Do YOU Know Your Unemployment Benefits?

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model-tIf you’ve spent any amount of time searching online for info about being an independent contractor, you’ve probably noticed that there’s no shortage of bad news. People often highlight the benefits you might be missing out on,
or that being a W-2 employee is better. What most people don’t know is, if your business is structured properly, you can take advantage of many of the same benefits a W-2 employee gets, while enjoying the freedom and benefits of being an independent contractor.

A primary fear many people have about working as an independent contractor is, “If business goes poorly, how can I create a safety net for if I can’t make ends meet?” W-2 employees have the protection of unemployment insurance, for the off chance that they are laid off and need help. Ideally, you won’t ever need to file for unemployment, but it’s always nice to know you have the option. Is there any way independent contractors can benefit from unemployment insurance like their W-2 counterparts?

If you’re a sole proprietor, the answer is no. However, if you structure your business as an S corporation, most states will allow you to take advantage of unemployment benefits. Depending on the state you live in, you may be able to utilize this fact and reduce the risk you take on as a small business owner.

Below you will find a list of all 50 states including the District of Columbia, indicating whether or not your state requires you to pay UI tax and if you are able to file for unemployment. Most states will allow you to file, but there are a few states that have differing policies. For example, Washington won’t allow you to pay UI tax, so you aren’t eligible to collect on it. Then there’s New Mexico, which requires you to pay UI tax, but doesn’t allow you to collect unemployment.

It’s important to note, this is a list for state unemployment insurance tax (SUTA). Even if you aren’t required to pay UI tax by your state, you are still required to pay federal unemployment insurance tax (FUTA), which would not make you eligible to collect unemployment.


-This list was compiled as of June 9th, 2015. The answers may change as a result of states changing their policies. It is recommended that you consult with a tax professional before acting on any of the information provided.

At Independent Contractor Tax Advisors we pride ourselves on helping every client maximize their tax savings, and we provide a level of expertise on independent contractors, you just can’t find with your average CPA firm. Contact us and set up your free tax consultation with one of our tax advisors and start saving money today!


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