Unemployment For Small Business Owners: Why To Apply, When To Apply, and How To Apply (Without Feeling Shame)

If you’re a business owner, there are two big topics out there right now. The first one is, of course, applying for SBA loans. The other one is unemployment. And not just for any employees that you might have as a small business owner, but as a small business owner yourself.

Sure, it sounds strange to think of a business owner being eligible for unemployment. Who ever heard of unemployment for small business owners, anyway? Seriously, didn’t we give up that “employment” thing to be the boss in the first place?

But with this unprecedented situation, there have been some changes in unemployment eligibility. Some of them extend to include more than just traditional employees, too. 

Now, if you pay yourself a salary as an employee of your own S-Corp, you might know this already (or not!). But if your small business is any other kind of entity, listen up–the new unemployment rules might extend to you as well.

So as a small business owner, what do you need to know?

Here’s a quick rundown about unemployment for small business owners as it stands now:

• Usually it’s not available to business owners unless you’re an S-Corp on payroll. But the new stimulus package expands unemployment insurance to self-employed workers and independent contractors. (Not everyone who is self-employed will qualify, however). 
• It’s funded by a combo of state and federal funds. Check the Unemployment Benefits Finder database to find out how your state is responding to the coronavirus pandemic. You can also begin your application for benefits here.
• The regular rules around unemployment have been extended to people who have lost their jobs after their business shut down due to COVID-19, have been forced into quarantine to prevent the spread of the illness, who cannot work during self-isolation, or have been diagnosed with COVID-19 (or are caring for a family member who has).
• Depending on your state laws, if you’re an LLC owner you may not have to “prove you’re looking for work” (as is usually required).
• Even if you receive unemployment, you must also report income from self-employment.
• Unemployment benefits count as taxable income.

Click here to get more information on all these topics.

Now, let’s get into some common and practical questions:

How do I apply? 

To apply for unemployment for small business owners benefits, visit your state’s unemployment website. You’ll need your Social Security number, your driver’s license or state ID, and the Social Security numbers of any dependents you are claiming.

What documents and information do I need?

• Personal info (SS#, DOB, Address, Phone number) for you and your dependents
• Information about your employment history from the last 15 months, including: names of all employers, plus addresses and phone numbers, work start and end date, and recall date (if you were laid off but have a set date to return to work)
• Bank info for direct deposit

How much will I get?

Depends on how much you’ve paid in and your recent income. With the stimulus package, the law pays laid-off and furloughed workers an extra $600 a week for up to four months. It extends existing state benefits by 13 weeks. It also offers jobless benefits to previously ineligible groups, such as gig workers and freelancers.

Does it impact my taxes?

If you collect unemployment, at the end of the year you will get a 1099-G. This is not considered business income, and it’s recorded separately on your taxes. Even if you volunteer to withhold federal taxes it may not be enough to cover what you could potentially owe. Be sure to set aside a portion for taxes. 

What if I am on Payroll in my own business?

Let’s look at two specific situations here:

If you are an S CORP on payroll in your own business, you can “fire” yourself and collect unemployment. You’ll have to stop payroll, and you’ll still have to record any self-employment income against income collected by unemployment.

If you carry Workers Compensation insurance (as some states require it if you are on payroll). If you contracted the virus for any work-related reason, you (or your employees) could be eligible for workers compensation. If you qualify, you can receive payments to partially replace your paycheck and help cover medical care related to your injury. In most cases, a claimant is not eligible for both unemployment benefits and workers compensation. Also keep in mind that getting worker’s compensation now might increase your insurance premium in the future.

What if I need to shut down my business? 

If you need to close your business, check out my blog on how to do this properly. If you close down your business and start a new LLC, keep in mind Unemployment might see this as being “hired” for a new job and you might not continue to qualify for benefits.

What if I feel weird collecting Unemployment Insurance?

People have mixed feelings about collecting unemployment without “earning it”. Shame is the most common emotion I hear people express. But the truth is, you have earned it. You’ve paid into the system for years for this specific reason.

If you are feeling resistance to the idea of collecting unemployment for small business owners, you’re not alone. My suggestion is to grab a pen and paper, and journal out your feelings. This is a great opportunity to find a deeper level of connection and communication with your money journey. (P.S. if this is something you need support around, I’m only a phone call away!)

How do I plan for my business during this gap? 

If you plan on re-launching once this self-quarantine is over and need a plan to bridge the gap between now and then (and can sustain the few months of a lull with or without financial assistance) here are some things to consider doing:

• Review your budget (personal and business) and cut any extras and work within your “new means”
• Get creative with revenue streams (this can actually be the fun part!)
• Work on your marketing plan for when things get back to a “new normal”
• Streamline your operations. You don’t normally have all this time to look at the back-end of operations. Take this time to tidy up contracts, create training videos, write up an operations manual–anything that you normally don’t make time for. 
• Work on a passive income product (again, have some fun with this one!)
• Survey your clients and prospects and see what they want and need
• Reach out and get support. Self quarantine is not self isolation! 

While we’re on the subject, here are a few additional ways to cover the gap (instead of or in addition to all of the above).

• Using the upcoming rebate checks
• Borrowing against your 401(k)–you can do this penalty free for up to $100,000 if your situation is coronavirus related
• Applying for an SBA loan
• Getting a 0% APR credit card (note: do this if and ONLY if you have a plan to pay it off!)

Whew, quite the number of options, isn’t it? The good news is that there are multiple ways to cover the gap, unemployment benefits now being one of for small business owners like you. 

You got this.

Until next time…

Love, Light, and MONEY, Honey…

Kaylee