Can you get self-employed unemployment? Discover your eligibility and benefits

Unemployment provides financial benefits to help workers who experience job displacement. But you might not know that self-employed unemployment exists for workers like freelancers and independent contractors. 

Self-employed workers aren't eligible for regular unemployment insurance benefits since they don’t pay payroll taxes, which contributes to the unemployment insurance program through payroll taxes. Some states do provide financial help for unemployment for self-employed individuals. 

Let’s look at what self-employed unemployment is and the options for workers in this situation:

What is unemployment for self-employed workers? 

Self-employed unemployment is when individuals who work for themselves, such as freelancers, independent contractors, and gig workers, are without work and income. Since self-employed individuals don’t pay unemployment taxes, they generally don’t qualify for benefits. 

When you’re an employee, your employer funds unemployment programs through taxes that go to unemployment insurance programs. Employers pay federal and state unemployment taxes.

There are two types of unemployment taxes that employers pay: 

1. Federal Unemployment Tax Act (FUTA): All employers pay FUTA tax to the federal government to help fund federal oversight of state unemployment programs. The tax rate is 6.0% on the first $7,000 in wages per employee. 
2. State Unemployment Tax Act (SUTA): All employers pay SUTA taxes to their respective states, which goes to funding unemployment for employees. The tax rate and wage base vary by state, while Alaska, New Jersey, and Pennsylvania require employees to contribute to unemployment taxes. 

Unlike traditional employees who receive regular paychecks and W-2 forms from employers, self-employed workers generate income through their own business ventures or freelance work.

Note that self-employment taxes consist of Social Security and Medicare taxes and differ from unemployment taxes that employers pay.

Unemployment benefits for self-employed workers

While you might not qualify for conventional unemployment benefits, self-employed individuals can explore other forms of financial and business support. There are two main options for financial assistance if you’re self-employed:

Disaster Unemployment and Assistance (DUA) program 

The Disaster Unemployment Assistance (DUA) program offers benefits to self-employed individuals who lose income due to major disasters. DUA is a federal program available to anyone in the US whose job or self-employment income is affected by a natural disaster, such as a hurricane or an earthquake. 

You can get help from this program if both are true: 

1. You lose your job or income due to a presidentially declared disaster. 
2. You aren't eligible for regular unemployment insurance benefits.

To check your eligibility and apply, you’ll need to contact your state’s unemployment office. The DUA is available if you were self-employed or an employee of a company who had their employment affected by a disaster.   

Self-Employment Assistance Programs (SEAPs)

Some states offer Self-Employment Assistance Programs (SEAPs) for unemployed workers who want to become self-employed. Generally, the individual plans to be self-employed full-time, which can include entrepreneurial training.  

States that offer self-employment assistance programs include:

• Delaware
• Mississippi
• New Hampshire
• New York
• Oregon

These states pay an allowance, similar to regular unemployment insurance benefits, that self-employed workers can use to fund their businesses.

How to know if you classify as self-employed  

Determining whether you qualify as self-employed is essential to understanding your eligibility for unemployment.

Here are the key criteria for determining your employment status:

• Control and independence: Self-employed individuals have full control over how and when they work. They aren't subject to the direction and control of an employer.
• Financial risk: Self-employed individuals bear the financial risk of their work and don’t collect benefits from the employer. They are responsible for obtaining their own liability insurance, funding their business expenses, and managing their finances.
• Taxes: Self-employed individuals don't have payroll taxes withheld and tend to file sole proprietorship taxes using forms like 1099s.
• Tools and equipment: Self-employed workers often use their own tools, equipment, or specialized knowledge to complete their tasks. Employers generally don’t provide them with resources. 
• Multiple clients or customers: If you offer your services to multiple clients rather than working exclusively for one employer, you are likely self-employed.

Understanding your employment status will help you navigate the benefits and programs available to self-employed individuals. You likely fall under the self-employment category if you operate as a sole proprietor, freelancer, or independent contractor.

How to determine your unemployment eligibility

To qualify for unemployment benefits, you will need to meet specific eligibility requirements set by your state's unemployment insurance program.

Here are some key requirements for being eligible for unemployment:

• Unemployed through no fault of your own: To be eligible for unemployment benefits, you must have become unemployed due to circumstances that were beyond your control. For example, you lose your job or your employer goes out of business.
• Minimum earnings and work time requirements: Most states require applicants to have a minimum amount of earned wages during a base period, such as the first four quarters of the last five. Additionally, applicants must have worked a minimum amount of time during this base period. 
• Able and available to work: To receive unemployment benefits, you must actively seek employment and be ready and able to accept suitable job offers. You may have to provide proof of attending job fairs or workshops. 

Most states offer up to 26 weeks of unemployment benefits, with 13 states providing less. Montana offers more.

Start your business with confidence

If you’re an unemployed small business owner, you may qualify for conventional unemployment if your company pays you a paycheck. However, you have fewer options if you’re self-employed and find yourself without work. 

Start by lowering your self-employment risk with an all-in-one money management solution that has no monthly fees, like QuickBooks Money, which helps freelancers and independent contractors manage expenses, understand cash flow, and save for the future.

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