How the CARES Act expands unemployment benefits

Tax Law and News tax client

Due to the economic effects of COVID-19, many business owners made the difficult decision to lay off or furlough their employees. As a result, a record-breaking number of workers filed for unemployment pay.

On March 27, the president signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. The CARES Act’s Pandemic Unemployment Assistance (PUA) program injects $2 trillion into the U.S. economy through a combination of small business loans, stimulus checks, tax credits, and more.

The CARES Act also includes provisions that expand and extend unemployment benefits to workers who would not have been eligible to apply. Now, eligible workers include self-employed workers, independent contractors, and freelancers or “gig” workers.

Who is eligible for employment benefits under the CARES Act?

Workers who may be eligible for unemployment benefits under the CARES Act must be unemployed, partially unemployed, or unable to work due to the coronavirus.

Eligible workers also include those who:

  • Have been diagnosed with COVID-19
  • Are caring for a family or household member who has been diagnosed with COVID-19
  • Have children whose schools have closed or child care providers are unavailable due to COVID-19
  • Are unable to work due to an imposed quarantine
  • Were advised to self-quarantine by a medical professional
  • Were scheduled to start a new job but have not started due to COVID-19
  • Had to quit a job as a direct result of COVID-19
  • Cannot work because their place of employment closed due to COVID-19
  • Were laid off from a new job and did not have sufficient work history to be eligible under normal circumstances

How does the CARES Act expand unemployment coverage?

The CARES Act expands unemployment PUA coverage to workers who are not eligible for unemployment benefits under state law traditionally. These workers include:

  • Part-time employees
  • Self-employed workers
  • Sole proprietors
  • Independent contractors
  • Freelance or “gig” workers
  • Workers who have a limited work history
  • Workers who have exhausted their regular unemployment benefits

Who is not eligible for employment benefits under the CARES Act?

Workers who can telework from home for pay or are receiving paid leave are not eligible for unemployment benefits under the CARES Act. Workers who quit voluntarily and without good cause, or were fired for misconduct as defined by state law, aren’t eligible for unemployment benefits.

Are small business owners eligible for unemployment benefits under the CARES Act?

Unfortunately, there’s no easy answer. Whether small business owners are eligible for unemployment benefits depends on state unemployment laws. If you’re not sure if your clients are eligible to apply, contact their local state employment office.

Under normal circumstances, sole proprietors and self-employed workers are not required to pay unemployment insurance tax, so they’re not eligible for unemployment benefits. Small business owners may be eligible if they draw a regular paycheck and withhold income, Social Security, Medicare, and unemployment taxes from their earnings.

Under the CARES Act, self-employed workers, sole proprietors, independent contractors, and freelance or “gig” workers are eligible to apply for unemployment benefits. Small business owners may be eligible if they fall into one of those categories.

Additional financial assistance for business owners

Business owners who are not eligible for unemployment benefits still have options:

  • Under the Paycheck Protection Program, business owners may be eligible to apply for low-interest loans up to $10 million for payroll and operational costs. PPP loans may be forgivable under certain circumstances.
  • Business owners in declared disaster areas may apply for an Economic Injury Disaster Loan up to $2 million to cover payroll and other bills. In addition, business owners may apply for a loan advance of up to $10,000 they may not have to repay.
  • GoFundMe’s Small Business Relief Initiative supports small businesses facing financial loss due to the coronavirus. Business owners can start a fundraiser to apply for a matching grant from the Small Business Relief Fund.

How does the CARES Act expand unemployment benefits?

In addition to extending unemployment benefits to workers who would not be eligible normally, the CARES Act increases those benefits in two ways:

  1. It increases the amounts paid to eligible workers. The Federal Pandemic Unemployment Compensation (FPUC) program increases the amount of unemployment pay a worker is eligible to receive. Under this provision, eligible workers may receive an extra $600 per week, on top of the amount they’re entitled to under state law. The additional amount is intended to supplement the worker’s unemployment paycheck, which normally equates to 40 to 45 percent of their regular pay. Currently, this benefit is available until July 31, 2020.
  2. It increases the number of weeks available to eligible workers. The Pandemic Emergency Unemployment Compensation (PEUC) program provides an additional 13 weeks of unemployment benefits for workers who may have exhausted their state benefits. Under this provision, eligible workers may receive unemployment benefits for a maximum of 39 weeks. Currently, these extended benefits are available until Dec. 31, 2020.

The resources described above are made available to businesses within the United States of America.

COVID-19 relief programs are evolving regularly. Please visit SBA.gov for the most up to date information.

This content is for information purposes only and information provided should not be considered legal, accounting or tax advice, or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit Inc. does it have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Inc. cannot warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers should verify statements before relying on them.

Editor’s note: This article as previously published on the QuickBooks Resource Center.

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