As a result of federal and state government actions, there are a number of different programs to assist freelancers and gig workers who have been financially impacted by the COVID-19 pandemic. These include benefits from the Coronavirus Aid, Relief, and Economic Security (CARES) Act as well as other resources. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on Friday, March 27, 2020.
Tax Payment Extensions
The US Treasury Department and IRS have extended the deadline for filing 2019 taxes until July 15, 2020 without penalties or interest. Additionally, the first quarterly payment for 2020 has been extended from April 15 to July 15, 2020. Further extensions for filing federal taxes can be applied for using Form 4868 for individuals and Form 7004 for businesses.
For state taxes, tax deadline extensions vary by state so make sure to check with your state’s tax agency for details.
CARES Act and Benefits for Freelancers
The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides a number of programs and benefits for businesses and individuals – including self-employed individuals (freelancers, independent contractors, gig workers, etc.).
Economic Impact Payments
Individuals are eligible to receive a direct cash payment from the US federal government of up to $1,200 for each adult and $500 per child (if under the income limit of $75,000). The payment does vary depending on income and starts to phase out from $75,000 to $99,000 (or $150,000 to $198,000 for couples filing jointly) using adjusted gross income (AGI) from either your 2019 tax return or 2018 tax return (if 2019 not available). For those individuals without federal tax liability, the payment will be $600. Note that the payment will be reconciled after 2020 tax returns are filed. Depending on your 2020 earnings, you may be required to pay back some of the relief payment or will receive a bigger rebate next year. Additional information can be found in the IRS Economic Impact Payment FAQs.
Economic Injury Disaster Loan (EIDL)
A key financial support option for small businesses (including sole proprietorships) is the Economic Injury Disaster Loan (EIDL). The EIDL program includes an emergency advance option, which provides up to $10,000 in emergency relief. This advance is effectively a grant as it does not have to be repaid. For more information on EIDL, see our post on the CARES Act and financial support for businesses. Applications for EIDL can be made through the Small Business Administration (SBA).
Paycheck Protection Program (PPP)
The Paycheck Protection a (PPP) enables eligible entities to apply for a loan through approved Small Business Administration (SBA) lenders. Sole proprietorships can apply starting on April 3, 2020, while independent contractors and self-employed individuals can apply starting on April 10, 2020. The PPP loans can be used to cover payroll and other certain business expenses (interest on mortgage obligations incurred before February 15, 2020; rent under lease agreements in force before February 15, 2020; and utilities for services in place prior to February 15, 2020). Applications can be submitted until June 30, 2020. PPP loans can be eligible to be forgiven if payroll expenses are kept consistent to the salary paid and the number of employees paid before the COVID-19 pandemic for eight weeks (at least 75% of the PP loan must be used for payroll to be for loan forgiveness eligibility). For more information, consult the Treasury Department’s PPP fact sheet. Note: You cannot receive unemployment benefits and a PPP loan at the same time.
The CARES Act includes several tax relief options for businesses (including sole proprietorships) to receive tax relief: payroll tax credits and deferrals, credits for COVID-19 related paid leave, and loosening requirements and limitations introduced with the 2017 Tax Cuts and Jobs Act (TCJA). Per the latest guidance from the IRS, eligible self-employed individuals can claim an income tax credit equal to their “qualified sick leave amount” or “qualified family leave amount” to offset their federal self-employment tax.
Qualified Sick Leave to Offset Federal Self-Employment Tax
To meet the requirements for qualified sick leave, the self-employed individual must be unable to work because he/she is subject to a federal/state/local quarantine or isolation order related to COVID-19, has been advised to self-quarantine by a healthcare provider due to concerns related to COVID-19, or is experiencing symptoms of COVID-19 and seeking a medical diagnosis. Ten days is the maximum number of days for determining the qualified sick leave equivalent. The sick leave equivalent is calculated by multiplying the number of days (in the taxable year) by the lesser of $511 or 100% of the average daily self-employment income of the individual for the taxable year.
Qualified Family Leave to Offset Federal Self-Employment Tax
Qualified family leave applies if the self-employed individual is caring for an individual who is subject to a federal/state/local quarantine or isolation order related to COVID-19 or has been advised to self-quarantine by a healthcare provider due to concerns related to COVID-19, or is caring for a child if the child’s school or place of care has been closed. 50 days is the maximum number of days for determining the qualified sick leave equivalent. The family leave equivalent is calculated by multiplying the number of days (in the taxable year) by the lesser of $200 or 67% of the average daily self-employment income of the individual for the taxable year.
In both cases, the days in question must be in the period starting April 1, 2020, and ending December 31, 2020. For additional information, consult the IRS FAQs.
For the first time, freelancers, independent contractors, self-employed individuals, and gig workers are eligible to apply for unemployment insurance as a result of the CARES Act. Guidance from the US Department of Labor to states specifies that those who are unemployed, partially unemployed, or unable or unavailable to work due to COVID-19 related reasons are eligible for Pandemic Unemployment Assistance (PUA).
Individuals will be paid an additional $600 per week (through July 31, 2020) in addition to the standard unemployment benefit for their states. For those that remain unemployed, a 13-week extension of benefits is offered (beyond each state’s benefits duration) through December 31, 2020. When applying for unemployment insurance, freelancers will likely need to provide evidence of past income, for example by providing the prior year 1099 tax form. Check your state’s requirements.
Consult the Department of Labor for additional information on Unemployment Insurance Relief.
A variety of other assistance programs, grants, and other resources are available depending on your location. The Gig Worker’s Collective has compiled an extensive list of COVID-19 resources by state.
As news about the implementation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act comes out, we will continue to provide updates on this blog post and additional blog posts. Sign-up for our FlexTeam Newsletter to receive all the latest news about CARES and tips for activating on-demand consultants and advisors.
Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.