Can Indepedent Contractors Receive Unemployment Benefits?

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The unemployment compensation program is a social insurance protection given to employees of business or organizations to help them with income after a loss of work they have no control over. Only regular employees can take advantage of these benefits, and contract employees, 1099 employees and independent contractors are excluded. The only time an independent contractor can file unemployment is when they used to be a regular employee during their base periods and earned enough money to meet the state’s covered wage eligibility requirement.

Automatic Disqualification

Independent contractors don’t qualify for unemployment benefits as a rule. The reason is that unemployment benefits are funded from the payroll taxes employer pay on the salary they pay their employees. As an independent contractor, you’re technically not an employee. Instead, you’re contracted individual who provides a service based on the terms on that contract. For all intents and purposes, you are a self-employed individual.

Exceptions

The only way you can be an independent contractor and still receive unemployment benefits is if you were a covered employee during your base period. Your state uses your base period wages to determine your eligibility for unemployment and the amount of unemployment you can receive. As long as you meet the minimum covered wages threshold during your base period set by your state law, it doesn’t matter if you were an independent contractor at the time of your unemployment.

Determining Base Period

So let’s say you were a regular employee before you were an independent contractor. Your base period is the first four of the last five full calendar quarters before you filed for unemployment benefits. So if you file for benefits on March 2, 2011, your last full calendar quarter was October to December 2010. The four full calendar quarters before that ran from October 2009 to July 2010. You would have to earn the required amount of covered wages during that time.

Determining Covered Wages

Whether your wages were covered depends on how your employer(s) during that base period hired you. You can always contact that employer or those employers to review your employments status, but there are some telltale signs that you were a covered employee. Covered employees have state and federal taxes deducted from their paychecks. Another good sign that your wages from an employer are covered is that you received a W-2 tax form from them at the end of the year instead of a 1099 tax form.

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