When you file an unemployment claim, you complete a questionnaire to determine your eligibility. To qualify for unemployment, you must be classified as an employee. Employees receive W-2s each year to file taxes, while self-employed persons and independent contractors file their taxes based on Form 1099-MISC. As an employee, you can receive unemployment compensation if you lose your job and meet earning and time requirements. Self-employed workers don't qualify since, technically, they work for themselves.
Clients paying you $600 or more per year have to provide you a 1099-MISC documenting your pay. This pay is known as nonemployee compensation and is listed in box 7 of the 1099. You may not consider yourself an independent contractor, but the 1099 shows that the payer does. Unless you go to work for scheduled hours and are actively managed by your client, your client can consider you an independent contractor. The Internal Revenue Service offers you an opportunity to file Form SS-8 if you think your classification is inaccurate.
Unemployment is a joint program administered by the state and federal government. Businesses with employees pay for unemployment insurance and a few states even require employees to do so. The money is used to cover unemployment insurance claims. When you file a claim, you have to show that you were terminated through no fault of your own. If approved for the claim, you'll receive a specific amount of money for a certain number of months -- based on a percentage of your pay over a specific period of employment.
Employee and Independent Contractor
If you work for an employer and also work as an independent contractor, you can still qualify for unemployment compensation if you lose your job. However, your claim has to be based on the job you work as an employee, not your contracting position. In other words, if you receive both a W-2 and a 1099-MISC, you can still get unemployment benefits based on your W-2 pay.
You may also receive other 1099 forms to document various sources of income. For example, 1099-INTs record any interest you receive from interest-bearing bank accounts, certificates of deposit or bond investments. A 1099-DIV certifies any dividend income earned from your stock investments. If you do get approved for unemployment benefits, you may also get a 1099-G detailing your unemployment pay. You can withhold federal and state taxes from your weekly benefit check, but if you don't, you may owe taxes on the pay at the end of the tax year.
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