Unfortunately, self-employed professionals may find that their own businesses can't provide enough income to sustain them. The coronavirus pandemic has amplified this effect, with many additional small businesses having to shutter their doors. When this happens, many small business owners may wonder about the eligibility for unemployment and if they can file an unemployment claim with the government to receive temporary help.

We'll walk you through what you need to know about unemployment compensation as a small business owner. We'll also explain how to file for unemployment and the types of benefits you might be eligible to receive.

Can a Small Business Owner File for Unemployment?

In many cases, small business owners qualify for unemployment. However, as the owner, you must make sure you have established yourself as a W-2 employee and that you have made the required payments to government programs as part of your taxes.

This is an important point to remember since limited liability company (LLC) and sole proprietorship owners might not have gone through the process of setting themselves up as employees of their own businesses. This typically disqualifies them from receiving benefits, although some COVID-19 relief bills have relaxed these requirements in certain cases. If you didn't set yourself up with a W-2, you might be able to qualify with your past work history (particularly if your startup is very new). The rules in this situation, however, can vary by state. Therefore, you'll want to look at your local regulations.

It's also important to note that groups that would not typically qualify for unemployment insurance, such as independent contractors, gig workers, and sole proprietors, can temporarily get relief as a part of a coronavirus aid package passed by the federal government. The package targets those who have experienced economic injury as a result of the COVID-19 pandemic. The Pandemic Unemployment Assistance (PUA), offered as part of the CARES Act, expands the criteria of those who qualify for economic security help.

How to Apply for Unemployment as a Business Owner

If you're considered an employee of your own company, your payment of important state and federal taxes, such as unemployment taxes and payroll taxes, makes you eligible for unemployment. However, the process requires you to gather some important documents and fill out forms that document your situation.

Gather the Required Documents

To file for unemployment benefits, you'll need to gather important documents related to your most recent employment. The amount you receive in benefits will depend on your most recent income. Typically, states look at a "base period" of the four earliest calendar quarters of the last five that you worked. Some states will allow for adjustments in this base period calculation, such as taking a percentage of your highest-earning quarters. Given how this can vary, though, you will need to verify with your state's unemployment office. You will want to have related information, such as tax returns, readily available so that you can verify precise amounts.

For some small business owners, other forms of earnings documentation might be accepted. It is important to verify with your local unemployment office to see what you will need to prove your past income.

The unemployment benefit form will also need to be verified by your employer (which is you since you're the business owner. Therefore, you also want to collect information related to your business, including your employer identification number (EIN).

If you are applying for benefits through one of the expanded programs designed to help victims of the pandemic, you'll also need to demonstrate that you lost your job as a result of the pandemic.

Apply Through Your State

You can expect to file for unemployment benefits through your state organization. On your state's website, you will likely create an account and fill out information regarding your most recent employment, including your salary. The government will then send the information to the business to verify it.

As the business owner, you can expect to fill out both the form for the benefits as a W-2 worker and then again to verify it from the perspective of the business owner.

You will also need to actively look for work while receiving unemployment benefits. However, how you provide evidence of this search will vary by state. In some states, you might need to prepare a signed declaration, for example, while others will require you to provide the names of contacts or what you do each week to find new employment.

To see what you will need to fill out for this part of the requirement, you will need to check with your state agency. Note that some states have suspended the requirement to look for new work to receive benefits as a part of the coronavirus relief efforts.

Wait to Hear Back for Acceptance

Once you have filled out the form, you will then wait to hear back from your state about your qualification and the amount you will receive in unemployment insurance.

If you have a good indication that you might not qualify (for example, if you failed to make yourself a W-2 worker), you might also want to look at alternate means of receiving unemployment help for you and your business, such as federal loans.

This is particularly true for businesses impacted by disasters like the coronavirus outbreak. Different government programs have sought to provide financial assistance to those struggling, even if they don't qualify for typical state unemployment insurance. For example, the Small Business Administration (SBA) offers some small business loans as a form of unemployment assistance.

The Treasury Department, the Internal Revenue Service, and the Bureau of Fiscal Service also came together to provide assistance to people impacted by the coronavirus pandemic with the CARES Act, providing payments for adults and children in the form of Economic Impact Payments. If your business is struggling but you can't prove that you lost your job as a direct result of the pandemic, you can use this additional income to try and help keep your business afloat until you can start generating more income.

Outside the coronavirus outbreak, businesses can secure help from resources like:

Unemployment Benefits to Expect as a Small Business Owner

As a small business owner, the amount you receive in benefits from your state will depend on a number of factors, including your income before your business stopped generating income and your state.

The average weekly benefit can vary between states, from numbers as low as an average of $44 per week in Oklahoma to amounts as high as $497 in Washington. Nationwide, the average unemployment is $320 per week.

Note, however, that this average is given just to provide you with an estimate of what you might receive from your state. To determine the amount you will actually receive, you will need to complete your own application.

Stay on Top of Your Small Business Finances With Skynova

As a small business owner, you understand the importance of accurate accounting and carefully tracking your cash flow. Keeping a close eye on this information can help you know when your business begins to struggle so you have time to make adjustments and try to keep your business in the black. However, if you find that your business can't generate the necessary income, accurate accounting can tell you when the time has come to file for unemployment benefits.

To track this critical accounting information, you need to work with accounting software that has been prepared specifically for small businesses like yours. Skynova's software solution was created to help small business owners manage their accounting quickly and efficiently so they know their books are up to date and they have time to focus their energy on the rest of their business.

Skynova's accounting software will allow you to track your expenses and income, send invoices, and save receipts so that everything is in one place and easy to find. If you want to improve your accounting for your small business, see how Skynova's software products can simplify the process.

Notice to the Reader

The content within this article is meant to be used as general guidelines regarding unemployment benefits for small business owners and may not apply to your specific situation. Always consult with a professional accountant to ensure you're meeting accounting standards.