Self-Employed Workers and Unemployment: The Basic Answer
Most self-employed workers cannot collect traditional unemployment insurance, because unemployment programs are designed for employees who lose a job through no fault of their own. When you are self-employed, you do not have an employer paying into the unemployment system on your behalf, and you do not have an employer to lay you off. However, the rules changed during the COVID-19 pandemic, and some states still offer programs that may help self-employed people during periods without income.
The key distinction is between regular unemployment insurance (which requires an employer-employee relationship) and Pandemic Unemployment information (PUA) or similar state programs (which may cover self-employed people under certain conditions). Whether you can receive anything depends on your state, the reason your income stopped, and when you lost that income.
Key Takeaways
- Self-employed workers do not pay into regular unemployment insurance and cannot collect it when their business slows or fails.
- Some states offer programs specifically for self-employed people, but these are not the same as regular unemployment and have different rules.
- If your self-employment income stopped because of a documented disaster (pandemic, natural disaster, or other emergency), your state may have a temporary program you can explore.
- Your state's labor department website lists which programs are currently open and what documentation you will need to provide.
- Self-employed people can also explore other income-support programs, such as small business loans or grants, depending on the reason their income stopped.
Why Self-Employed Workers Are Not Covered by Regular Unemployment
Unemployment insurance is funded by employer payroll taxes. When you are self-employed, you do not have an employer paying into the system, so you are not covered by it. The program assumes that an employee loses work through circumstances beyond their control—a layoff, a business closure, a reduction in hours. A self-employed person's income fluctuation is treated differently under the law, because you control your own business decisions.
This does not mean you have no options, but it does mean you cannot file a regular unemployment claim the way an employee can. If you were previously employed and recently became self-employed, you may still be able to claim on your old job if you were laid off or had hours reduced within the past year, but only for that prior employment—not for your self-employment income.
Pandemic Unemployment information and Similar State Programs
During the COVID-19 pandemic, the federal government created Pandemic Unemployment information (PUA), which temporarily covered self-employed workers, gig workers, and others not may be able to access for regular unemployment. PUA ended in September 2021 in most states, though a few states extended it. You cannot file a new PUA claim now, but some states have created their own programs for self-employed people facing hardship.
A handful of states—including New York, California, and a few others—have permanent or semi-permanent programs that may cover self-employed workers during specific circumstances, such as a documented disaster or a temporary closure order. These programs vary widely in what they cover and how much they pay. Your state's labor department website will list any current programs and their requirements.
To find out whether your state has a program for self-employed people, visit your state's labor or employment department website and search for "self-employed unemployment" or "disaster unemployment." You can also call the department directly and ask whether any programs are currently open.
What Documentation You Will Need
If your state has a program for self-employed workers, you will typically need to provide proof of your self-employment income and proof that your income stopped or was severely reduced. This usually means tax returns (often the past two years), bank statements, or business records showing your normal income level. You will also need to show why your income stopped—for example, a government closure order, a documented natural disaster, or a contract cancellation.
Keep in mind that different programs ask for different documents. Before you gather anything, check your state's program requirements or call the labor department to ask what they need. Submitting the wrong documents wastes time and delays any decision.
Other Income Support Options for Self-Employed People
Because unemployment insurance does not cover self-employment, you may want to explore other programs designed for small business owners and self-employed workers. The Small Business Administration (SBA) offers disaster loans and grants when a business is affected by a declared disaster. Some states and cities have emergency funds for self-employed people facing temporary hardship. Nonprofits and community organizations sometimes offer emergency grants or low-interest loans to self-employed workers.
If your income stopped because of a specific event—a natural disaster, a pandemic-related closure, or a major client loss—research whether any disaster relief programs are open in your area. Your state's labor department or your city's economic development office can point you toward these resources.
Self-Employment Tax and Future Planning
Self-employed workers pay both the employer and employee portions of Social Security and Medicare taxes (called self-employment tax). This is separate from unemployment insurance. Because you do not have unemployment coverage, many self-employed people set aside money during profitable months to cover slower periods, or they purchase disability insurance to protect against income loss due to illness or injury.
If you are self-employed and concerned about income protection, talk to an accountant or a small business advisor about options like a business line of credit, an emergency fund, or disability insurance. These are not unemployment benefits, but they can help you manage income gaps.
Frequently Asked Questions
Can I collect unemployment if I was laid off from a job and then became self-employed?
You can file for unemployment based on the job you were laid off from, but only for that employment. The unemployment claim covers the period when you were employed and lost that job, not your self-employment income. File as soon as possible after the layoff, because there are time limits on how far back you can claim.
What if I was self-employed during the pandemic and lost income—can I still file for PUA?
PUA ended in September 2021 in most states and you cannot file a new claim. However, some states created their own programs for self-employed workers after PUA ended. Check your state's labor department website to see whether any current programs are open and whether you meet the requirements.
Do I need to have paid self-employment tax to be considered for any self-employed programs?
Most programs require proof of self-employment income, usually through tax returns or business records. If you have not filed taxes, you may not be able to show your income level, which could disqualify you. Talk to your state's labor department about what documentation they accept.
Can I collect unemployment while I am starting a new self-employed business?
If you were recently laid off from a job and are now self-employed, you can claim unemployment for the job you lost. However, once you are actively self-employed and earning income, that income may reduce or end your unemployment payments, depending on your state's rules. Report any self-employment income to the unemployment office when you file your weekly or biweekly claim.
What should I do if my state says no programs are available for self-employed workers?
Contact your city or county economic development office, local nonprofits that support small business, or the Small Business Administration to ask about emergency grants or loans. You can also speak with a tax professional or accountant about whether you have other options, such as a business line of credit or a personal loan.