Will the Unemployment Benefits received under COVID-19 be taxable to someone who is self-employed?

At the federal level, yes.

At the state level, it depends.

California, for example, does not tax unemployment insurance benefits. Your state will issue you a Form 1099-G with your 2020 unemployment benefits reported in Box 1. This amount will be included as taxable income on your Form 1040, but not on your California state return.

Please note, the unemployment benefits available to self-employed persons are temporary under COVID-19 provisions. Each state will distribute unemployment funds according to CARES Act and individual state arrangements. Here are few things to note about California's COVID-19 unemployment insurance:

  • The state will launch its Pandemic Unemployment Assistance (PUA) program on April 28th. You can learn more about the program here.

  • To be eligible for unemployment insurance under the PUA program, you must be a business owner, self-employed, independent contractor, have limited work history, or someone not usually eligible for unemployment insurance.

  • Benefits will provide up to 39 weeks of unemployment insurance starting the week of February 2, 2020 through the week of December 26, 2020.Retroactive benefits are permitted.

  • Each eligible recipient will receive an extra $600 week for claims between March 29, 2020 and July 25, 2020.

  • To be eligible you must not qualify for regular unemployment insurance benefits OR you must have previously exhausted prior unemployment insurance benefits

  • If you qualify for State Disability Insurance, Paid Family Leave, are not a U.S. Citizen or were not permitted to legally work in the U.S. during the COVID-19 related unemployment, you are not eligible for the PUA program.

  • PUA program recipients must claim unemployment for COVID-19 reasons. See qualifying reasons under ELIGIBILITY on California's Employment Development Department website.

  • Eligible recipients will receive income in phases. See BENEFIT PAYMENTS on California's Employment Development Department website.

Although the above provisions specifically apply to California, many states will roll out similar unemployment programs the last weeks of April. Please retain records of your gross earnings before unemployment, your former employer's contact information, citizenship documents, and any other information that will confirm your prior wages to be fully prepared for your unemployment application.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any transaction.

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