tax tip. If possible, have a copy of your most recent tax return on hand when filing your claim so as to give the most accurate possible picture of what your income was like before the circumstances that led to you filing for unemployment.
How much will I get?
Your weekly benefit amount will depend on both your location and your qualifications. Each state has its own minimum and maximum benefits, and where you fall in that range will be largely determined by how much money you were previously making from self-employment.
For one example, in the state of New York, the benefits range from a minimum of $172 per week to a maximum of $504 per week.
When will the benefits run out?
Technically, you could be collecting benefits for as much as 50 weeks from the beginning of your claim. However, there are a couple of very good reasons you won't want to be on unemployment for that long.
Reason one: Endless paperwork
The questionnaires and reporting responsibilities don't end once your benefits begin. Once you are on unemployment, you are expected to regularly report that you are continuing to seek some form of employment to get off of benefits.
While seemingly a minor annoyance at first, having to repeatedly fill out forms to continue receiving unemployment will begin to wear on your psyche before long. More importantly, however...
Reason two: It's not much money
Unemployment isn't like social security, it isn't meant to be something that anyone lives on long term. For many people, even part-time work would lead to substantially greater income than collecting unemployment benefits.
In extreme cases, PUA benefits may not even be enough to cover the cost of groceries on their own. Serious sacrifices in quality of life would have to be made in order to survive long-term on such amounts of money.
Therefore, it is extremely highly recommended to continue spending time seeking employment while on benefits.
Can I work while on unemployment?
You can, and should, be seeking work while collecting benefits. When you've found some part-time projects to fill some of your time, you will need to indicate as much on your regular reports.
This will impact your benefits somewhat, but it is important to remember that unemployment is a stopgap measure to get you from having no work to returning to full-time employment. It is perfectly normal and reasonable as a freelancer to have a stage in between where you are working but not enough to sustain yourself on your own.
What to do with your benefits
Once you're successfully receiving your unemployment benefits through the PUA program, you're going to need to put together a strategy for how to make the most use of both your money and your time.
You have a limited supply of time, and as we have already established, unemployment isn't going to completely solve all of your money problems even when you're getting it.
You'll have to make the utmost of everything you have to get out of the hole you've found yourself in, especially if it's particularly deep.
What to do with your money
How you make use of your unemployment money is most likely pre-determined, and it is going to depend on the severity of your circumstances.
Best case scenario
The ideal situation is of course one where you have plentiful savings tucked away, and can afford to spend your benefits as an investment in your self-employment venture.
In such a scenario, you would be best served spending your benefits on lessons, tools, or even personnel to expand your operation. Then you will be that much better equipped to bounce back and make the most of your freelancing adventure when you begin attracting clients again.
Most likely scenario
If you are among the vast majority of American people who have very little in the way of savings, you will likely end up spending your benefits on two things in equal measure.
On the one hand, you'll be paying as much as you can towards rent and keeping the lights on. On the other, you'll be paying as little as possible toward your credit card bills while still keeping them active so that you can maintain your normal standard of living.
Meanwhile, you'll be straddling the tightrope between keeping it together and everything crashing down around you.
Dire straits scenario
Finally, if you are among the far too many poor souls with no savings whatsoever, you don't need me to tell you what your financial outlook is like when your income dries up.
Rock bottom looks different to everyone, but you'll know it when you get there.
What to do with your time
Which one of the above categories you fit into will have a strong influence on what is the optimal use of your time.
If you're fortunate enough to fit into this category of people, you have the rare advantage of being at liberty to do whatever you believe is best for your business long term.
One solid and reliable strategy from this point would be to get on LinkedIn and connect with prominent figures in your niche that would make for better clients than you had in the past. In so doing, you can leverage a time of misfortune into potentially the best thing that ever happened to your freelance career.
Most likely scenario
If you're among the many who are just trying to hold it all together, the most efficient use of your time to meet that goal is almost certainly to do whatever you did to attract clients in the past. What worked before will be the quickest and simplest path to getting back to that same point.
Dire straits scenario
If you are sufficiently unfortunate as to fall into this camp, it may be time to consider taking a break from the uncertainty of the freelancer's life and turning to traditional jobs until you have some financial padding.
From getting unemployment benefits to knowing what to do with them, hopefully, that's all your bases covered. Be sure to check back at Keeper Tax for more tips on how to get by in your freelancing journey.
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At Keeper Tax, we’re on a mission to help freelancers overcome the complexity of their taxes. That sometimes leads us to generalize tax advice. Please email firstname.lastname@example.org if you have questions.