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.
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.
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.
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.
You can find a link to your state health insurance exchange at healthcare.gov.
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.
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.
You apply for EIDL loans and grants online at the Small Business Administration.
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).
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:
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.”