Can You Get Unemployment If You Own Your Own Business

Achieve A Life Ambition

How You Can Get Unemployment If You’re SELF EMPLOYED

Perhaps you have always wanted to start your own business but you have never had the time to write a business plan, do market research, submit the necessary paperwork and fulfill any other state requirements for launching a business. One advantage of being unemployed is you now have the time to invest in starting your own company. You can use the hours you now have every day to turn something negative into the fulfillment of a life ambition.

Which Employers Have To Obtain Unemployment Insurance

As an employer, you must pay UI taxes for any employee whom youve paid more than $100 in a three-month period, according to the EDD. The tax applies to the first $7,000 of each workers wages. The rate for new employers is 3.4%, and for others its 1.5% to 6.2%, depending on their history of UI claims.

In addition to businesses with one or more employees, the list of employers required to pay into the UI program includes:

Nonprofit agencies

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Unemployment Rules Differ From State To State

Depending on the state youre in, the answer to the question, Can you get unemployment insurance if you own your own business or are starting your business? may differ a little from what weve said here.

This is because unemployment is administered at the state level. State rules on unemployment compensation can differ on allowed levels of income, job search requirements, and more.

So, if you want to know if a business owner can collect unemployment, check with the state where you live, and where the company operates. That way youll know of any requirements that may impact your unemployment compensation.

Can You Get Unemployment Benefits If You Have A Side Business

April 1, 2020 By Sydney

It felt great writing my recent post, How I Negotiated A Severance Package And Got Paid To Quit My Job, and Im glad that I am able to help spread hope to more people that it is possible to negotiate a severance instead of simply handing in your two weeks notice. Shortly after I published the post, a reader asked me a great follow-up question: Is it possible to get unemployment benefits if you have a side business but lose a day job?

Never having filed for unemployment myself before, I didnt know the answer right off the bat, but the question definitely piqued my interest. I set out to try and find out some answers, and this is what I found.

Having Money To Invest

Since unemployment insurance is supposed to be spent on bills, food and other necessities, unless your state offers an SEA program, you may have to use your own money to start your business. This includes paying the costs for filing the necessary forms as well as startup costs such as equipment, office space and advertising. Also, you have to report any income you make from your business. The government usually deducts this amount from your unemployment benefits.

Can I Collect Unemployment While Starting My Own Business

COVID and the ensuing pandemic didnt just force business owners to shut their doors, it forced employers to lay off employees too. And its not uncommon for people who lose their job to start their own company. After all, owning an LLC comes with perks, the biggest being autonomythe ability to be your own boss.

But a similar question looms over the heads of unemployed people toocan you collect unemployment benefits while running an limited liability company? The answer depends on two things:

How much money you earn from the LLC
And how much time you commit to the company

Regarding the first stipulation, until youre LLC begins to turn a profit, you can still receive your full amount of unemployment insurance benefits. But once you begin turning a profit, the level of profit will reduce how much money you receive in unemployment benefits.

As for the next point , some states require you to be available for part-time or full-time work to continue receiving unemployment. They may even ask for evidence that youve been looking for work.

So, if you work on your LLC part-time, you havent turned a profit, and you submit proof of your job searchyoure still eligible. But if you start a business that requires a full-time commitment, you will most likely lose your unemployment compensation.

The Sooner The Better

Many states have a waiting period, both before you file for benefits and before you begin receiving them. In the wake of the pandemic, most states are waiving these restrictions, allowing immediate applications and benefits to begin within a week.

Again, be sure you check with your states unemployment laws during this evolving situation.

In the meantime, heres a general overview for LLC owners wondering if and how they can collect unemployment benefits.

Filing An Initial Claim

Should I Get A Job Or Start My Own Business

What information do I need to file a new application?

When filing a new application, you will need the following information:

Your Social Security number

Full mailing address, including apartment or lot number, Zip Code and PO Box if you use one
A phone number where you can be reached during the day
The name and mailing address of your last employer, no matter how long you worked there

Note: Your paycheck stub or W-2 form usually contains this information
The date you began and stopped working for each employer and the reason you left each job for the last 18 months
The county in which you live

Your driver’s license number
If you are not a citizen or national of the United States, your employment authorization number and expiration date
If you were active duty military within the past 18 months, your DD-214, Member #4 form

If you were a federal employee, your Standard Form SF-50 or pay stub
Any separation, vacation, or holiday pay you have received or will receive in the future.

A record of your application will not be established unless you are told your claim has been accepted. If you are unable to complete your application, the information you have entered will be saved for 7 days from the date you began filing the claim so that you can complete it later and within 7 days.

What will my Weekly Benefit Amount be?

What if I have wages earned in another state, the military, or the federal government?

When can I file an application for unemployment on the internet?

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How Much Can You Receive In Unemployment Benefits

Benefits typically range between $200-600 a week and last anywhere between 14-30 weeks, depending on your state. California offers up to $450 a week for 26 weeks.

How much you are eligible to receive is based on how much you were earning in the quarters leading up to your qualifying event, the state maximum allowance, and your eligibility week to week.

Once state benefits are exhausted, you may be able to apply for a federal extension depending on the economic conditions. The global pandemic stimulus plans offered extra unemployment benefits.

Remember, if you stop looking for work, you wont qualify. In California, the EDD picks random weeks when youre filing claims and requires you to report the details of the jobs you applied for in those weeks. So keep track of all of your job applications if youre filing claims so that youll have everything you need when they ask.

The below table from the cbpp.org shows recent unemployment rates by state as well as the maximum number of weeks you can collect unemployment benefits.

Every State Is Different

Each state in the U.S. operates its own Department of Labor and sets its own regulations regarding unemployment. In the current climate, the U.S. DOL is allowing states to rapidly amend their existing unemployment laws. You can check the Unemployment Benefits Finder database to find out how your state is responding to the coronavirus pandemic and begin your application for benefits.

How Does A Former Employee File For Unemployment

To apply for unemployment benefits, a former employee must file a claim with the unemployment insurance program in their state as soon as they become unemployed. They will need to provide some information, including their former employer, how long they worked there and the business address. Once they submit that information, it generally takes two to three weeks to receive their first benefit check.

Can You Use Your Unemployment Benefits To Finance Your Startup

Several years ago, the Department of Labor launched an initiative for a program called Self Employment Assistance . The goal was to allow people collecting unemployment benefits to keep receiving those benefits at the same time they worked on starting businesses of their own.

That was back in 2012 when the unemployment rate was higher than it is now . But despite todays low unemployment rates, not all of us are content to stay employeesand people still get laid off or otherwise become eligible for unemployment benefits.

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When Can Newly Eligible Workers Start Filing For Unemployment

While the CARES Act makes these federal funds available to unemployed workers, states still have to individually sign on to the agreement and set up the infrastructure to accept new unemployment claims and pay out increased unemployment benefits.

What happens now is the U.S. Department of Labor has to issue guidance for states on how to set up these Pandemic Unemployment Assistance benefits, says Michele Evermore, senior researcher and policy analyst at the National Employment Law Project. That said, I cant imaging a state not wanting to enter into an agreement with federal agency to get these benefits out.

Evermore adds it generally takes two to three weeks once someone has applied to actually get approved and start receiving payment. However, given the surge in unemployment claims, Id imagine it taking at least three to four weeks now, she tells CNBC Make It. Some states may surprise us and get benefits out the door before that.

New Yorks Department of Labor website already has instructions for newly eligible workers to get organized and file for Pandemic Unemployment Assistance once it becomes available. This week, Michigan Gov. Gretchen Whitmer signed on to create new state assistance programs under the CARESAct guidance around new eligibility and increased benefits will be announced in the coming days.

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Who Is Eligible For Self

Some eligibility requirements for SEA include:

The recipient is eligible for and currently receiving unemployment insurance benefits.
The individual is not likely to return to employment.
The recipient has a viable business idea, willing to work full-time in developing the business, and having the finances necessary to get started.

If those eligibility requirements are met and the individual takes steps in getting started such as getting business counseling, writing a business plan and showing progress in starting a business, they may be able to get self-employment assistance.

Minnesota has a similar program called the Converting Layoffs into Minnesota Businesses or Climb.

Similar to SEA, Climb is an initiative through the states Dislocated Worker Program to promote entrepreneurship as an alternative to out-of-work individuals in finding another job.

As eligibility varies from state to state, its best to not take a chance in jeopardizing unemployment insurance benefits. Be sure to first check with your states unemployment office to get the correct information before starting.

Links for each state are included below.

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A Handful Of States Allow You To Claim Unemployment While Starting A Business

If you live in Delaware, New York, New Hampshire, Oregon or Mississippi, you could be in luck. Each of these states has a Self-Employment Assistance program that lets you use unemployment benefits to start a business. According to the U.S. Department of Labor, Individuals may be eligible even if they are engaged full-time in self-employment activities – including entrepreneurial training, business counseling, and technical assistance.

You will typically need to prove that the business will allow you to pay yourself a full-time income, and you may need to take continuing education courses, as well as create a business plan.

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Can I get unemployment if I work two jobs? | Your Coronavirus Finances

Charles Krugel: No, I don’t believe it is. What is stated clearly is that you have to be able to work and actively looking for work. That part is stated clearly. There are definitions and explanations as to what they consider to be actively looking for work, but they don’t talk about starting up a business, paying salaries or paying contractors to work for you as one of those activities.

In your opinion as an attorney, is this something that should be changed? I can see how people could take advantage of it, but I also think there are decent people who are having their dreams clips because they have to work full-time and do all these other things.

Charles Krugel: There are some organizations I’m aware of that are proposing to change that to reflect that. In the market today there’s a lot of people trying to create their own work, trying to create their own jobs through their own businesses. And explicitly, the Unemployment Insurance Act should permit that. So, there is that. I don’t think there’s been a bill proposed by the legislature yet, but that is something to be discussed and debated. I believe, frankly, as somebody who represents companies that it’s a good idea to do that.

What do you think it’ll take for that be a reality?

I don’t want this to be a guide for people to get around IDES, but I know that it’s a not a particularly well-run entity.

Charles Krugel: No. Like I said, it’s by far the worst Illinois agency for employees to deal with.

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De 4581 Can Be Confusing

I think Im usually pretty good at following directions, but I find the language on the DE 4581 form to be confusing, especially section 6.

I dont think I would have been able to figure out the specifics above on my own so when in doubt always check with your unemployment office if youre not sure what to do.

Based on the forms directions alone, I would have incorrectly put the Clients info in the Employer box instead of self-employment work, and I would have probably goofed up the timing of when to report the last day worked and payments received.

Can A Business Owner Collect Unemployment Benefits

We said a lot of things in the previous section, but the question still remainsis a business owner eligible to collect unemployment benefits or not? The answer is yes and no.

If you havent elected your LLC to be taxed as an S corp or a C corporation, then the self-employment tax does not cover federal unemployment insurance. This leaves you unable to file a claim should you ever leave a company.

On the flipside, if you have elected your limited liability company to be taxed as a C or S corporation, the self-employment tax does cover federal unemployment insurance benefits, youre seen as an actual employee. This means that if you should leave the company, or can no longer manage it, youre eligible for unemployment compensation.

Expenses Allowed When Calculating Your Net Earnings

When reporting self-employment earnings for a week, you can only deduct expenses that are unique to self-employment. You cannot deduct expenses that the average homeowner or average employee doing similar work would also incur.

IRS rules do not apply some expenses that are tax deductible are not allowed as deductions for unemployment benefit purposes.

Examples of what you can deduct:

Materials and goods purchased for the self-employment

Rented or purchased equipment needed for the self-employment

Services purchased: advertising, web page creation, a dedicated business phone line

Business postage

Certain mileage, at the IRS rate*

Examples of what you cannot deduct:

An office or workspace in your home or garage

A portion of your home mortgage

A computer and printer that get personal use

Personal vehicle expense

Freelance Contract With Known Income

If you know how much you will earn for a freelance contract upfront, you should report the income on the day you perform the work.

For example, if John agrees with a client to design graphics for $300 and does 8 hours of work on June 1, he should report his 8 hours of work and $300 in income on his claim form for June 1.

This is regardless of when John actually receives the $300 from his client. Heres how he would need to fill out section 6 on the DE 4581 form for the week of June 1:

Field 6 = Yes

6A = $300

6B = June 1 , 8 , and your own name and mailing address . In the Reason no longer working field, enter laid off if you completed your project.

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