5 Things to Know About Unemployment for the Self-Employed

by Emily Guy Birken · 21 comments


One of the pitfalls of being self-employed is what happens if you lose your business through no fault of your own. If you worked in a traditional job, you’d know what to do next: apply for benefits at the local unemployment office. But things are trickier when the job you lost was your own business. However, it is still possible for you to qualify for assistance as you move on to the next chapter in your life:

1. Be careful if you incorporate. If you collect a salary from your incorporated business, then you have been paying self-employment tax. Ditto for sole proprietors and partnerships. This means you made contributions to your state unemployment insurance fund, and you are eligible for benefits if you lose your business. On the other hand, some small business owners have been trying to avoid the self employment taxes by not paying themselves a salary. If this is the case, then don’t be surprised that you are denied if you apply for unemployment relief.

Incorporating your company has other benefits like separating your personal tax liability from that of your business. It also protects the owner of a business from any personal financial liability if the corporation needs to declare bankruptcy. Incorporation is one way to protect yourself from the ups and downs of self-employment, but avoiding taxes isn’t one of them.

2. Disaster unemployment assistance. If you are unable to work because of a natural disaster, you may apply for disaster unemployment assistance. The president must declare a major disaster in the area where you live or work in order for you to be eligible. The benefits will last up to 26 weeks after the disaster has been declared.

3. Benefits for contractors. If you are a contract employee in California or Oregon, don’t assume that you have no recourse if your job dries up. According to the courts in these two states, contractors who had been in a long-term position at a company were serving a similar function to at-will employees, and therefore they should be treated like their at-will cubicle-mates.


4. Get help moving on. While this is not a cash unemployment benefit, Career One Stop Centers are agencies throughout the country that can help you to find your next job. These centers were created through a collaboration between individual states and various local agencies to help provide concrete aid to those looking for work. These centers offer internet access, telephones, fax machines, and career workshops. They can help any unemployed entrepreneur figure out where to go next.

5. Self-employment assistance if you’re unemployed and starting a new business. On the other side of the unemployment coin are those employees who have been laid off from a traditional job, and are looking to start a business. This assistance will provide budding small business owners with a weekly allowance while they are doing the work necessary to get their new venture up and running. This is different from traditional unemployment insurance because you can be eligible even if you are working full time trying to get your business started. This allows a new small-business owner a little breathing room before the venture becomes lucrative.

As of right now, this program is only available in seven states: Delaware, Maine, Maryland, New Jersey, New York, Oregon, and Pennsylvania.

While the unemployment benefits available to a self-employed worker are not as extensive as those offered to traditional workers, there are still some safety nets in place.

COVID-19 Update: These are unprecedented times, and companies and groups around the country wants to help. Other than the PPP and EIDL loans from the Federal government we keep hearing about, here are a whole list of loans and grants that you can apply for today.

  • Citigroup is offering grants to its customers being impacted by the virus. More specifically, they are waiving monthly service fees and early CD withdrawal penalties among others. Click here for more information.
  • Facebook is offering $100 million in cash grants and ad credits is available for up to 30,000 eligible small businesses and self employed indivduals. You can start applying April 22nd. Click here for more information.
  • GoFundMe will match up to $500 for qualified businesses who raises at least $500 on their platform. Go to this FAQ to learn more.
  • Google is putting $340 million worth of Google Ads credits in their smart business client’s accounts as long as they have already been advertising with them over the past year to be used in the rest of 2020.
  • Mailchimp is offering customers a free custom domains for up to 5 years, along with our free website builder, until May 31, 2020. Click here for more information.
  • The Federal Reserve established the Main Street Lending Program (Program) to support lending to small and medium-sized businesses that were in good financial standing before the pandemic. Click here for more information.
  • The Bartender Emergency Assistance Program is run by the United States Bartender’s Guild National Charity Foundation and is offering help for bartenders and their families. Click here to apply.
  • Otto Bremer Trust has a Community Benefit Financial Company Emergency Fund of $50 million to assist Minnesota, Wisconsin, North Dakota, and Montana nonprofits and other community organizations. Apply here.
  • PEN America is offering grants of $500 to $1,000 to writers. More info can be found here.
  • Restaurant Employee Relief Fund will provide one-time grants of $500 on a first-come-first-served basis to restaurant owners and employees in need. Here’s more information.
  • Salesforce is partnering with Ureeka to offer small businesses up to a $10,000 grant. Click here for more information.
  • Womennet.net is offering up to $4,000 in grants to women owned businesses. Must apply here by April 30, 2020.

Do you know of any more resources? Let us know below and we’ll add them to the list!

Money Saving Tip: An incredibly effective way to save more is to reduce your monthly Internet and TV costs. Click here for the current Verizon FiOS promotion codes and promos to see if you can save more money every month from now on.

{ read the comments below or add one }

  • Jennifer Morgan says:

    I am self employee for 18 years cleaning houses and my clients pay me cash and never thought something like this would happen. I keep up with my pay amounts yearly and file married with my husband on taxes every year. I do not get 1099 from my clients. my clients do not want me in their house cleaning so now I’m out of work. Can I still get unemployment? I’m so confused on what to do. Thank you

    • David @ MoneyNing.com says:

      The federal Pandemic Unemployment Assistance (PUA) program covers self employed individuals. Every state will need to specifically change their unemployment insurance program to take advantage of the new policy though so you need to look up your individual state and see how they are implementing this program.

      Go here, https://www.careeronestop.org/LocalHelp/UnemploymentBenefits/find-unemployment-benefits.aspx for more information.

      You should also look into getting a SBA Economic Injury Disaster Loan (EIDL). This is an “up to $10,000 forgivable grant” to tie you cover, and possibly get a loan from the Paycheck Protection Program (PPP) too.

  • Kimberly Wilson says:

    I’m located in Houston, Tx. and have been a hotshot driver for about 13 years and receive a 1099 to file my taxes. I thought that the new CARES act that was passed opened up unemployment benefits for people such as myself. I applied and have been sent correspondence stating I have not paid in and am not eligible. I do pay into the federal government a very high tax amount every year. I have no clue how or where to get help now. Please if you have any information on what or who to do or contact I think there’s a lot of people searching for answers to this same question.


    I own a pet boarding business from my home. I submit this on my tax returns every year for the past 12 years. I generally make about $1100 a month. I have no clients now or for the foreseeable future due to the corona virus. Do I qualify for unemployment?
    Thanks Yvonne

    • julie serio says:

      I was employed in 2019 by a cleaning business but was paid cash.can I collect unemployment due to coronavirus layoffs?

      • David @ MoneyNing.com says:

        If you got paid in 2019 and not 2020, then I do not believe you qualify for unemployment assistance due to the corona virus.

        You should check your state’s unemployment insurance page to see if you meet the eligibility requirements though just to make sure.

    • David @ MoneyNing.com says:

      I would look up assistance for small businesses in your case instead of the self employed route.

      However, research the Pandemic Unemployment Assistance (PUA) program and apply anyway. You never know what each program is going to deem you as qualified and any assistance is going to help now.

      It sounds like every state is going to have a different schedule for launching the program too so check out the Career One Stop page I linked to in my reply to Kimberly (one comment up).

  • Annie says:

    I work for a company this past summer while starting a small LLC business of my own. Long story short, the business is also a summer business. I did not collect a salary and instead of making money I lost money for the business also. Now that I’m laid off from my summer job and have no income will I qualify for unemployment insurance?

  • Lorri says:

    I deliver the local newspaper in Pa. I am considered a independent contractor. I also work Full-time at a Transportation company. My full-time job was downsized to part-time. I know I can collect Unemployment Compensation from the reduced hours of Full-time (40hours) to Part-time (20hours) but how will the income from the newspapers effect me and the collection of Unemployment. Will I need to claim my newspapers money?or is that completely not effected through unemployment.

  • Ellen says:

    I am part owner of an LLC Company, but do not collect a salary. I also worked full time, but was down sized recently. Can I claim unemployment insurance?

    • LUCY ADDESSO says:

      I am owner of an LLC Company, but do not collect a salary. I also worked full time, but was recently laid off. Can I claim unemployment insurance? I have paid into to unemployment at my full time job for over 5 years.

  • Jacob Morgan says:

    Your #1 item (Be careful if you incorporate) is confusing and inaccurate as written. “Self employment tax” is not a contribution to state unemployment insurance pools. SE tax is your employer-side contribution to Social Security and Medicare. Incorporated businesses have to register with the unemployment insurance offices of the states where they have employees and pay a separate UI tax to each of those states for each employee. They also have to pay federal unemployment tax (FUTA) annually for those employees.

    Paying a salary is only relevant for business owners with incorporated structures. For sole proprietors or partners in an unincorporated business, all of their business-related income is taxed for SE taxes, but they do not pay UI tax (nor can they collect). Owner/partners in corporations (C or S) have salaries on which SE taxes and their UI tax is calculated.

  • Linda says:

    My husband and I were co-owners of a small landscaping business. Neither of us have ever drawn a salary from the business. My husband recently had to go on permanent disability so the business is now in my name only. In addition I had been working a full-time job and recently lost my job due to downsizing and I have been collecting unemployment. Is this ok to do or do I need to claim the business even though I have never received a paycheck from this business?

  • Sara says:

    My husband is part owner of an S corp and collecting a salary with the same deductions as other employees. Can he be temporarily laid off and collect unemployment benefits?

  • Financial Advice for Young Professionals says:

    How do you not pay yourself a salary?

    • MoneyNing says:

      Since you own your company, you can, in theory, decide to not pay yourself a salary. However, the IRS recognizes that you can reduce your overall tax burden this way so you need to have a reasonable case for choosing your salary figure if they question it.

    • Dawn says:

      I am a caregiver and work for a client who had me sign a contract stating I’m an independent contractor caregiver, but I found out when I had my taxes done that caregivers are not independent contractors (1099) By tax’s laws we are considered house employees and the employer should be paying a potion of my taxes for unemployment Social Security and disability. When I filed my taxes in April here in Calif i had not been given a 1099 and to date still have not received one, I just kept track of my income. I ended up paying a self employment taxes that was unspeakable because this person I care for family mislead me. I’m going to bring this to their attention now that I know because the contract is not legally binding. I’m concerned that thy may let me go and if thy do I’m going to apply for unemployment. I have payed self employment taxes on all my income I’ve received, and now I’m wondering because I was mislead will I be able to collect unemployment? Thank you

  • Thad P says:

    This is an important list. Self-employed people usually know about benefit related issues (like being in the individual pool for health insurance), but they may miss the other matters you raise..

  • Marbella says:

    I have been self-employed all my life and the key is to always save money and not working for a major customer, but have many customers in case someone goes bankrupt.

  • Money Infant says:

    I really need to incorporate my online business and protect myself better. Of course I’m living in Thailand so it won’t help me one bit with unemployment even though I still pay the taxes.

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