If you are among the 16 million self-employed Americans, you might have assumed that the recent flurry of federal aid for struggling workers doesn’t apply to you. After all, the self-employed are often left out of unemployment programs.
But this time you’d be wrong.
Recent federal laws have established multiple types of financial relief for the self-employed.
Following are some examples of provisions designed to help self-employed workers, too.
1. Unemployment benefits
The $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted on March 27 extends unemployment benefits to the self-employed, including:
- Unemployment insurance: The act expanded on state unemployment insurance programs by adding temporary Pandemic Unemployment Assistance through year’s end. This program allows unemployment coverage for people who traditionally are ineligible for it — including the self-employed and independent contractors — and who are unable to work because of the coronavirus pandemic.
- Extra unemployment payments: Collecting unemployment insurance benefits through your state’s regular program or the Pandemic Unemployment Assistance program makes you eligible to receive an extra $600 a week for up to four months.
2. Tax credits for sick leave and family leave
Another recent federal law, the Families First Coronavirus Response Act, allows self-employed workers to claim a tax credit for sick leave or family leave related to the pandemic.
The sick leave credit, for example, is worth the equivalent of up to 100% of a worker’s average daily self-employment income for each day on which the worker was unable to work for certain reasons related to COVID-19, according to the IRS. Those reasons include:
- Being subject to a quarantine or isolation order
- Having been told by a health care provider to self-quarantine
- Experiencing symptoms of COVID-19 and seeking a medical diagnosis
This IRS Q&A webpage (questions 60-66) further details the rules, including eligibility and how the credits are calculated.
Accounting Today, a magazine for public accountants, sums it up:
“For the self-employed, the law provides a refundable tax credit for 100% of qualified sick leave wages for individuals in quarantine for coronavirus, or for 67% of qualified wages when caring for a quarantined family member or child whose school or place of care was closed because of coronavirus. This tax credit is allowed against income taxes. There’s also a refundable tax credit for family leave for self-employed individuals equal to 100% of qualified family leave wages.”
3. Paycheck Protection Program forgivable loans
The Paycheck Protection Program (PPP), also created by the CARES Act, offers financial assistance for all businesses with 500 or fewer employers — including sole proprietorships, independent contractors and self-employed individuals — according to the U.S. Treasury Department.
The program is administered by the Small Business Administration (SBA). It offers loans that may be forgiven under certain circumstances.
This program has been making news. It has been hard for smaller businesses to get a loan. The PPP’s initial funding of $349 billion was distributed quickly (average loan size: $206,000). Applications were halted and then resumed April 27 after another new coronavirus relief law authorized an additional $310 billion for PPP funding.
The demand remains enormous, though; some bankers and policymakers worry that the second round of funding won’t be enough, either, reports The Hill.
Here are the SBA’s program details, including eligibility. Applications are made through approved lenders. A list of those lenders participating as of April 23 can be downloaded here.
Be sure you understand all the fine print — including that the loan can be forgiven (you won’t need to repay it) if the money is used for:
- Payroll costs (At least 75% of the amount forgiven must have been used for payroll.)
- Interest on mortgages
The SBA adds:
“Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.”
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