Independent contractors or freelancers are self-employed people, happily so! They get to enjoy the freedom to work on their terms. They can set their work schedules and make their own decisions.
However, as advantageous as it might seem, working as a freelancer or independent contractor is not all sunshine and rainbows.
In times of crisis, unemployment benefits serve as the safety net. But for freelancers, unemployment benefits add to financial complexities.
How much can an independent contractor make on unemployment? Does 1099 get reported to unemployment? Can 1099 workers file for independent contractor unemployment?
These questions are crucial if you are planning to hire independent contractors.
So, read on to get your answers related to 1099 unemployment.
Who is an Independent Contractor, and What is the 1099 Form?
An individual can qualify as an independent contractor when not employed with one corporation.
Independent contractors work with multiple clients on specific projects. They generally decide their work schedule and complete the job using their resources.
Moreover, employers have a limited right to control the work performed by an independent contractor.
Now that you know about independent contractors, let us clarify the 1099 forms for you.
The Internal Revenue Service (IRS) uses 1099 forms to track self-employment income.
At any given time, if an individual has an income source that is not from a full-time employer, filing a 1099 form for taxes and unemployment is a must.
Independent contractors or freelancers generally use 1099 forms to record their annual revenue.
How does Unemployment Insurance Work?
Federal and State unemployment insurance schemes have existed in the United States for a long. They are typically administered at the state level.
Businesses like you fund the entire unemployment insurance system by paying Federal Unemployment Tax Act (FUTA) taxes and State Unemployment Tax Act (SUTA) taxes.
The insurance programs offer temporary financial help to individuals when they lose their jobs.
So, when an individual is looking for a new job due to;
− out of seasonal work;
they can apply for unemployment insurance.
In most US states, laid-off workers receive 26 weeks of unemployment insurance. Plus, they receive a percentage of their average annual compensation. The amount workers receive on how much they earned in their last job and the state they reside in.
During lay-offs, workers can file an unemployment claim to their state government. Once filed, the claim notifies the government that the former worker applies for unemployment benefits.
However, in cases where a business fires a worker for a cause, the previous employer might refuse the unemployment claim.
Can an Independent Contractor Apply for Unemployment Benefits?
This is the most important question related to independent contractor unemployment benefits.
Generally, independent contractors, freelancers, self-employed, or gig workers do not qualify for 1099 unemployment benefits.
But the global pandemic did create this safety net for 1099 contractor unemployment.
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act 2020, in case of 1099 unemployment, these individuals can receive temporary unemployment. Plus, they can also receive a quick income.
However, the act came with an expiry date. So, when the act expires on September 6th, 2021, 1099 workers will no longer be eligible for unemployment. Similarly, if an independent contractor receives a suitable job but refuses it to claim 1099 unemployment, they will no longer qualify for independent contractor unemployment benefits.
So, if you ask – Can independent contractors apply for unemployment? The answer is yes. But they have to act fast on it.
Does 1099 get Reported to Unemployment?
Yes. 1099 does get reported to unemployment.
When independent contractors collect 1099 MISC unemployment benefits, they must report any income source they receive. Whether an individual is a gig worker, freelancer, or independent contractor, submitting the earnings they make to unemployment is a must.
After filing earnings are filed, the 1099 unemployment benefits will likely reduce temporarily during the weeks when freelancers earn. The reduction will take place depending on the amount earned.
Unemployment Benefits vs. Gig Benefits - How are they Different?
Unemployment vs. Gig work. There are differences. Fortunately, you need not find the differences yourself. We have done the work for you. So, read on to know.
When it is about 1099 workers and unemployment benefits, the first question is how much can 1099 workers make on unemployment?
The answer is it depends on where they reside. Each US state has its formula to determine what percentage of the previous wage will be provided as 1099 MISC unemployment compensation.
Currently, most US states do not pay more than $500 a week for 1099 unemployment services. However, there are a few exceptions that pay more than $500.
With the CARES Act, 1099 workers might receive an additional $300 per week. However, it is also important to inform you that several states have withdrawn from this program to recover from COVID-19. Hence, independent contractors cannot expect the $300 bonus in these states.
Gig Work Benefits
When one decides to work gig shifts, there are multiple benefits that they can access. From enjoying the freedom to set work schedules, gig workers also can choose their positions.
For instance, if gig worker is passionate about writing, they can use convenient gig applications to find suitable jobs. So, with gig work, there are endless possibilities to explore.
Compared to unemployment, the income rate is higher with gig work. In the case of unemployment, it is $500 weekly whereas, for gig shifts, it is $12 per hour in a conventional 40-hours working week.
So, what do you think?
Which one is more beneficial – unemployment or gig work?
When talking about 1099 and unemployment, it is important to consider gig work benefits. It allows 1099 workers to earn more, create a network, and develop skills.
What is the Application Process for Independent Contractor Unemployment?
The CARES Act, 2020 was a new turn in independent contractors and unemployment benefits scenario.
Thanks to the CARES Act independent contractors can now access unemployment benefits.
However, the application process for Pandemic Unemployment Assistance (PUA) programs is more complicated than laid-off and furlough workers eligible for unemployment insurance.
To apply for independent contractor unemployment benefits, here’s the process one must follow.
1. First off, checking the state’s unemployment website is crucial.
2. Next, 1099 workers must keep their previous wages and income documents ready. In most states, self-employed individuals must provide the following details for unemployment benefits.
- Name, contact number, complete mailing address
- Social Security or Alien Registration number and driver’s license number
- Proof of income like 1099 tax forms, Form 1040 tax returns, etc.
- Driver’s license or state ID number
- Bank account number and routing number for depositing the benefit amount directly.
3. PUA applicants must file a new claim if they have already applied for unemployment insurance but are eligible for PUA. Eligibility for PUA ensures receipt of unemployment insurance payments for 79 weeks through the state unemployment agency.
4. Next, 1099 workers must fill out the key questions in the application form. If They have run out of benefits and are still unemployed, re-application would be necessary.
Note: Every state might have different requirements for the application process. So, 1099 workers must research and prepare relevant documents before starting the application process.
Another crucial question here is - how long does it take to process the independent contractor unemployment benefits?
The CARES Act ensures to incentivize states that waive any applicable benefit waiting periods. While independent contractors can receive unemployment benefits right away, they might need to wait for a few weeks before getting paid.
How did the Pandemic Change Benefits for 1099 Earners?
The COVID-19 pandemic changed various aspects of the world – from business operations to employment. Similarly, talking about 1099 and unemployment compensation, COVID-19 did benefit 1099 workers.
The CARES Act 2020 came as a relief for independent contractors, freelancers, and gig workers. This legislation ensured that 1099 workers would get unemployment benefits during COVID-19.
Hence, PUA, Pandemic Unemployment Compensation (PUC), and Pandemic Emergency Unemployment Compensation (PEUC) took place.
Though eligibility varies, most states can provide self-employed people with PUA. If they qualify for PUA, the 1099 workers will not apply for regular state unemployment benefits.
Under PUA, they can receive up to 39 weeks of benefits. But, authorization of the benefits through December 31, 2020, is a must.
It is important to remember that if a self-employed individual receiving PUA benefits restarts their business, they must report the income to the state unemployment office.
Though the amount earned through benefits might reduce, it is essential to report the details of employment. Failing to do so, might result in the independent contractor running into legal issues.
Know more about Independent Contractors with Multiplier
If you’re hiring a freelancer or trying to be one, you should go to the core of it. You can have many questions, including:
- Who are independent contractors?
- How do I hire them?
- How do I pay them?
- How are independent contractors different from full-time employees?
And so much more! How about getting the answer to all these questions at once? We’re talking about a B2B SaaS onboarding solution called Multiplier that can answer these questions and simplify all these tasks.
Here’s what Multiplier can do:
- Onboard global freelancers by staying compliant
- Generate freelancer contracts
- Streamline the payment of independent contractors
- Helping you with the perks and benefits that freelancers are entitled to
So, what are you waiting for? Book a free demo to explore further.