Q: What is the CARES Act, and how does it provide for freelancers and the self-employed?
Learn how freelancers and independent contractors impacted by COVID-19 may be eligible for a special exemption to collect unemployment benefits via the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Under normal circumstances, only salaried W-2 employees who lose their jobs are eligible to collect unemployment payments. But the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES) Act has temporarily expanded unemployment benefits to freelancers and self-employed workers unemployed due to the COVID-19 pandemic. This even applies to those self-employed workers who are underemployed due to the global pandemic. In addition, some SBA loan programs, including the new PPP loans, may be available to self-employed workers.
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Unemployment for Freelancers and the Self-Employed
Usually, only W-2 employees who lose their jobs through no fault of their own are eligible for unemployment. This is because employers of W-2 workers withhold taxes from their paychecks that fund unemployment insurance programs. Non-permanent workers — including independent contractors, freelancers, and gig workers — don’t contribute to unemployment insurance through withholding, so they don’t receive those unemployment benefits.
However, the CARES Act changed that. The bill expanded unemployment benefits, among many other provisions designed to ease the economic fallout of the COVID-19 pandemic. Specifically, it extends these benefits to liquid / non-permanent workers including:
- Independent contractors
- 1099 workers
- Sole proprietors
- Gig workers (including ride-sharing drivers)
Essentially, people who have never qualified for unemployment benefits — who have never had money paid into the unemployment insurance system on their behalf — can now apply for such benefits. Section 2102 of the CARES Act provides explicitly for people who are self-employed or seeking part-time employment; aren’t eligible for unemployment benefits and are unemployed; partially unemployed; or unable to work because of health or economic consequences of the pandemic.
Pandemic Unemployment Assistance (PUA) for Freelancers and Self-Employed
Pandemic Unemployment Assistance (PUA) is the CARES Act program that specifically addresses non-traditional workers. PUA provides for up to 39 weeks of weekly benefits. The amount of the weekly PUA payment is equal to the benefit that would be provided by the state unemployment insurance program. Those eligible for it include people who:
- Are not eligible for normal state unemployment benefits
- Are unemployed, under-employed or unable or unavailable to work due to COVID-19
- Are self-employed, seeking part-time work or lack sufficient work history
The period of under-employment or unemployment must have begun on or after January 27, 2020. Benefits are retroactive for periods of unemployment back to that date. However, benefits can’t be paid for unemployment after December 31, 2020.
PUA under the CARES Act still requires that people be unemployed through a lack of available work (they can’t have left their job voluntarily, which includes quitting a job out of fear of contracting the virus). Generally, if an employer remains open and the applicant can come to work, they won’t qualify for PUA benefits.
There are several exclusions to this general rule, including someone who can’t come to work because:
- He or she is ill with the virus
- Someone in the household has been diagnosed with COVID-19
- A child is at home because school is closed
- A healthcare professional advised a COVID-19 quarantine or self-quarantine
Workers who can be paid for teleworking or who are getting sick-leave benefits would not qualify for PUA. Most states also require that the recipients have worked four out of the last five quarters, and benefits paid would be relative to the amount of pay received during the previous five quarters.
While applicants can self-certify that they meet the requirements, freelancers and the self-employed should be aware that fraud or intentional misstatements can be prosecuted under federal law.
Pandemic Emergency Unemployment Compensation (PEUC) for Freelancers and Self-Employed
The PUEC section of the CARES Act provides for an extra $600 a week to be paid out on top of the regular state unemployment insurance benefit amount. The PUEC benefit increase applies to anyone who is receiving unemployment benefits. It’s not just for self-employed and gig workers covered by PUA.
PUEC benefits can be paid for no more than 13 weeks. And they cover periods of unemployment up to July 31, 2020.
How to Apply for Unemployment as a Self-Employed Person via PUA or PEUC
While the CARES Act is federal legislation, freelancers, and self-employed persons seeking benefits under it must apply to their state unemployment agencies. Visit the U.S. Department of Labor’s online directory of state agencies to find the agency in your state. Depending on the state, applicants can file in person, over the phone, or online.
The speed with which the legislation was drafted and enacted has left state agencies scrambling to handle the volume of applicants. Some states are setting aside specific days for applicants whose names begin with specific letters of the alphabet to help cope with the backlog.
While some states have begun making payments, others are still getting the program rolled out and have yet to make any payments. Note that benefits are paid retroactively — so successful applicants will receive benefits as of the date of their unemployment, not the date they are approved.
Freelancers and self-employed persons applying for unemployment under PUA or PEUC should be prepared to supply the following information and paperwork when applying:
- Personal information, including name and address
- Social Security number
- Tax return or 1099 form to verify income
If approved for benefits, workers will have to re-certify weekly that they are unemployed. And if their work re-opens or other restrictions keeping them from working are lifted, they are expected to return to work and will stop receiving benefits.
The Upshot for Freelancers and Self-Employed
Unemployment benefits are normally only available to W-2 employees. However, the CARES Act provides an exception that makes state unemployment benefits available to self-employed, freelancers, independent contractors, and other gig workers who are unemployed or underemployed due to the COVID-19 global pandemic. Under the CARES Act, recipients of unemployment benefits receive an extra $600 above regular state benefit, and such can be claimed for up to 39 weeks during 2020.
As news about the implementation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act comes out, we will continue to provide updates on this blog post and additional blog posts. Sign-up for our Liquid Briefings and Liquid Newsletter to receive all the latest news about CARES and tips for managing your liquid workforce.
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Category: Finance and Accounting Freelancer Tips Ask Liquid
Updated: June 16, 2020
Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.