If you’re a freelancer or independent contractor who’s no longer working with your primary client, you may be unemployed by many people’s standards. The same applies if your freelance career is experiencing a slow period for a number of months. But does this mean you can get unemployment benefits? The answer: It depends.
Sadly, independent contractors can’t file for unemployment benefits based on their contract work. However, if you structured your freelance or self-employed business as a S-Corporation, you can “fire yourself” and collect benefits in many states.
S-Corporations And Unemployment Benefits
If you have chosen to create a S-Corporation for your freelance business and put yourself on the payroll as an employee of the company, there’s one added benefit: You are eligible for unemployment benefits in most states.
This is because, unlike independent contractors, employees of S-Corporations (even if they are the same person as the CEO) receive a salary which is taxed by the government. The fact that this salary is taken out of the proceeds of a freelance position like an architect, designer, engineer, or writer is irrelevant from the government’s point of view.
Because unemployment benefits vary across states, the federal government has basic requirements for unemployment, but different states have different rules on who is eligible for benefits and who can receive them.
Curious about unemployment benefits in your state? Nerdwallet has a great state-by-state list of unemployment benefits for the self-employed.
How To “Fire Yourself” And Receive Unemployment Benefits
In states where S-Corporation employees can receive unemployment benefits, you can “fire yourself” if you’re done with the freelance life and need to look for a full-time job or if your freelance business is not working out.
You “fire yourself” by having your S-Corporation firing you on paper (or through bookkeeping software like Xero or Quicken) and no longer receiving a paycheck from the company. After that is done, you contact your state unemployment office and apply for unemployment as if you worked for someone else.
Be warned, though: If you take this step, you can no longer take on new projects or clients through your self-employed S-Corporation. Additionally, you will risk losing your unemployment benefits if you take on 1099 work in your own name while collecting unemployment benefits.
As always, the information in this blog post is for informational purposes only and we recommend speaking with a financial professional before taking any action.