Do the Self-Employed Pay Unemployment Taxes?

Can you collect unemployment if you are self-employed? And are you even required to pay unemployment taxes in the first place? Well, it depends.

In the past, self-employed people were not eligible for unemployment insurance benefits. But the government made changes by implementing the CARES Act due to the Covid-19 pandemic to enable some self-employed individuals to access them temporarily. Also, under some circumstances, you may be eligible for other temporary unemployment benefits.

And depending on where you reside, your state laws may recognize you as an employee even when you are an independent contractor. New York is an excellent example of where this could happen. By so doing, they may obligate your employer to pay unemployment taxes on your behalf, which may then qualify you to receive the associated benefits.

Therefore, it would be best to understand how unemployment traditionally works and how the self-employed and unemployment benefits relate, considering the CARES Act has expired.

The federal and state unemployment insurance program is a social compensation program that pays out weekly benefits to those who have lost their jobs due to unavoidable circumstances.

Traditionally, the insurance scheme paid out benefits to employees whose federal and state employers contributed monies into it via payroll taxes. Unfortunately, that generally excludes the self-employed who usually do not contribute to the system.

Therefore, there is no point in asking the question, “Do I pay into unemployment?” You are automatically ineligible for the traditional unemployment insurance scheme if you are self-employed.

In addition, each state tends to set its eligibility criteria within the boundaries of the federal guidelines. But the benefits tend to last up to​ 26 weeks​. So, unemployment insurance does provide significant financial relief to those who qualify for it.

The Covid-19 pandemic changed the government’s approach to the self-employed and granted them temporary relief from unemployment.

Under the CARES Act, self-employed individuals, such as independent contractors, who qualified for the Pandemic Unemployment Assistance (PUA), could receive some benefits even if they are not fully unemployed so long as their work has suffered due to the pandemic. In addition, those seeking part-time employment or who did not qualify for the regular unemployment insurance were also covered under the program, which provided benefits for up to ​39 weeks​.

Unfortunately, this particular program officially ended in the month of ​September​ ​2021​.

​Read More​: Do I Have to File Income Tax on Unemployment?

Even though the CARES Act no longer enables the self-employed to access unemployment benefits, they can still access some money when they are no longer working. It depends on which programs you apply for.

If your self-employment ability is lost or interrupted due to a major disaster declared by the president, you may qualify for Disaster Unemployment Assistance (DUA). You will be paid for the weeks of the Disaster Unemployment Period (DAP), which may extend up to ​26 weeks​ from when the president declares the disaster.

The amount you get as DUA will vary, depending on the state. But it is usually ​50 percent​ of the average weekly benefit amount that the state tends to issue.

​Read More​: Do You Pay Taxes on Unemployment?

You could take advantage of the Self-Employment Assistance Program to start a small business and employ yourself if you were previously unemployed. However, you can only get this allowance if you qualify for the regular unemployment benefit but want to become self-employed.

So, if you held a regular job and had a side hustle, the position you previously held as an employee could help you qualify for the assistance program. And you can get the funds to help you out as you get the technical assistance, training and business counseling while working on getting the business off the ground.

Your SEAP allowance will be equal to what you would have gotten as weekly unemployment insurance benefits. And the best thing about it is that you will continue getting it even when your startup generates money.

If you are self-employed and your business is struggling due to the Covid-19 pandemic, you may find it challenging to pay for rent and utilities on your home, which may also be your place of work. So, it would be wise to take advantage of the federal rental assistance programs that exist.

Through the Emergency Rental Assistance program, you will be able to pay your rent or utilities if you qualify. You can also be eligible for the funds if you are a property owner whose renters have arrears.

Different states and territories offer funds in various forms. So, do your research on which rental assistance programs are available in your area and apply if you meet the eligibility criteria. It may not be unemployment benefits per se, but every bit helps. After all, you do pay self-employment taxes.

​Read More​: Self-Employed Tax Deductions, Benefits & More

Are the self-employed eligible for unemployment when they become disabled? Yes, they are.

Suppose you are self-employed and contributed towards SSDI. In that case, you may be eligible for benefits if you become disabled and are no longer able to work or participate in gainful activity for at least a year. However, you must have paid into the insurance scheme for the required duration and have accurately filed your returns.

The Social Security Administration (SSA) sets the monthly earnings you can make when engaged in gainful activity while dealing with a disability. In 2022, that amount is ​$1,350​ for non-blind individuals and ​$2,260​ for blind persons. In 2022, the average SSDI benefits will be ​$1,358​ for those who qualify.

It’s safe to say that if you are self-employed, you are unlikely to receive the traditional unemployment insurance benefits. But you are still in a position to qualify for some types of public assistance programs if you meet the eligibility criteria. So, learn your options and determine whether you can obtain the funding you need.