Financial Relief for Independent Contractors During Coronavirus

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

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.

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

You Can 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.

However, the Coronavirus Aid, Response, and Economic Security Act (CARES Act) passed by Congress makes independent contractors and gig workers eligible for unemployment for the first time. The CARES Act Pandemic Unemployment Assistance (PUA) program also increases the maximum unemployment benefit by $600 per week through July 31 and extends coverage by an additional 13 weeks, to a maximum of 39 weeks. You need to apply 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.

Sick and Family Leave Tax Credits 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.

You Can Delay Your 2020 Tax Filing and Payments

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, 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. The IRS is still processing refunds and says it takes about 21 days to get them (if there are no problems with your 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.”

You Can Delay 2020 Social Security Tax Payments

When you’re a self-employed independent contractor, you must pay a 12.4% Social Security tax on up to $137,700 in net self-employment income for 2020. You ordinarily pay this tax as part of your quarterly estimated tax payments to the IRS. However, you may defer 50% of your 2020 Social Security taxes until the end of 2021 and 2022. If you choose to do this, you must pay 25% of the deferred amount by December 31, 2021 and 25% by December 31, 2022.

You Can Obtain Affordable Care Act (ACA) Coverage in Many States

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, Colorado, Connecticut, the District of Columbia, Massachusetts, Maryland, Minnesota, 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

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. Unfortunately, you must wait until you file your 2020 tax return to carry back a NOL for 2020 to prior years. 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.”

You Can Make Penalty-Free Retirement Account Withdrawals

If you’re under age 59.5 and have a tax qualified retirement plan, you can withdraw up to $100,00 in 2020 without having to pay the 10% early withdrawal penalty. But you will have to pay regular income tax on the withdrawal over three years unless you pay it back over that time period. Such withdrawals are allowed if you or a spouse or dependent get the coronavirus, or you experience adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, or being unable to work due to lack of child care. All retirement plans come under this rule, including IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, pension plans, 457 plans and 403(b) plans.

If you have a 401(k) or 403(b) plan that permits you to take loans from your account, the amount you may borrow during 2020 has been increased from $50,000 to $100,000. No taxes are due on such a loan, but you must pay it back over five years and pay interest, which is currently 5.25%.

You May Qualify for Low or No-Interest Loans

Even before the pandemic, there were many types of low-interest loans available to small businesses. 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.

SBA Economic Injury Disaster Loans

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 can also get an emergency grant of up to $10,000 while you apply for such a loan. You apply online with the Small Business Administration.

Paycheck Protection Program

Congress has authorized a brand new loan program called the Paycheck Protection Program (PPP). You can borrow up to 2.5 times what you earned each month in 2019 as an independent contractor. These are two year loans with a 0.5% interest rate. However, up to 80% of the loan can be forgiven if you use it for payroll, mortgage interest, and certain other expenses. You apply directly with participating banks and other lenders. The SBA has an online tool called Lender Match that helps you find lenders. Note that you may obtain both a disaster injury loan and a PPP loan.

Other Loans and Grants

There will doubtless be low-interest loans available from many other sources as well. These include the states, local governments, and philanthropies. Grants—money you don’t have to pay back—will undoubtedly be available as well.

Other Help on the Way?

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. Stay tuned.

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