Self-Employed Workers and Unemployment: What the Rules Actually Are

Most self-employed workers cannot collect standard unemployment insurance, because unemployment insurance is designed for employees whose employers pay into the system on their behalf. If you are a sole proprietor, freelancer, independent contractor, or own your own business, you typically do not have an employer making those contributions, so you have no unemployment account to draw from.

However, the rules changed during the COVID-19 pandemic, and some of those changes remain in place depending on your state. Additionally, there are separate programs that self-employed people may be able to explore. The path forward depends on when you lost income, what state you live in, and what kind of self-employment you do.

Key Takeaways

  • Standard unemployment insurance does not cover self-employed workers because they do not have employers paying into the system.
  • During the pandemic, the federal government created a temporary program called Pandemic Unemployment information (PUA) that covered self-employed workers, but this program ended in September 2021.
  • Some states have created their own self-employment unemployment programs, though these are not common and vary widely by location.
  • Self-employed workers who experience a significant drop in income may explore disaster information, small business loans, or tax deductions for business losses instead.
  • Your state's labor department website lists what programs are currently open to self-employed people in your area.

Why Self-Employed Workers Are Usually Excluded

Unemployment insurance works because employers pay a tax into a state fund for each employee they hire. When that employee is laid off or their hours are cut, they draw from that fund. Self-employed people have no employer making those payments, so there is no fund to draw from.

This is true whether you are a freelancer, contractor, consultant, gig worker, or small business owner. The system was built around the employer-employee relationship, and self-employment sits outside that structure. Some self-employed people do pay self-employment tax, but that is a different tax that funds Social Security and Medicare, not unemployment insurance.

What Happened During the Pandemic

From March 2020 through September 2021, the federal government created a temporary program called Pandemic Unemployment information (PUA) that extended unemployment benefits to self-employed workers, gig workers, and others normally ineligible. This program covered people who lost income due to COVID-19 shutdowns or illness.

PUA ended in September 2021 and is no longer available. If you lost income during that period and did not file, you cannot go back and file now. However, if you filed during the program and were denied, some states allowed appeals after the program ended—contact your state labor department to ask whether your case can be reopened.

State-Specific Programs for Self-Employed Workers

A small number of states have created their own unemployment programs for self-employed people, though these are not common. New York has a program called Unemployment Insurance for Self-Employed Individuals (UISE), which allows self-employed people to pay into a fund and draw from it if their income drops. New Jersey has a similar program. These programs require you to have paid into them before you need them, so they are not retroactive.

To find out whether your state has a self-employment program, visit your state labor department's website and search for "self-employed unemployment" or "self-employment insurance." The availability and rules vary significantly, and some states have no program at all. Your state labor department can tell you in one phone call whether anything is available to you.

Alternatives When You Lose Self-Employment Income

If you are self-employed and have lost income, unemployment insurance may not be an option, but other programs may help. Disaster Unemployment information (DUA) is available to self-employed workers affected by declared disasters—hurricanes, floods, wildfires, or other events declared by the federal government. You must live or work in a county that has been officially declared a disaster area, and you must show that the disaster caused your income loss.

Small business owners may also explore Small Business Administration (SBA) loans, which can provide working capital during a downturn. Self-employed people can also deduct business losses on their tax return, which may reduce your tax liability in the year you lost income. A tax professional or accountant can explain how to document and claim those losses.

How to Check Your State's Current Rules

Unemployment rules change, and some states have experimented with new programs. The fastest way to know what is available to you is to contact your state labor department directly. Most states have a phone line and a website where you can search for self-employment programs.

When you call or visit the website, have your state ready and be prepared to describe your situation: Are you a sole proprietor? A contractor? A gig worker? The answer may affect what programs, if any, are open to you. Some states also have regional workforce development offices that can walk you through what is available in your area.

Frequently Asked Questions

Can I collect unemployment if I am a 1099 contractor?

No, not through standard unemployment insurance. You would only be covered if your state has a specific self-employment program (like New York's UISE) or if you were affected by a declared disaster and may have access to for Disaster Unemployment information. Check your state labor department's website to see what applies to you.

What if I was laid off from a job and also do freelance work on the side?

If you were an employee at the job where you were laid off, you may be able to collect standard unemployment for that employment. The freelance income does not disqualify you, though it may reduce your weekly benefit amount depending on your state's rules. Report all income when you file.

Can I get unemployment if my business failed?

Not through standard unemployment. Business failure is not the same as job loss in the eyes of unemployment insurance. However, you may be able to deduct your business losses on your taxes, and you can explore small business loans or lines of credit to help you recover.

Is there any federal program for self-employed people right now?

Pandemic Unemployment information ended in September 2021 and is not available. Disaster Unemployment information is available only if you live in a county affected by a federally declared disaster. Otherwise, your options depend on whether your state has its own self-employment program.

What documents do I need if my state does have a self-employment program?

Most state programs require proof of self-employment income, such as tax returns, profit and loss statements, or business licenses. Some require proof that your income dropped below a certain threshold. Contact your state labor department to ask what documents they need before you start gathering them.