The CARES Act provides many financial benefits to businesses and individuals (though the PPP applications have been a bit of a nightmare), but paycheck protection is not available to sole proprietors who have no official payroll and traditional unemployment benefits are not normally available to sole proprietors or freelancers.
However, there is some relief to these individuals. Specifically, the CARES Act extends unemployment benefits to sole proprietors and freelancers with some limitations.
Who is Eligible?
The eligibility requirements are the same as for normal employees. You must have lost work due to reasons relating to the pandemic. This could include being forced to quarantine or staying home to care for a child or family member due to a pandemic related closing.
However, if you are able to work from home, you do not qualify for unemployment benefits.
How Much Can You Get?
The maximum benefit in Illinois is $471 per week. However, the CARES Act kicks in an additional $600 per week. The tricky thing is calculating your benefits based on your income.
Income can be very difficult for self-employed people to prove. In general, self-employed people try not to show much profit in their business in an effort to reduce their tax obligations. Now those same people will be trying to prove that make more than their tax returns show.
For example, if you are self-employed you may have heard of a concept called the Augusta Rule. I’m not going to go into the details (ask you accountant), but it is a rule that allows individuals to claim large deductions against their income. That may benefit self-employed people come tax season, but right now some of those people are kicking themselves for taking extra deductions.
Let’s also consider a business owner who is paid in cash. This will not surprise anyone, but a lot of cash goes unreported on taxes. Now that cash does not exist, and business owners will have a very difficult time proving their cash-based incomes.
One last consideration, what if you can work from home but your work has slowed? I have no idea whether someone can claim partial unemployment benefits for a slowdown in work. Frankly, I can’t imagine the nightmare of trying to prove the amount you should collect.
Are Benefits Being Paid?
There is a huge influx of applications for unemployment benefits. Over 17 million Americans have applied for unemployment. Illinois is asking that people apply on specific days based on their last names. Individuals with the last name A-M are asked to file their claims on Sundays, Tuesdays, or Thursdays, and those with last names starting with N-Z are asked to file on Mondays, Wednesdays, or Fridays.
Even with the staggered application times, the system is horribly overwhelmed. There have been over 600,000 applications for unemployment benefits in Illinois since the end of March, and although self-employed people and freelancers have become eligible, as of April 9 the State of Illinois was advising those individuals not to apply. I have had no additional word on whether these individuals have been able to apply for benefits.
Now there are concerns that Illinois’s unemployment fund will run out, requiring the state to borrow money from the federal government. This could mean that those receiving benefits may have those benefits cut, especially given President Trump’s potential conflict with Governor Pritzker.
Ultimately it could (and probably will) mean higher payroll taxes for businesses in the future. I am not sure how this will all play out.
If you are self-employed or are a freelancer, and you have questions, please let us know. We are here to help.