Unemployment Benefits for Independent Workers

Explore how the CARES Act addresses unemployment benefits for freelancers, contractors and gig workers—and learn how to apply

The number of independent workers has boomed in recent years. According to some estimates, as many as 57 million Americans did some kind of freelance work in 2019. But these workers haven’t typically had access to unemployment insurance when they’re out of work.

Thanks to coronavirus relief from the federal government, states have been permitted to expand unemployment insurance so that more people qualify for benefits. And depending on the circumstances, that may include self-employed workers, independent contractors and gig workers.

Expanded access to unemployment benefits could provide relief to many during these challenging times. But states are overwhelmed with requests, and the process can be complex. Benefits aren’t guaranteed or immediate. So it can be helpful to learn what your options are, how to get started and what you can expect from the claims process.

How Do Unemployment Benefits Work?

In general, unemployment benefits guidelines are set by the federal government, but each state runs its own program. Unemployment benefits are sometimes referred to as unemployment insurance. And Capital One® put together a guide to state unemployment benefits that can help you learn some of the basics.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act permits states to temporarily expand and extend unemployment benefits. If you’re an independent contractor, freelancer or gig worker seeking unemployment benefits, there are a few programs to be aware of:

  1. Pandemic Unemployment Assistance (PUA). This program permits states to provide assistance to individuals who are “self-employed, seeking part-time employment, or who otherwise would not qualify for regular unemployment compensation.” PUA provides up to 39 weeks of benefits, depending on the state. It expires on December 31, 2020.
  2. Pandemic Emergency Unemployment Compensation (PEUC). This program allows states to extend how long they provide benefits. Once regular unemployment benefits are exhausted, PEUC allows for up to another 13 weeks of benefits to be paid. Like PUA, the program expires on December 31, 2020.
  3. Federal Pandemic Unemployment Compensation (FPUC). The CARES Act also provides for instances in which regular unemployment benefits may not be enough. FPUC provides an additional $600 to eligible individuals and expires on July 31, 2020.

Can Independent Contractors Collect Unemployment?

Whether you’re running your own business or juggling multiple gigs, your eligibility will depend on your circumstances and your state’s unemployment insurance program. Keep in mind that filing a claim doesn’t guarantee you’ll be approved.

The Department of Labor says that to qualify for Pandemic Unemployment Assistance benefits, you must be ineligible for regular unemployment benefits—which has traditionally been the case for independent workers. You must also fit into one of the following three categories:

  • Unemployed.
  • Partially unemployed.
  • Unable or unavailable to work for certain reasons related to COVID-19.

Groups who might be eligible include freelancers, independent contractors, self-employed individuals, small-business owners, gig workers, performers and nonprofit workers.

How Can Independent Workers Apply for Unemployment?

If you’re unemployed, the Department of Labor recommends contacting your state’s unemployment insurance program as soon as possible. Capital One’s unemployment guide has a full list of state offices if you need help locating yours.

Claims should be filed in the state where you worked, which can make things tricky if your freelance or gig work took you across state lines. If you’re in this position, the Department of Labor says your home state’s unemployment agency can help with information about how to file.

Before you apply, it may be a good idea to spend some time learning how unemployment benefits work. You may be able to do that online, or you might have to pick up the phone. But don’t forget: Millions of other Americans are going through the same thing. So systems and phone lines may be extra busy as a result.

Do I Need to Provide Documentation?

The Department of Labor says you can expect to be asked for information like addresses and dates of your former employment. It may be helpful to gather documents related to your previous work, such as 1099s, tax returns and pay stubs.

Giving complete and correct information can help prevent your claim from being delayed. So having other information ready may also make the process smoother. That information may include:

  • Employment or contract history for the previous 18 months—including contact info for companies where you worked, dates and hours worked, wages earned and hourly rates.
  • Proof of identity.
  • Bank account information for direct deposit.

Remember, each state’s claims process is different—and it may take some time for your claim to be handled. Figuring out what to do while you wait for unemployment benefits could help you get by in the meantime.

What Happens After I Submit an Unemployment Claim?

If your claim is denied, you may have the option to file an appeal. Many states are still adjusting to the surge in applications and new eligibility guidelines, so it may be worth appealing if you think you were wrongly denied.

If your claim is approved, the Department of Labor says it can take two to three weeks after you file your claim to receive your first payment.

What Happens Once I Start Receiving Unemployment Benefits?

Once you’ve qualified and started receiving benefits, the process may not be over. Some states require people receiving benefits to regularly certify that they’re still eligible. Check with your state’s unemployment office for more information.

While you’re receiving benefits, these questions may be helpful to consider:

  1. Are unemployment benefits taxable? Yes, unemployment benefits are subject to federal income tax—and potentially state and local income taxes, depending on where you live. You may be able to have federal taxes withheld up front, which could make things easier around tax time. Saving receipts and tracking how you’re using your benefits could also help you stay organized when you’re dealing with taxes.
  2. How will new work or jobs affect assistance? You may be able to accept new projects while receiving benefits. But be sure to report your income to avoid committing unemployment insurance fraud. You may still be entitled to assistance, but new work could affect how much you receive. 
  3. Do I need to keep looking for work? You may be required to certify that you’re still unemployed and actively looking for work. But under the CARES Act, your state may have waived this requirement.
  4. What qualifies as “actively seeking work”? Freelancing, contract jobs and gig work are different from traditional employment. You may not find work in typical ways. It may result from referrals, word-of-mouth or your online portfolio. Check with your state about what qualifies as looking for work—and whether it’s necessary.

Can I Receive a PPP Loan and Unemployment Benefits?

Some independent professionals may qualify for both unemployment and the Paycheck Protection Program (PPP). But use caution if you apply for both. The Small Business Administration has said that getting a PPP loan could affect your eligibility for unemployment insurance.

Is There Other Support for Freelancers and Contractors?

The coronavirus has affected everyone. But there are places to turn for help.

Depending on your circumstances, you may be able to get support from grants, charitable funds and crowdsourcing efforts. There might also be local options or relief efforts specific to your industry, such as the Freelancers Relief Fund, The Workers Fund and the National Domestic Workers Alliance. And if you’re a gig worker who drove for a ride-hailing company or delivery app, you can check to see whether your former company is offering additional assistance.

Keep in mind, some charity efforts may be temporarily paused due to high demand or because they’re busy processing requests. But they may reopen or be refunded, so it’s a good idea to keep checking.

You can also explore ways to budget and plan financially after a job loss. That might include cutting back on certain expenses or refinancing your debt. And if you’re having trouble paying bills, many companies have developed hardship programs. Capital One customers experiencing financial difficulties can learn more about what’s available.

The emotional effect of financial challenges can also be tough to deal with. If you’re having trouble, the Department of Health and Human Services has tips for coping with stress that may help.

Learn more about Capital One’s response to COVID-19 and resources available to customers. For information about COVID-19, head over to the Centers for Disease Control and Prevention (CDC)

We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.

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