Unemployment Compensation

"W-2 people" is my shorthand for employees who receive wages or a salary.

Someone can be both an employee and self-employed. For instance, someone works 9 to 5 for the local pet shop and is pet sitter by night and weekends.

I have received many questions from former W-2 people about receiving unemployment compensation and how it impacts self-employment. And vice versa. Here are two typical emails followed by my response.


Hi -
I have an odd question... I was laid off from a tv station in June 2007.. got unemployment for 20 weeks - when it ran in December of 2007 I was still unable to find full time work but did pick up
several short term (independent contract) gigs last year.

I got notice that unemployment insurance was extended in June 2008 but since I had some short term projects I didn't enroll. When those projects dried up - I did enroll and am back on Unemployment Insurance extended for the next 20 weeks.

My question is: When I do my taxes for 2008, if I file as a self-employed will that create a problem with the current unemployment that I am collecting?

Just not sure what to do.
Dee


June --

I am from Portland, Maine. I am a graphic designer/editor. Just started as an indie.

My question is with regard to unemployment insurance, taxes and self-proprietorship. When I was laid off last year, I began to collect unemployment insurance. This year, I have started an indie biz as a freelance designer/editor. I have a small amount of money coming in, but it does not cover my start-up and operating expenses.

Can I continue to collect my unemployment insurance payments while I get the biz off the ground?

What are the tax implications of this?

My unemployment benefits will run out before the end of the year. Is it possible/advisable to postpone payments from clients until the benefits run out, and if so, how do I report it on quarterly estimated tax payments?

Michael
Portland, Me


Unemployment Compensation -- let's call it UC -- is a benefit provided by both the federal and state governments. That means that the Feds as well as each state has a say in how it is regulated.

The intention of UC is help W-2 people who are temporarily unemployed due to work-related circumstances which are beyond their control.

Typically state laws require that someone requesting UC meet the following conditions:
** is not currently employed
** is able to work
** is available for work
** is actively seeking work

If you are self-employed you are you own employer. That means that even though you may not be making any money you are working. You are currently employed by yourself. So you are not currently unemployed.

An odd job to pick up some money does not make you a self-employed in business. Read these posts being self-employed for more info.

Your circumstances and your state's laws determine which conditions must be met.

For instance, if yours is a temporary layoff from your job and you have a reasonable expectation of being recalled, you may not be required to seek work.

If the work you did is no longer in demand, and you are not trained to do anything else, the state agency may provide you with vocational training and your work search requirements may be waived so that you may collect unemployment while going to school.

And, some states will pay UC while you start a business of your own.

Call or log onto your state agency and get an explanation of the benefit requirements. Know before you act so that you don't mess up.

Tax treatment for indies, whether on or off self-employment, is the same. One does not alter the other.

June