Cares for the Self-Employed
Self-Employed (SE) individuals (1099 or “gig” workers) and Sole Proprietors have many of the same options for relief under the CARES ACT as many employer small businesses.
• Eligible SE individuals can apply for Economic Injury Disaster Loan (EIDL) and Payroll Protection Program (PPP) loans through the US Small Business Association.
• Employer Sole Proprietors and SE individuals that do not take out or qualify for EIDL or PPP loans are eligible for employer credits under the Families First Act.
• Under the Families First Act, Sole Proprietors and SE individuals that are directly affected by COVID-19 are eligible for Sick Leave as well as Family & Medical Leave. If they have employees, they are eligible for some accompanying credits.
• Self-employment tax payments deferrals are available.
• Under the CARES ACT, SE individuals unable to work due to COVID-19 are eligible for unemployment.
• They are also eligible for deferral of the employer portion of their FICA tax payables.
SE individuals are eligible to apply for an Economic Injury Disaster Loan (EIDL) and a Payroll Protection Plan (PPP) loan.
Highlighted benefits of these loans for SE individuals:
• No lender fees, no recourse and payment deferrals are built in. No personal guarantee or collateral required for PPP, EIDL requires guarantees for loan amounts at or above $200,000, and collateral requirements for loans at or above $25,000.
• Government-pledged quick turnaround with PPP Loan forgiveness up to 100%
• Bank loan document requirements for the self-employed: PPP application, tax returns with Schedule C information, business financials and 2019 quarterly payroll files if W-2s are filed.
Self-Employed requirements and benefits of the Families First Corona Virus Response Act (FFCRA)
Sole Proprietors are eligible for Sick and Family/Medical benefits provided under the FFCRA if they “regularly carry on business” (Section 1402 - link below) and were a W-2 employee.
• When figuring their “average daily self-employment income” SE individuals should take their net earnings from self-employment for the year and divide it by $260.
• Self-employed individuals are not entitled to the Health Insurance Credit provided under FFCRA.
If a Sole Proprietor employs W-2 individuals, they are subject to the FFCRA employer requirements.
• Payroll credits will be taken as credits on IRS Form 1040 instead of Form 941 and are intended to reduce a self-employed individual’s quarterly tax estimate burden.
• The DOL provides limited exemptions for the self-employed in regards to the FFCRA in cases where providing leave jeopardizes the “viability of the business as a going concern”, “if the absence of an employee involves substantial risk to the financial health or operations of the employer” or “if there are not sufficient workers to operate at minimal capacity”. See link to FFRCA posting in the Federal Register below.
Under the CARES Act, many SE individuals who were previously ineligible for unemployment now are eligible.
In general, 1099 contractors should be eligible for the $600 per week Federal COVID addition plus half of the average unemployment benefit in their state. To qualify for benefits, SE individuals must prove that they have lost work due to the pandemic and will be required to submit information related to their income, so it is best to have 2019 tax information on hand.
Because employers can defer payment for the employer portion of payroll taxes incurred between the date the CARES Act was enacted through December 31, 2020, SE individuals can defer the employer’s portion of Social Security taxes in their Self-Employment Tax. If deferred, SE individuals would pay 50% of their 2020 amount due by December 31, 2021, and the remaining 50% by December 31, 2022.
https://content.sba.gov/sites/default/files/2020-04/PPP--IFRN%20FINAL.pdf (clarifies 1099 contractor eligibility for PPP loans)