Federal and state governments have implemented social segregation policies and forced the closure of unimportant businesses to prevent the COVID-19 outbreak. Due to the effects of lost sales and forced closure, businesses have struggled. Many workers in non-essential industries have received unemployment benefits, but small business owners often aren’t covered by standard government unemployment insurance (UI).
How do small business owners apply for government UI given the unusual conditions brought on by the COVID-19 pandemic? Small company owners now have easier access to unemployment benefits because of new federal legislation. Which benefits small business owners can receive and how to do so are covered in this article.
Can owners of small businesses file for unemployment benefits?
Due to the COVID-19 outbreak, government UI regulations have altered. The federal government had to modify government UI. It’s due to the spike in unemployment rates across the nation to provide relief for people and support economic growth.
Standard rules for unemployment insurance
Only employees are eligible for government UI before the COVID-19 epidemic. Businesses like sole proprietorships, LLCs, and other types of corporations were typically not eligible to file for unemployment benefits. In other words, self-employed people have a constrained number of advantages.
Individuals would need proof that they both own their business and work there as an employee to be eligible for benefits. This indicates that rather than using a 1099 form, the individual provides their information on a Form W-2. That is to say, the Wage and Tax Statement Form.
Like other employees, these self-employed people must also show that they no longer qualify as employees. That they are actively looking for work to be eligible for unemployment benefits.
The person would have to expressly identify their job inside their business to show employee status. This frequently includes positions with specific responsibilities like CEO, president, or director. They would then have to present documentation and other proof of activity. This is to show that they consistently carry out the tasks associated with the designated function.
Benefits from unemployment insurance during COVID-19
It became evident that regular government UI access was insufficient in 2020. Trying to address rising unemployment rates as COVID-19 caused firm closures and decreased sales. Therefore, this Act comes from the federal government. This $2.2 trillion economic stimulus package helps manage the COVID-19 pandemic’s impacts.
The Department of Labor expanded the qualifying standards under the CARES Act. The Act was to encompass those who lack protection under the previous regulations. This implies that self-employed people, including sole entrepreneurs, LLCs, independent contractors, and gig workers, can apply for government UI benefits.
Eligibility for government UI for small business owners
Small business owners may be eligible for government UI compensation. That is to say, if they have lost income or employment due to COVID-19. The CARES Act has increased flexibility regarding eligibility requirements. Requirements such as the need for people actively looking for new jobs. The following requirements must be satisfied for small business owners to be qualified to receive government UI benefits:
- They lost their employment as a result of COVID-19.
- Due to the advice of healthcare recommendations, they must remain in quarantine.
- Except for limitations caused by COVID-19, they are readily available and capable of working.
- They are a sole proprietor, a single-member LLC, a freelancer, a gig worker, or another type of independent contractor.
- They are required to care for family members and dependents to the point of being unable to work
- They had to close their business due to COVID-19-related issues because they needed other services to help them care for their dependents.
The following questions on their application may also need to be answered positively by small business owners:
- Did they work for a sole proprietorship or hold a specific role and earn compensation?
- Do they have an unemployment tax filing and payment history?
- Have they lost their status as employees?
- Are they actively seeking employment?
Even if they fulfill some of the requirements above, small business owners may not be eligible if:
- They have the option of working remotely or doing their business from home.
- They had paid sick or parental leave.
- Their company shut down for unrelated to COVID-19 causes.
- They land a new job.
- A manual on unemployment benefits to owners of small businesses
Federal and state governments increased benefits and durations in addition to new government UI rules for small business owners. Each state is in charge of managing a different government UI program. Therefore the amount of benefits a small business owner is eligible for differs depending on the state their company resides.
Regularly paid unemployment benefits
A small business owner may submit a claim if they qualify for normal unemployment benefits. Depending on the state, claim amounts range from roughly $200 to $500 weekly. States might also have unique eligibility criteria.
Assistance for pandemic unemployment
Small company owners and self-employed people can apply for unemployment benefits through Pandemic Unemployment Assistance (PUA). PUA comes from the CARES Act to offer benefits to persons who might not be eligible for traditional government UI. Claimants must not be ineligible for standard unemployment benefits to participate in PUA. Due to COVID-19 pandemic-related health and financial issues, they must be unable to work.
PUA offers benefits for up to 39 weeks. Retroactively beginning on or after January 27, 2020, these benefits are accessible. Benefit levels, like those for regular government UI, vary by state and are based on weekly benefit amounts.
Federal unemployment benefits during a pandemic
Emergency scheme known as the Federal Epidemic Unemployment Compensation (FPUC) now exists to assist those impacted by the pandemic. For people receiving either standard unemployment or PUA benefits, it offers a flat supplementary compensation. It used to provide an extra $600 every week, but now only provides $300. Although the federal deadline for this program is September 6, 2021, many states have chosen to stop it earlier.
Emergency unemployment compensation due to a pandemic
The PEUC program is a short-term emergency program sponsored by the federal government under the CARES Act, like PUA and FPUC. PEUC works to prolong unemployment benefits to those who have used up their standard unemployment benefits, PUA, or FPUC.
When PEUC was adopted, it offered up to 13 extra benefit weeks. The American Relief Plan Act extended it. Which brings the maximum number of benefit weeks available to 53 weeks before it expires in September 2021.
U.S. Rescue Plan
Up to September 6, 2021, the American Relief Plan continued to provide unemployment benefits. Benefits such as standard unemployment compensation, PUA, FPUC, and PEUC. If their income is under $150,000, the first $10,200 unemployment benefits received by small business owners and other self-employed people may be tax-free.
How can you submit a claim for benefits under a small company for government UI?
Small business owners must file for PUA or normal government UI to get benefits under the latter. Before choosing which to file, people should review the eligibility conditions.
Once they have located the appropriate State government UI agency, they can apply with the state where their firm resides. Small business owners must fill out two forms: one as an employer and one as a business owner.
States have different needs for papers. Owners of small businesses should make sure they have the following records on hand:
- Their EIN (Employee Identification Number)
- Both personal and business tax returns
- Pay stubs from the previous year
Small business owners may be automatically included in claims for FPUC and PEUC if they submit a claim to get permission to receive benefits. If not, they must submit additional applications by their state’s regulations.
Some small business owners might use the COVID-19 tax relief. The loans, and funds provided for small enterprises as an alternative to filing unemployment benefits.