If you’re self employed, you have some pandemic relief options. Here’s what you need to know.
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.
“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,” Jon Bacon, associate wealth advisor at Harris Financial Advisors in Torrance, California, said earlier this year.
Though some aspects of the CARES Act have expired, Congress is negotiating a second stimulus package that will likely contain similar benefits. If you are self-employed, these tips can help you manage your finances and credit wisely as you navigate the economic uncertainty surrounding COVID-19.
Financial strategies for the self-employed
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.
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.
Self-employment tax breaks are expanded
The CARES Act provides a couple of 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.
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 credit cards carefully
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.
“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.
A new stimulus bill
The CARES Act included multiple other relief provisions like student loan relief and increased unemployment payments that have since expired. While Congress is currently negotiating a new stimulus bill, the timeline for this – and the specific relief it would offer – is in question. While the Democrat-led House and Republican-led Senate agree on certain aspects of a new stimulus bill, a major point of disagreement is a second round of stimulus checks.
If Congress can’t reach consensus soon, a new stimulus bill might not pass until after the presidential inauguration. President-elect Joe Biden is pushing for many of the same benefits as congressional Democrats, including stimulus checks. But even after Jan. 20, this could still be in question, since the Senate majority will be determined by two runoff elections in Georgia.
For the past several months, Senate Republicans have pushed for a cheaper approach to a new stimulus bill, and that excludes stimulus checks. If Republicans retain control of the Senate, their position will likely stay the same as it has been.
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.
Cutting spending and getting rid of expenses you can do without, either personally or in your business, is an obvious step, says Rixse. When you can’t cut an expense, look for a lower-cost alternative.
Bacon also suggests using this time 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 these hard times.