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Debt Management

Financial strategies if you’re self-employed

If you've lost income due to the pandemic, you have options under the CARES Act


The CARES Act extends some unemployment benefits to those who are self-employed – plus deferred tax, student loans and mortgage payments.

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The coronavirus pandemic has delivered a punch to many Americans’ wallets. And if you’re self-employed or do gig work, you may be wondering what it all means for your finances. Relief, however, is available in the form of the Coronavirus Aid, Relief and Economic Security (CARES) Act.

“The centerpiece of the government’s economic response to the pandemic is the CARES Act, which specifically includes sole proprietors, independent contractors and self-employed people,” says Jon Bacon, associate wealth advisor at Harris Financial Advisors in Torrance, California.

This act includes some wide-ranging provisions designed to protect business owners. These tips can help you manage your finances and credit wisely as you navigate the economic uncertainty surrounding COVID-19.

Unemployment benefits extended to include self-employment

Unemployment benefits can help cover living expenses when you’re out of work. Being self-employed would ordinarily disqualify you from receiving benefits, but that’s no longer the case, at least temporarily.

The CARES Act includes Pandemic Unemployment Assistance (PUA), which covers nontraditional workers. The program provides up to 50% of the average weekly benefit amount that unemployment pays to workers in your state. So, if your state’s average weekly benefit is $600, you could receive up to $300 per week in benefits, depending on your income.

You could receive additional benefits through the Federal Pandemic Unemployment Compensation (FPUC) Program. This program provides a federal unemployment benefit of $600 per week for people who are eligible to receive unemployment benefits, including PUA. That program extends through July 31, 2020.

To take advantage of these benefits, you’ll need to file for unemployment with your state’s unemployment agency. While it varies from state to state, here’s what you might need to complete your application:

  • Driver’s license or state ID number
  • Social Security or other tax identification number
  • Proof of self-employment income, including 1099s, your most recent tax return and bank statements
  • Bank account information if your state pays unemployment benefits via direct deposit

Claims can be filed online or by phone, but be prepared for delays, says Richard M. Prinzi, Jr. CEO of Professional Tax Alliance.

“The state computer systems are not capable of quick adjustments, so this is taking time if you have no W-2 in the last two quarters,” he says.

Plus, a record number of Americans are filing for unemployment in the wake of COVID-19, so you could be waiting several weeks to have your claim approved and for benefits to start flowing in.

Prinzi also says to keep in mind that while federal unemployment benefits are retroactive, states may adopt a different policy about backdated benefits. Even if you don’t need the benefits right now, it may still be helpful to review your state’s guidelines for eligibility and how to file a claim. That way, you’re prepared in case your self-employment income dries up completely.

Tax filing deadlines for quarterly taxes, income taxes pushed back

The government has also given Americans, including self-employed business owners, more time to prepare and file their tax returns. The new filing deadline for income tax is July 15, 2020. If you’re expecting a refund, don’t delay filing your taxes.

If you owe money, however, you will have more time to pay, since payment due dates for estimated quarterly taxes have also been adjusted.

Estimated quarterly taxes must be paid if you expect to owe more than $1,000 in taxes for the year if you’re self-employed. Ordinarily, these payments are due in April, June, September and January of the following year.

The schedule has been adjusted for 2020:

  • Payment 1: Due July 15, 2020
  • Payment 2: Due July 15, 2020
  • Payment 3: Due September 15, 2020
  • Payment 4: Due January 15, 2021

If your self-employment income is down because of COVID-19, you may be debating whether it makes sense to delay estimated quarterly tax payments and filing your income tax return if you haven’t yet.

Waiting could give you more time to set aside the money you need to cover your estimated tax liability for quarterly payments. It won’t affect your filing for 2019 return, either.

Self-employment tax breaks are expanded

Aside from having more time to file your taxes, the CARES Act provides a couple of other tax benefits for the self-employed.

First is the option to defer paying the Social Security portion of self-employment tax. Social Security represents 12.4% of self-employment tax: The rest consists of Medicare taxes.

The CARES Act rules would let you put off paying Social Security tax, with half the amount owed due at the end of 2021 and the rest due at the end of 2022. Deferring taxes temporarily could help you keep more money in your pocket if your business or gig work has taken a significant hit due to the coronavirus pandemic.

The act also includes paid sick leave for self-employed workers. The credit can be claimed for up to 10 sick days and is available through the end of 2020.

You don’t need to have coronavirus to claim the credit. As long as you’re subject to a quarantine order or your doctor has recommended self-quarantining, you can take advantage of this. Additional credits are available if you’re taking care of someone who’s under a self-isolation order or children who are unable to go to school.

Consider small business loans, credit cards carefully

To help businesses during the coronavirus pandemic, the Small Business Administration has expanded its lending program to include emergency funding relief.

Specifically, there are three programs you might be interested in if you’re self-employed:

  • Economic Injury Disaster Loan Advance:  This program provides up to $10,000 in emergency funding for eligible business owners who have been affected by COVID-19.
  • SBA Express Bridge Loans: You can borrow up to $25,000 if you already have an existing relationship with an SBA Express lender.
  • SBA Debt Relief: If you already have an eligible SBA loan, you can temporarily defer payments for six months.

Prinzi says even if you’re a small-scale freelancer or gig worker, it may be worth applying for an advance disaster relief loan or other funding options from the SBA.

See related: 8 small business grants that can help you stay afloat

Funding for loans can take time, so you may be able to get approved for a business credit card faster. A cash back business credit card could prove most valuable right now, with so many restrictions on travel.

If you have an existing balance on a business credit card, a balance transfer card could help you save significant interest.

“A balance transfer can provide some payment and cash flow relief in the short-term if that’s what’s needed, while also saving money on interest costs,” says Chad Rixse, director of financial planning and wealth advisor at Forefront Wealth Partners.

If a balance transfer isn’t possible, Rixse advises other options to manage debt, including credit card hardship programs or a personal loan. With interest rates at zero, a personal loan could be an attractive option if you have a good credit score.

If you opt for a balance transfer, don’t do it without a plan, says Bacon.

“Understand how much you’ll be able to pay off during the promotional period to see whether it’s worth it or not,” he advises. And don’t forget to add in any balance transfer fee.

See related: Pros, cons of transferring business card balance to a 0% personal card

Other CARES Act benefits

Though not specific to self-employed individuals, the CARES Act includes other provisions that offer further relief.

Payments to federal student loans are being placed in administrative forbearance from March 13, 2020, through September 30, 2020. During this time, your loans will not accrue interest. If you have an eligible loan with an eligible lender, you can also get a temporary reprieve from mortgage payments.

The CARES Act also allows self-employed workers and independent contractors to receive stimulus checks if they’re income-eligible. The maximum payment per person is $1,200, with a $500 allowed per child for families.

If you’ve been saving in a SEP or SIMPLE IRA, which are designed for self-employed workers, the CARES Act makes it easier to tap into that money if you need cash. There are no penalties for early withdrawals up to $100,000 from IRAs, though distributions are taxable.

But income taxes owed on these withdrawals may be spread out over three years, says Bacon.

“Alternatively, withdrawals may be rolled back into retirement accounts within three years,” he said.

What you can do

The coronavirus pandemic is changing the way everyone manages their finances. It can be even more complicated for those who are self-employed.

Bacon suggests using this time when everyone is at home to consider new products or services you could develop to help boost your income. And work on delivering as much value possible to the clients and customers you already have, so they’ll remain loyal to your business during hard times.

Cutting spending and getting rid of expenses you can do without, either personally or in your business, is an obvious next step, says Rixse. When you can’t cut an expense, look for a lower-cost alternative.

And if you’re receiving unemployment benefits, remember that it’s only temporary. You need to have a plan for when that safety net is removed, says Rixse. If you’re able to set aside anything in savings right now, doing so could help make the transition easier once unemployment benefits come to an end.

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