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Independent Contractor Unemployment: Everything You Need to Know

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Independent Contractor Unemployment

Unemployment benefits are a safety net for people temporarily out of work in times of crisis. It’s a social support mechanism that protects workers during financial uncertainty and helps them meet their basic needs while they actively search for employment.

Nearly all countries have unemployment benefit programs with different eligibility requirements, like a requisite work period or minimum earnings or contribution levels. However, employees fired for a just cause or who voluntarily quit are not eligible. 

What about those who work independently? Are independent contractors eligible for unemployment benefits, also known as 1099 unemployment benefits? While unemployment insurance acts as a safety net for employees, it only adds to the financial complexity of working with independent contractors or non-employees.

This article will familiarize you with unemployment benefits, such as insurance, and discover whether an independent contractor is eligible for the same. 

Who is an Independent Contractor?

An independent contractor is an individual who provides services to a client or business entity while retaining a degree of autonomy and independence. Unlike traditional employees, they have the flexibility to choose their own work hours, set their own rates, and determine the methods and means by which they deliver their services.

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Understanding the 1099 Form

A 1099 form is an IRS tax form used to report various types of income received by individuals other than regular wages, salaries, and bonuses. It is named after its corresponding IRS regulation.

Imagine there is a skilled graphic designer named Alex. He is not tied to any company. Instead, he works on various design projects for different clients. He sets his own schedule and chooses the projects he wants to take on. Because he is his own boss, he is considered an independent contractor.

Since he is not a traditional employee and the income comes from multiple clients, Alex must file a 1099 form. It will help him report all the money he earned from his design gigs throughout the year. It is one way of keeping his design business legit and tax-compliant.

Simply put, Form 1099 is like a receipt for all the things the contractor has been paid for. There are varied versions of the 1099 form to report different types of income. For instance,

1. 1099-NEC

You must file Form 1099-NEC to report non-employee compensation. It includes your income as a freelancer, independent contractor, or self-employed individual.

2. 1099-MISC

Form 1099-MISC is for the payments you receive. It includes income from rent, royalties, prizes and awards, crop insurance proceeds, medical and healthcare payments, etc.

3. 1099-DIV

Form 1099-DIV includes the dividends or certain distributions you receive from your investments.

4. 1099-G

1099-G Form Unemployment reports your unemployment compensation or any state or local income tax refunds during the year.

5. 1099-R

You must file a Form 1099-R if you receive distributions of retirement benefits, such as pensions and annuities of $10 or more.

6. 1099-INT

Form 1099-INT showcases the receipt of interest payments. You may or may not need to pay income tax on the interest. However, you may have to include the form information on your tax return.

Understanding 1099 forms is challenging yet essential. Countless forms for independent contractors are available with their different criteria and instructions. But typically, the mentioned independent contractor unemployment forms are crucial.

Who Needs It?

A 1099 Form reports various types of income other than wages, salaries, and tips. It is issued to individuals or entities who have earned or received payments for their services. For example,

1. Freelancers and Independent Contractors

Individuals engaged in freelance work or offering services outside of traditional employment arrangements must obtain and use a 1099 form. The form serves as a record of income they received from clients or employers.

2. Interest Income Earners

Workers who earn interest income from savings accounts, certificates of deposit, or other interest-bearing financial instruments must show this income on a 1099 form. It ensures accurate reporting of interest earnings to tax authorities.

3. Investors and Dividend Recipients

Individuals who receive dividends from investments or stocks are mandated to report their profits using a 1099 form. It helps calculate and provide a comprehensive overview of the dividend income earned during the tax year.

4. Miscellaneous Income Receivers

The 1099 form applies to individuals who have received $600 or more in miscellaneous income. It includes awards, prizes, and other types of non-employee compensation.

5. Rental Income Recipients

Individuals who earn income from renting out residential or commercial properties or spaces are obligated to report their rental income on a 1099 form. It applies to all landlords who receive rental payments.

When is it Delivered?

The 1099 Form unemployment is delivered the first time you file with a revenue authority. You can expect it by 31st January of the subsequent tax year. However, the dates for different 1099 forms may vary. 

Here is an overview of the filing deadlines for the most common 1099s: 

S. No. Form Due Date to Recipient Due Date to IRS
1. 1099-NEC 1st February 1st February
2. 1099-MISC 1st February - 16th February 28th February for mailed paper and 31st March if filed online
3. 1099-DIV 31st January 28th February for mailed paper and 31st March if filed online
4. 1099-G 31st January 28th February for mailed paper and 31st March if filed online
5. 1099-R 31st January 28th February for mailed paper and 31st March if filed online
6. 1099-INT 31st January 28th February for mailed paper and 31st March if filed online

How to Fill it Out?

Form 1099 comes with two copies: Copy A and B. When you enlist the services of an independent contractor, you must document the payments you make to them. It involves reporting the payment details on Copy A of Form 1099 and submitting it to the IRS. Additionally, you will need to replicate the same payment information on Copy B and forward it to the respective contractor.

However, if you are an independent contractor who receives a Form 1099, specifically Copy B, from a client, you need not forward it to the IRS. Instead, you will incorporate the income details mentioned in Copy B into your personal income tax return. You can follow the given process to fill out the form:

1. Gather Contractor Information

Collect necessary details for each independent contractor, including total payments made, legal name, address, and taxpayer identification number (Social Security Number).

2. IRS Submission: Copy A

Submit Copy A of Form 1099-NEC to the IRS by 31st January. You need an official Form 1099-NEC if filing physically. You can also submit electronically or by mail.

3. Contractor Distribution: Copy B

Provide each independent contractor with Copy B of Form 1099-NEC by 31st January. Download and print from the IRS website, then send it to contractors.

4. Form 1096 Submission

If filing a physical Form 1099-NEC with Copy A to the IRS, complete and file Form 1096. It helps the IRS track physical 1099 submissions.

5. State-Specific Requirements

Check if your state requires additional 1099 forms to be filed. Consulting with a CPA can ensure compliance with the regulations.

It is crucial to understand that the 1099 form is to report income outside of regular wages, salaries, and tips. Individuals falling within any of these categories must adhere to tax regulations and accurately report the specified income using the appropriate 1099 form. Further, you can consult the relevant tax authorities to ensure compliance with the requisite reporting standards in your specific area.

How Does Unemployment Insurance Work?

Unemployment insurance is a joint initiative between the federal government and individual state governments. It offers cash stipends to unemployed workers actively seeking employment. Federal Unemployment Tax Act and state employment agencies make the compensation to eligible and unemployed workers.

Each state has an unemployment insurance program. However, they all follow and adhere to the guidelines outlined by federal law. It makes the unemployment benefits across states and regions. The U.S. Department of Labor oversees the program and ensures compliance in every state.

The key points that highlight how the insurance works are as follows:

1. Eligibility Criteria

You need to have been employed for a certain period, meet specific wage requirements, and become unemployed through no fault of your own. Factors such as the reason for job separation and past earnings are also evaluated to determine eligibility.

2. Filing a Claim

When someone loses their job, they need to file an unemployment claim with the unemployment agency in their state. You can do it online or through other methods specified by the agency.

3. Verification and Approval

The unemployment agency reviews the claim, verifies the information provided, and assesses whether you meet the eligibility criteria. It may involve contacting the previous employer for information.

4. Benefit Calculation

The agency calculates the number of unemployment benefits you are entitled to receive. The calculation considers your past earnings, and benefits are usually a percentage of the average weekly wage up to a certain maximum.

5. Job Search Requirement

You must actively search for new job opportunities while receiving benefits. You may also need to provide evidence of their job search efforts periodically.

6. Payment and Duration

Unemployment benefits are paid on a weekly or biweekly basis. The duration of benefits can vary by state and factors like work history. There is often a maximum number of weeks that you can receive benefits.

The contractors who receive income as unemployment from the state must report it using the 1099 G Form Unemployment. It is important to note that unemployment insurance programs vary by country and even by state or jurisdiction within a country. Hence, the details, eligibility criteria, and benefits provided can differ significantly.

Can an Independent Contractor Apply for Unemployment Benefits?

Earlier unemployment benefits were only for employees whose employers funded the unemployment system and paid federal and state unemployment taxes. So, can a 1099 employee get unemployment benefits? Independent contractors cannot avail of these benefits unless misclassified. They could not collect unemployment benefits if they were out of work.

However, the global pandemic brought a unique safety net. With the help of the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020, they could temporarily access unemployment support. 

But it came with a twist— the beneficial act had an expiration date. The 1099 workers waved goodbye to this unemployment cushion on September 6th, 2021. Similarly, eligibility for these benefits vanished if they turned down a suitable job opportunity to claim 1099 unemployment.

Does 1099 Get Reported to Unemployment?

1099 does get reported to unemployment. You must show your income source when you collect any unemployment benefits. Whether you are a freelancer, gig worker, or independent contractor, submitting your unemployment earnings is critical.

The 1099 unemployment benefits will temporarily reduce once you file your earnings. The reduction depends on the amount you earn.

How to Apply for Independent Contractor Unemployment?

The CARES Act in 2020 marked a significant shift in the unemployment benefits landscape for independent contractors. It provided them access to unemployment benefits. However, it follows a more intricate application process than conventional laid-off employees who qualify for unemployment insurance.

Here are the following steps to apply for independent contractor unemployment:

1. Visit the Website

Open the unemployment website for your state to understand the specific requirements and procedures.

2. Submit Relevant Documents

Collect your past wage and income documents. You must provide crucial details, including:

  • Name, contact information, and mailing address
  • Social Security or Alien Registration number 
  • Proof of income like 1099 tax forms or Form 1040 tax returns
  • Driver’s license or state ID number
  • Bank account number and routing number for the direct deposit of benefits

3. File a New Claim for PUA

If you have applied for unemployment insurance before but are eligible for Pandemic Unemployment Assistance (PUA), you may need to file a new claim. PUA ensures you can receive unemployment insurance payments for up to 79 weeks through your unemployment agency.

4. Complete Application Questions

While filling out the application form, consider key questions. You will need to reapply if you have exhausted your benefits but are still

How Skuad Can HelpBuild and Scale Your Global Team With Skuad 

With Skuad, you can seamlessly hire, pay and manage independent contractors in 160+ countries. Our unified platform ensures that you stay 100% compliant with local employment laws, including managing IC compliance with ease. Talk to our experts today to know more!


Q1. How did the Pandemic Change Benefits for 1099 Earners?

The pandemic brought a game-changing shift for 1099 earners. The CARES Act introduced the Pandemic Unemployment Assistance (PUA) program, which allowed freelancers and gig workers to access unemployment benefits.

However, the special provisions introduced by the CARES Act had a deadline, underlining the need for ongoing awareness about benefit changes for 1099 earners.

Q2. Is there any difference between unemployment benefits and gig benefits?

Unemployment benefits are government-provided financial support for individuals who have lost their jobs. Meanwhile, gig benefits refer to the perks or advantages that gig workers might enjoy within the gig economy. They are often less extensive than traditional employee benefits.

Q3. Can independent contractors get unemployment in Florida?

Yes, self-employed workers and independent contractors can access unemployment benefits in Florida post-pandemic. However, the governor has waived various program requirements. It is crucial to check their official website to learn accurate information.

Q4. Are contractors eligible for unemployment in Texas?

Yes. The Coronavirus Relief Bill extends the two categories of unemployment benefits initially introduced by the CARES Act. It includes Federal Pandemic Unemployment Compensation and Pandemic Unemployment Assistance.

About the author

Sandeep Patel is a Content Marketing Manager and Strategist. Over the last five years, he has created and managed content for global brands and fintech startups. He is passionate about remote work and using tech for a better work-life balance.

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