Even in the best circumstances, the self-employed (SE) are often at a disadvantage. The self-employed must pay in full for taxes such as social security that would otherwise be at least partly absorbed by an employer. As well, SE’s must foot the bill for all of their expenses ranging from renting office space to paying for phone and internet services, advertising, administrative and accounting services. SE’s are disadvantaged by not having the bulk purchase power that results in discounts to a larger workforce for employer-provided business and health insurance. As well, SE’s lack the perks that accompany W2 employment such as paid time off for sickness or vacation and countless other goodies that HR departments dream up to add to the happiness of their workforce. Perquisites may include contributions to retirement accounts, free parking and/or public transit benefits, buffet lunches or breakfasts, various schwag, frequent flier and other reward points that reduce overall cost of living. SE’s typically have less of a social safety net such as unemployment insurance to cover them when work is not available. As well, SE licensed professionals must pay their own licensing fees and for mandated continuing education credits, unlike their colleagues employed by an organization or company.
Although the disadvantages are daunting, freelance, independent contractor and gig economy workers have been among the fastest growing part of the U.S. economy for decades, now. But, it has taken an unprecedented crisis for the government to finally address the shortcomings of being an SE. The emergency legislative packages Congress passed as a result of the shelter-in-place orders intended to save lives during the pandemic offers some relief for SE’s. While normally not available to SE’s, Congress has now expanded paid sick and family leave benefits as well as unemployment insurance.
SE’s now have the equivalent of paid sick leave in the form of a tax credit that may reduce your tax burden. This credit may be claimed for up to 10 days between April 1 and December 31, 2020; and, you may apply it for simply having been ordered to stay home by local, state or federal government. To calculate your credit, determine your average daily net earnings and divide that by 260. Next, multiply the number of sick days by that amount or by $511, whichever is less. SE’s may claim a lower amount for sick days if caring for someone else, whether caring for a person who is actually sick or has simply been ordered to isolate because they are high risk or even caring for a child whose school has closed. This credit will cover 67 percent of SE’s daily income, up to $200 per day.
In 2019, the U.S. jobless rate hit a 50-year low and the jobless rate had been on the decline for so many years that the Employment Development Departments had scaled back significantly on employees because they were processing a low number of claims for unemployment insurance. It’s no wonder that each state has had to scramble to implement this new program and it may be challenging to apply. But, for eligible applicants, the benefits of the pandemic unemployment assistance may be a much-needed lifeline to keep the lights on during a time when business may otherwise be nonexistent. The amount workers can receive from their state is about half what their state typically pays for regular unemployment. But, while states may only pay up to $167 per week (California’s set amount) the federal government kicks in an additional $600 per week even if the SE worker is only eligible for $1 in state benefits. Benefits are retroactive dating back to January 27 and the program is scheduled to run through the end of December unless extended.
In addition to these brand new benefits, government has generally made it easier for SE’s to pay taxes by extended deadlines. And, government has made health care insurance more accessible, as well. In short, government has finally come to recognize that SE’s are a huge part of our economy – and, offered some commensurate relief.