If you receive 1099 forms indicating your earned income instead of W-2s during tax time, this most likely means that you are self-employed. 1099 forms are used to report income paid to a contract worker rather than a standard employee.
While being self-employed can be empowering, it doesn't come with the same benefits as a standard job where you work for someone else. You have to find your health insurance elsewhere, for example, and you will need to set up a retirement account on your own if you'd like to save for your future.
Because of the differences between 1099 employees and standard employees, you might be wondering if you can rely on unemployment benefits if you happen to fall on hard times. This article describes what it means to be a 1099 worker as far as unemployment benefits go and how recent legislation has changed who qualifies for these benefits.
Self-Employed Workers and Independent Contractors
Self-employed workers, sometimes also called independent contractors, are individuals who aren't hired by someone else as an employee. Instead, they may directly sell the fruits of their labor to consumers or they may work for one or more individuals or organizations via a contract.
Gig workers and freelancers fall under this umbrella. These individuals do not have an employer who takes taxes out of their paychecks, provides health insurance, or pays unemployment insurance on their behalf. Instead, they are responsible for all job "benefits" on their own. While many people choose this mode of income because they like being their own boss or they like the flexibility, others have fallen into it out of necessity.
If you are self-employed or a 1099 employee and have lost contracts or income recently, you might be wondering if you can file for unemployment benefits. Usually, you cannot; however, the COVID-19 pandemic has changed that and certain relief bills now allow for such workers to file claims. Keep reading to learn more.
When an employee loses their job through no fault of their own, one of the first things they do is head to the unemployment office (either physically or online) and file for unemployment benefits (i.e., money that can help them cover living expenses while they look for a new job).
If you are self-employed, however, and suddenly lose major clients, contracts, or income streams, you don't qualify for standard unemployment benefits. However, recent legislation as a direct result of the COVID-19 pandemic has extended these benefits to the self-employed.
A Brief History of Unemployment
To fully understand the difference between standard employees and self-employed workers when it comes to unemployment compensation, it's helpful to explore how unemployment insurance (UI) started. The roots of unemployment insurance can be traced back to the Social Security Act, which passed in 1935. The idea behind unemployment insurance is that it can limit the hardships people face due to temporary job loss.
The funds for UI benefits come from unemployment tax paid by employers. While initially employers only had to pay for unemployment insurance if they had eight or more employees, today any employer with even one employee must pay. The program is funded by the federal government but administered at the state level, which means that the exact details of weekly benefit amounts a person qualifies for or how the application process works varies from state to state.
The weekly benefits were initially limited to 16 weeks, though over time this increased to 26 weeks in any one-year period. More recently, extensions of 13 additional weeks or more have been made due to the COVID-19 pandemic.
Because unemployment is intended to partially replace wages lost, the amount paid to each claimant varies and is based upon what their previous income was. The exact calculation differs from state to state but always depends on what you made before losing your job.
Who Typically Qualifies for Unemployment Insurance Benefits?
Eligibility requirements for regular unemployment benefits vary from state to state but generally depend on your work history and require that you have worked a minimum number of hours and/or earned a minimum amount of payment from an employer per year for a certain number of years.
You must also have lost your job through no fault of your own, be physically able to work, and be available for work or seeking employment. In some cases you do not need to have lost your job entirely — simply having your hours cut back significantly or moving from full-time to part-time work may mean that you qualify.
Note that because regular unemployment insurance is funded by taxes paid by employers, self-employed workers and independent contractors don't generally qualify since they do not have an employer who has been paying into the program. This means that if you are a 1099 contract worker, even if you lose your contracts, you can't apply for benefits under standard rules.
However, things are a little different at present due to the COVID-19 pandemic, and recent relief bills have made it possible for self-employed individuals and others to qualify for funds where they didn't before.
How the Coronavirus Pandemic Changed Unemployment Compensation
Due to the economic hardships faced by individuals and businesses alike during the pandemic, the U.S. Government passed the Coronavirus Air, Relief, and Economic Security (CARES) Act in March 2020. Among the relief offered by this act was the expansion of unemployment benefits, including the following:
- Pandemic Unemployment Assistance (PUA)
- Federal Pandemic Unemployment Compensation (FPUC)
- Pandemic Emergency Unemployment Compensation (PEUC)
Pandemic Unemployment Assistance
The PUA program is what gives states the ability to extend unemployment to gig economy workers, freelancers, independent contractors, and the self-employed. Exact qualifications for these benefits differ from state to state, so be sure to check with your local unemployment office for details. In general, if you lost income due to the pandemic as a 1099 worker, you will likely qualify.
Additional requirements may include that you are not also eligible for standard unemployment benefits. Notre that if you start making money again or regain 1099 contracts, you must report this income to your local unemployment office. You can run into legal problems if you continue to receive PUA benefits even though you start earning income again.
Additional Coronavirus Aid
In addition to the CARES Act, two new programs — the Consolidated Appropriations Act and the American Rescue Plan (ARP) — both passed in 2021 extending unemployment benefits even further. The most recent ARP now allows individuals to collect unemployment compensation for up to 73 weeks of benefits in total through Sept. 6.
The PUC program (part of ARP) also provides an additional $300 per week in unemployment benefit payments to all eligible individuals receiving unemployment between Dec. 26, 2020, and Sept. 6, 2021.
How to Apply for Pandemic Unemployment Assistance
You can apply for PUA through your local unemployment office. In most cases, you can complete the process completely online for added convenience. You may need the following information when filling out the application:
- Your name, mailing address, and phone number
- Your driver's license number or a state ID number
- Your Social Security number (SSN) or Alien Registration number
- Proof of income (this may include 1099 forms or your most recent tax return)
- A bank account and routing number so benefits can be directly deposited
Additional information may be required, so be sure to check your state's unemployment website for more details.
Learn More About Self-Employment With Skynova
If you are self-employed and earning income reported on 1099 forms, Skynova has resources that can help. Skynova offers a variety of tools, including invoicing templates for small businesses and even accounting software to help you keep track of payments and expenses. Check out our collection of software products to find what meets your needs and visit our blog to learn about searching for work during COVID-19.
Notice to the Reader
The content within this article is meant to be used as general guidelines and may not apply to your specific situation. Always consult with your state unemployment office for exact details about unemployment eligibility, application procedures and requirements, and how to file unemployment claims.