There are millions of independent contractors in the United States. Also called freelancers or self-employed, they do everything from driving for Uber/Lyft to performing advanced computer programming. Like everyone else, they have been severely impacted by the economic dislocation caused by the coronavirus pandemic. Here is a guide to help that is and is not available to the nation’s independent contractors.
When you’re an independent contractor, you’re in business for yourself. You are not anybody’s employee. So, you don’t qualify for state employee benefit programs like unemployment insurance, employer-paid sick leave, or family medical leave. These are for employees, not you. The only exception is that in some states independent contractors are allowed to pay to join some of these programs. But very few contractors actually do so.
However, all is not bleak for the self-employed. Congress has enacted the "Families First Coronavirus Response Act" which includes special sick leave and family leave tax credits for the self-employed.
You can qualify for the sick leave credit if you have to self-isolate, are experiencing symptoms and need to obtain a diagnosis, or comply with a self-isolation recommendation for coronavirus. You qualify for the family leave credit if you have to care for a son or daughter under 18 years of age whose school or place of care has been closed due to coronavirus.
The sick leave credit is equal to 100% of the average net self-employment income you earn per day for a maximum of 10 days. The credit is capped at $510 per day.
The family leave credit is equal to 67% of the average self-employment income you earn per day for a maximum of 50 days. But the credit is capped at $200 per day. Thus, the maximum credit is $10,000.
To calculate the credit, you must determine your average daily net self-employment income. To do so, divide your total 2020 net self-employment income by 260. For example, if your 2020 net self-employment income is $70,000, your daily self-employment income is $269. Your sick pay credit is a maximum of 10 days x $269 = $2,690. Your family leave credit is $200 per day for up to a maximum of 50 days.
These credits are refundable, meaning you get the full amount even if you end up with a negative tax liability. For example, if you owe $1,000 in total taxes and qualify for a $2,500 credit, you won't have to pay any taxes and the IRS will send you a check for $1,500. The credits apply to both income and self-employment taxes (Social Security and Medicare tax).
You won't actually collect these credits until you file your 2020 taxes in 2021. But, if you qualify for either or both credits, you should reduce (or eliminate) your estimated tax payments to the IRS during 2020 to take the amount of your credit into account.
These highly innovative tax credits are a temporary measure that are only available for 2020.
The deadline to file and pay 2019 income taxes has been extended by 90 days. This means that you do not have to file your 2019 tax return or pay any 2019 taxes you owe until July 15, 2020. If you file an extension to file, you can delay filing your return until October 15, 2020; but you'll still be required to pay any 2019 tax you owe by July 15.
If you're owed a refund by the IRS, you should file your tax return as soon as possible. you won't get your refund until you file your 2019 tax return.
Most self-employed people pay estimated taxes to the IRS four times per year. The first 2020 estimated tax payment for 2020 is ordinarily due on April 15. This deadline has also been extended to July 15.
It’s expected that all or most states will follow the IRS and extend their tax filing and payment deadlines as well.
For more details, see Nolo’s article “IRS Extends 2019 Income Tax Payment Deadline In Response to Coronavirus.”
Health insurance is no longer mandated for individuals in the vast majority of states, so some independent contractors don’t have it. If you’re one of these, check with your state health insurance exchange. You may be allowed to obtain Affordable Care Act (ACA) coverage through your state exchange right now. Several states are classifying the pandemic as a special enrollment event to allow uninsured state residents to obtain coverage. The states that have already done so include: California, Connecticut, the District of Columbia, Massachusetts, Maryland, Nevada, New York, Rhode Island, and Washington state. Others may do so as well.
Depending on your income, you may qualify for tax credits to cover much of the cost of the health insurance premiums for yourself and your family. But, you can qualify for these credits only if you obtain your health insurance through your state exchange.
If you already have health insurance coverage through your state exchange and are paying premiums, you may qualify for premium tax credits or increased credits if you expect your 2020 income to decline. You must notify your exchange of your lower income.
You can find a link to your state health insurance exchange at healthcare.gov.
If your business loses money this year, you can get a tax deduction. However, as the tax law currently stands, this deduction is limited. Due to the enactment of the Tax Cuts and Jobs Act in 2018, you may deduct your net operating loss (NOL) only against up to 80% of your 2020 taxable income. This may include, for example, your spouse’s income or investment income. Unused NOL amounts may be carried forward and deducted in any number of future years.
The TCJA also limits deductions of “excess business losses” by individual business owners. Married taxpayers filing jointly may deduct no more than $500,000 per year in total business losses. Individual taxpayers may deduct no more than $250,000.
Before 2018, if a business had an NOL, it could be carried back two years, resulting in a refund of all or part of the taxes paid in those years. The TCJA eliminated carrybacks of NOLs—that is, they may only be deducted in current and future years.
It’s highly likely that Congress will amend the tax law again to provide a more generous deduction for NOLs, including permitting them to be carried back to past years so you can obtain a refund on past taxes. The details are still being worked out.
For more on deducting NOLs, see Nolo’s article “How to Deduct Business Losses and Net Operating Losses.”
Even before the pandemic, there were many types of low-interest loans available to small businesses. These loan programs are going to be vastly expanded. Congress has already added millions in additional funds to the Small Business Administration’s Economic Injury Disaster Loans. These loans have a 3.75% interest rate. You can qualify for such loans if you don’t have access to credit elsewhere and need the money to pay for business expenses you can’t pay due to the pandemic. For more information, check with the Small Business Administration.
Congress is currently working on additional loan programs. There will doubtless be low-interest loans available from many other sources as well. These include the states, local governments, and philanthropies. The SBA has an online tool called Lender Match that helps you find lenders.
Grants—money you don’t have to pay back—may be available as well.
If the crisis grows more severe and economic conditions continue to deteriorate both the federal and state government may provide additional help to the self-employed. So, stay tuned.