Hourly employees all over the country are claiming unemployment compensation due to the devastating effects of COVID But what about the employers who are forced to close their doors? Can small business owners file for unemployment as well? In a fully functioning economy the answer would hinge on two factors: if you receive a regular salary, and if you pay unemployment taxes. However, the coronavirus pandemic sparked a new normal in the unemployment arena for the time being— specifically through the CARES Act.
As a result of the legislation, more self-employed business owners are now eligible for unemployment benefits. There are still a few factors that go into collecting unemployment benefits under the new guidelines. Subscribe for udpates! The Homebase newsletter sends the latest in compliance news straight to your inbox. Like the rules of many other government programs, unemployment guidelines are different due to the coronavirus pandemic.
Typically, paid unemployment is reserved for employees and is not available to sole proprietors. A sole proprietorship—the most common way to start a business—is an unincorporated business operated by one person with no distinction between that person and the business. This also is typically the case for partnership-owned businesses and LLCs. Like any other employees who work for your business, you are entitled to receive employee benefits, including unemployment compensation.
This applies as long as you report yourself as an employee and pay state unemployment insurance taxes on your wages. By electing S corporation status, small businesses run by sole proprietors are taxed only once. As a shareholder, you pay income tax on the share of profits you receive from the business. In some states, individuals who have a percent or greater ownership interest in a business cannot qualify for unemployment benefits.
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration.
Writing professionally since , she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications.
As such, unless they have wages from covered employment with another employer, they will not have any recorded earnings on which to base a claim. Back to top Can the owner of a business file a claim for unemployment? Anyone has the right to file a claim for unemployment compensation. Whether they can draw depends on the individual circumstances and the type of business entity.
Back to top How do I find information about the status of my account, such as my tax rate or if there are delinquent reports or taxes due? Back to top If a person owns a business that is structured as a Corporation or as an S-Corporation, has been drawing a salary and paying unemployment insurance, and then goes out of business, can the owner claim unemployment?
Requirements vary by state, but if you perform work under an employer-employee relationship or earn wages, you may qualify for unemployment. Do you have a title like CEO, general manager, or president? Does that title come with a defined set of responsibilities? Do you perform your role under this title for the benefit of the company you own?
If you answered no to these questions, you might not be an employee. If you are a wage-earning employee of the business you own, you may be able to apply for unemployment benefits. But first, ask yourself these questions: Do you receive a paycheck from your company?
And does that paycheck deduct state and federal taxes and any other pre-tax benefits automatically? If you answered no to these questions, you likely receive money from your business in the form of distributions or dividends. Many business owners prefer compensation through these mechanisms because, usually, they are taxed at the capital gains rate instead of ordinary income.
But if you take distributions and dividends, you must also draw a regular employee wage to maintain your eligibility for unemployment benefits. Take a look at those tax records. Do you pay both state and federal unemployment FUTA taxes? With few exceptions, your business is required to pay both state and federal unemployment taxes on all employees. States fund their unemployment programs through self-reported company taxes.
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