Financial Relief for Independent Contractors During Coronavirus Outbreak

Learn about resources available to independent contractors (ICs) impacted by the coronavirus (COVID-19) pandemic.

By , J.D. · USC Gould School of Law

There are millions of independent contractors (ICs) 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 (COVID-19) pandemic.

Congress has tried hard to help independent contractors during the pandemic. It has enacted successive waves of legislation providing them with benefits never before available to the self-employed.

Here is a guide to help available to the nation's independent contractors.

Independent Contractors Can Now Collect Unemployment Benefits

Ordinarily, independent contractors can't collect unemployment from their state unemployment insurance agency when they are out of work. This is because they are not employees and ordinarily do not pay unemployment taxes (nor do their clients pay such taxes for them).

However, the Pandemic Unemployment Assistance (PUA) program passed by Congress in mid-2020 made independent contractors and gig workers eligible for unemployment for the first time starting March 2020, and increased the minimum benefit by $600 per week. PUA benefits were scheduled to expire March 14, 2021, but have now been extended through September 6, 2021 by the American Rescue Plan Act (ARPA). Independent contractors can collect up to 79 weeks of benefits (up to 86 weeks in states with high unemployment). ARPA also increases the maximum unemployment benefit by $300 per week through September 6, 2021.

You need to apply for unemployment benefits through your state unemployment office. Each state has its own eligibility requirements, benefit amounts, and application procedures. You can find a link to your state unemployment office at the Unemployment Benefits Finder.

2020 Unemployment Benefits Are Tax-Free

Unemployment benefits are ordinarily taxable income. However, under the American Rescue Plan Act (ARPA), up to $10,200 in unemployment benefits paid during 2020 are tax free--they don't count as income. If you and your spouse both received unemployment during 2020, $10,200 to each of you is tax-free for a total of up to $20,400.

However, this tax free benefit is available only if your household income (adjusted gross income) is under $150,000 (not counting 2020 unemployment payments). The $150,000 ceiling is the same for singles and married taxpayers. If your 2020 household income is over the ceiling, you can reduce it by making contributions to an IRA, self-employed retirement plans such as a 401(k), or a health savings account. You can make such contributions by the due date for your return (May 17, 2021) and deduct them from your 2020 income.
If you've already filed your 2020 taxes and obtained unemployment in 2020, you don't need to amend your 2020 tax return to get a refund. The IRS is working on a way to send it to you automatically.

Sick and Family Leave Tax Credits for the Self-Employed Extended to 2021

Previous COVID-19 relief legislation created new sick leave and family leave tax credits for the self-employed. These were for 2020 only. However, the American Rescue Plan Act extends these credits to sick and family leave taken during April 1, 2021 through September 30, 2021.
  • Sick leave credit: You qualify for the sick leave credit if you can't work or telework because you have to self-isolate or quarantine, are experiencing symptoms and need to obtain a diagnosis, have been exposed to COVID-19 and are unable to work pending test results, need to get vaccinated, or are recovering from a vaccination. 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 $511 per day. Thus, the maximum credit is $5,110.
  • Family leave credit: You qualify for the family leave credit if you can't work or telework because 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 COVID-19; or you're caring for any person subect to a quarantine order or advised by a health care provider to self-quarantine. 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. Divide your total 2021 net self-employment income by 260. For example, if your 2021 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.
You claim this credit when you file your 2021 taxes.

Affordable Care Act (ACA) Coverage More Affordable

Many independent contractors obtain health insurance coverage through their state health insurance exchange established under the Affordable Care Act (ACA; also called Obamacare). However, ACA coverage can be expensive. Depending on your income, you can qualify for a premium tax credit to help pay for your coverage.

However, under the normal ACA rules the premium tax credits are only available to enrollees whose family income is less than 400% of the federal poverty level. This is only $51,040 for a single person and $104,800 for a family of four. If your income exceeds the threshold by even one dollar, you get no financial help to purchase ACA coverage.

The American Rescue Plan Act has temporarily abolished the ACA subsidy cliff. For 2020 and 2021, Americans who earn over 400% of the federal poverty level are required to pay no more than 8.5% of their household income for ACA health insurance. Regardless how high their income, they are entitled to a premium tax credit to the extent the cost of the silver benchmark plan in their area exceeds 8.5 per cent of household income.
Many independent contractors will qualify for premium tax credits for the first time; others will get larger credits. For example, if your income is $100,000, you are required to pay no more than $8,500 for ACA coverage. If a silver plan for your family costs $15,000, you are entitled to a $6,500 premium tax credit.
If you have no health coverage, you can enroll right now during a special enrollment period scheduled to last through May 15, 2021. If you obtain individual health coverage outside your health exchange, you should consider whether it's worthwhile to switch to Obamcare--you can only receive premium tax credits if you get your coverage through your state health exchange.

You can find a link to your state health insurance exchange at

SBA Loans and Grants

Even before the pandemic, there were many types of low-interest loans available to small businesses through the Small Business Administration (SBA). These loan programs have been vastly expanded. For more information, see New SBA Loan Programs Offer COVID-19 Relief: Economic Injury Disaster Loan Program (EIDL) and the Paycheck Protection Program (PPP) for more information.

Economic Injury Disaster Loans and Grants

Congress has added millions in additional funds to the Small Business Administration's Economic Injury Disaster Loans (EIDL) program. These loans are available up to $2 million and have a 3.75% interest rate. Payments can be deferred for up to four years. You can qualify for such loans if you need the money to pay for certain business expenses that you can't pay due to the pandemic.

Independent contractors impacted by the COVID-19 pandemic can also obtain EIDL grants from the SBA. These are grants up to $10,000 targeted to businesses in low-income communities. The grants are tax-free.

You apply for EIDL loans and grants online at the Small Business Administration.

Paycheck Protection Program

The SBA's most popular loan program during the COVID-19 pandemic has been the Paycheck Protection Program (PPP) loan program. You can borrow up to 2.5 times what you earned each month in 2019 or 2020 as an independent contractor up to $20,833.These are two year loans with a 0.5% interest rate. However, 100% of the loan is forgiven if you use it for business expenses, including paying yourself, during either the 8 week or 24 week period after you received the loan.

"Forgiveness" means you don't have to pay the loan back. The forgiven amount of the loan is tax-free and you can still deduct expenses you paid with the loan proceeds.

PPP loans proved so popular, Congress expanded the program to allow two separate loans: first round PPP loans and second round loans for those who already received a PPP loan. You are eligible for a second round PPP loan only if your business experienced at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.

The PPP loan program has been extended through May 31, 2021.

You apply directly with participating banks and other lenders. The SBA has an online Lender Match tool that helps you find lenders, or view lenders near you on an SBA map. Note that you may obtain both an EIDL and PPP loan (as well as unemployment benefits).

Other SBA Loans

Paycheck Protection Program loans and Economic Injury Disaster Loans have gotten the most attention, but the SBA has several other loan programs that pre-date the pandemic and don't require a disaster for eligibility. These include:

  • 7(a) loans: general small business loans of up to $5 million,
  • 504 loans: loans of up to $5.5 million to provide financing for major fixed assets such as equipment or real estate, and
  • microloans: short-term loans of up to $50,000 for small businesses.

You Can Deduct Your Business Losses Against Other Income

If your business loses money, you can get a tax deduction. Congress has amended the tax law to make it much easier for all business owners, including independent contractors, to deduct net operating losses (NOLs). Under the new rules, you can deduct an NOL incurred in 2018 through 2020 against 100% of your other income for these years. NOLs incurred during 2018-2020 can be carried back five years to reduce taxes paid in those years. This can result in a quick tax refund from the IRS, a huge help in this time of economic stress. To obtain such a refund, you must file IRS Form 1045 or Form 1040X.

For more on deducting NOLs, see Nolo's article "How to Deduct Business Losses and Net Operating Losses."

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