Updated: April 17, 2020
The Freelance Co-op is a cooperative of creative freelancers who work, create, and build our businesses using shared resources, knowledge, and experience. Studies predict that by 2027, over half of Americans will be freelancers and currently 47% of millennials do at least some freelance or contract work.
The Freelance Co-op provides legal resources, bookkeeping, client advice, marketing, scripts, templates and guides to make creativity sustainable.
This Freelancer’s Guide to the CARES Act is compiled from information from the most recent Federal Guidelines, text of the Coronavirus Aid, Relief, and Economic Security Act, The Internal Revenue Service, The Small Business Administration, and the US Chamber of Commerce.
This guidance is intended for US-Based freelancers. If you are or were recently employed full-time by a company, some of the information contained may not pertain to you. Consult your financial advisor or HR office for information about your specific situation.
As always, Information we share is not a substitute for legal, tax, or financial advice from a professional in any field. We are professionals and we’re sharing information related to our expertise. With that said, we are not substitutes for professionals that are up-to-date on legal and financial matters and who know your specific situation.
We also always recommend working with and seeking advice from professionals who are educated about the specifics of your industry, state, country, and other circumstances.
Please see our Earnings Disclaimer for further information.
Here are some primary source links that we’ll reference throughout the guide and where you can do more comprehensive research on the CARES Act.
The most talked about section of the CARES Act is the “2020 Recovery Rebates” commonly known as Stimulus Checks.
About 90% of Americans are eligible for this one-time $1,200 rebate. They are also eligible for an additional $500 per child.
The stimulus check will be paid based on information from your most recent tax return (2018 or 2019).
To qualify to receive a check you must:
- Be a U.S. resident or citizen
- Have an adjusted gross income under $75,000 ($112,500 for head of household and $150,000 married) — this is based on your most recent PERSONAL tax return (2018 or 2019 if you’ve already filed this year). This number can usually be found on line 8b of your tax return (IRS Form 1040).
- Not be a dependant on someone else’s tax return
- Have a work-eligible Social Security Number
How to get it
If you filed your 2018 taxes last year OR your 2019 taxes this year, you don’t have to do anything. In fact, DO NOT call the IRS or other financial advisors to check the status as this will impede their ability to get information and checks out in a timely manner. The IRS will calculate how much your check will be and distribute it however you typically receive tax returns (direct deposit into your bank account or with a paper check). The IRS has said that paper checks may take longer to receive than direct deposit.
If you haven’t filed taxes, the CARES Act instructs the IRS to let you know and send directions on how to receive it if they have not filed either a 2019 or 2018 tax return.
Per the bill, you should receive a notice about how much you received and how it was dispersed. If you receive the notice, but no money, you can contact the IRS per the instructions on the notice.
You can check on the status of your payment at this site:
When will I see my money?
Government officials, including President Trump and Treasury Secretary Steven Mnuchin have said that checks will be distributed in about 3 weeks, but those with paper checks may take longer.
This is an extremely optimistic estimate as both the 2008 Stimulus checks from the Bush administration and 2009 checks from the Obama administration took 3-4 months to hit bank accounts for most Americans.
Per the CARES Act, you should receive a notice about how much you received and how it was dispersed. If you receive the notice, but no money, you can contact the IRS per the instructions on the notice.
What if my Adjusted Gross Income is over $75,000?
Remember, this is on your personal tax return. If you’re a sole proprietor, this should be the amount you made after you deduct eligible business expenses.
The rebate amount is reduced by $5 for each $100 that a taxpayer’s income exceeds $75,000 or ($112,500 for head of household and $150,000 married). The amount is completely phased-out for single filers with incomes exceeding $99,000, $146,500 for head of household filers with one child, and $198,000 for joint filers with no children. For a typical family of four, the amount is completely phased out for those with adjusted gross incomes exceeding $218,000.
What if I haven’t filed taxes for 2018 or 2019?
You should file as soon as possible so you can be eligible for the rebate. Contact your tax preparer or file free online through the IRS Free file program.
What if the IRS doesn’t have my direct deposit information?
Per the IRS, in the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to checks in the mail.
What if I’m a college student? Homeless? On SSI?
You’re probably eligible. More details can be found from the Senate Finance Committee here.
What if I owe back taxes?
Usually if you owe taxes or other debts, this is taken out of your tax return. But the CARES Act turns off just about all offsets, meaning you’ll likely still get the full amount. The only offset that is still enforced is if you owe past due child support that’s been reported to the Treasury Department from your state.
The CARES Act creates three new Unemployment Insurance Programs. They have confusingly similar names: Pandemic Unemployment Compensation (PUC), Pandemic Emergency Unemployment Compensation (PEUC), and Pandemic Unemployment Assistance (PUA).
Because I’m a copywriter, I’m going to refer to them a bit differently so that we all know what we’re talking about:
- Pandemic Unemployment Compensation (PUC)- We’ll call this one “The Money Boost”
- Pandemic Emergency Unemployment Compensation (PEUC) – We’ll call this one “The Time Boost”
- Pandemic Unemployment Assistance (PUA)- This is “The Eligibility Boost”
The Money Boost (PUC) – In short, The Money Boost part of the bill adds $600 per week to whatever Unemployment Insurance you’re eligible for through your state. This includes people already receiving Unemployment Insurance through their state and new applicants through the PUA program. As of now, the increased amount is through July 31, 2020.
The Time Boost (PEUC) – This provides an additional 13 weeks of unemployment benefits. Currently, most states only provide unemployment for 6 months (26 weeks). This increases the timeline of benefits to 9 months in most states.
The Eligibility Boost (PUA) – This is the big one for freelancers. It expands who is eligible for unemployment benefits to self-employed workers, including independent contractors, freelancers, workers seeking part-time work, and workers who do not have a long-enough work history to qualify for state UI benefits. This program runs through December 31, 2020 and workers can receive retroactive benefits from January 27, 2020. That means you can apply anytime this year. Workers are eligible for 39 weeks of unemployment insurance.
Anyone eligible for The Eligibility Boost is eligible for the time and money boosts, so we’ll just focus on who’s now eligible for Unemployment through PUA.
Applicants will need to provide self-certification that they are (1) partially or fully unemployed, OR (2) unable and unavailable to work because of one of the following circumstances:
- They have been diagnosed with COVID-19 or have symptoms of it and are seeking diagnosis
- A member of their household has been diagnosed with COVID-19
- They are providing care for someone diagnosed with COVID-19
- They are providing care for a child or other household member who can’t attend school or work because it is closed due to COVID-19
- They are quarantined or have been advised by a health care provider to self-quarantine;
- They were scheduled to start employment and do not have a job or cannot reach their place of employment as a result of a COVID-19 outbreak
- They have become the breadwinner for a household because the head of household has died as a direct result of COVID-19
- They had to quit their job as a direct result of COVID-19
- Their place of employment is closed as a direct result of COVID-19
- They meet other criteria established by the Secretary of Labor
So if you’re self-quarantining, have local guidance to quarantine, your kids’ school was closed, or your client or place of work is closed, you qualify.
How to get it
You’ll apply through your State’s Department of Labor.
Many states require you to file for unemployment benefits on the web. Some provide toll-free numbers or other ways to obtain assistance in filing.
Here’s a link to find your state’s resources.
How much do I get?
This varies widely by state. Most states cover about 40-45% of your normal income. You’ll get the state’s normal unemployment formula plus the $600 per week “Money Boost.”
Some states will send it all in one check and some will send the $600 “Money Boost” separately
If I’m a freelancer without a regular paycheck, how will they calculate what I get?
Per Congress, the states are instructed to use the Disaster Unemployment Assistance Program formula. There’s a calculator on this page that can estimate your benefit.
How quick can I get money?
Some states had a one-week waiting period that’s now been waived, but unemployment claims are at the highest level ever — about 5 times the level of the 2008 recession. So state systems were overloaded before this expansion… meaning it could take longer than usual to process your claim.
The CARES Act makes select changes to taxes and tax policies in order to ease the burden on businesses impacted by COVID-19.
- Employers, including the self-employed, can delay the payment of the employer portion of the Social Security payroll tax for the remainder of the year and pay back the liability over the next two years.
- You may be able to get a 50% tax credit on wages (up to $10,000 per employee) for employees that you retain during the COVID-19 crisis if your business was shut down in full or in part. This is to encourage businesses to keep paying employees.
- Businesses that have net operating losses (NOLs) have some limitations relaxed. If your business had an NOL in a tax year beginning in 2018, 2019, or 2020, that NOL can now be carried back five years instead. This may improve cash flow and liquidity for some businesses. Pass-through businesses and sole proprietors will also be able to take advantage of the relaxed NOL limitations.
- Businesses that were due to receive corporate alternative minimum tax (AMT) credits at the end of 2021 can instead claim a refund now, in order to improve cash flow during the COVID-19 emergency.
- On your personal tax return, there’s a new deduction for up to $300 for charitable contributions. Previously, charitable contributions were only available for people who itemized their deductions. This new deduction is for you if you use the standard deduction formula.
Businesses are eligible for an employee retention tax credit if 1.) your business operations were fully or partially suspended due to a COVID-19 shut-down order; or 2.) gross receipts declined by more than 50% compared to the same quarter in the prior year.
Other eligibility guidelines are still forthcoming from the IRS.
How to get it
Most of these changes will apply to quarterly or yearly tax filings and guidelines have not been released from the IRS. Speak with your accountant or tax preparer about if you qualify for any of these new programs.
Thursday, April 2 we hosted a Stimulus Q&A with CPA Jonathan Medows. Access the recording here.
For the most up-to-date information, Join us for a LIVE Q&A with CPA Jonathan Medows. Thursday, April 2 at 1pm Eastern. Register here.
There are two major provisions in the CARES Act regarding Student Loans.
First, Until Sept. 30, there will be automatic payment suspensions for any student loan held by the federal government.
Secondly, employers can make student loan payments on behalf of their employees on a tax free basis, up to $5,250 annually. This means the loan payments would be excluded from the employee’s income. So if you have an LLC or Corporation and pay yourself a salary, you can pay your student loans through your company tax-free and it will not count towards your personal income.
For borrowers who withdraw from their school as a result of the coronavirus crisis, the Act requires the Secretary to cancel the borrower’s Direct Loan associated with the payment period in which they withdrew.
Most federal loans from the last 10 years are eligible for automatic payment suspensions.
F.F.E.L Loans, Perkins loans, and private loans are not eligible. Although, many private lenders have created their own emergency assistance programs.
If you pay yourself or other employees a paycheck from an LLC or Corporation, your company is eligible to participate in the employer program from March 27, 2020 through January 21, 2021.
How to get it
Most loan servicers will automatically suspend payments and interest of federal loans. You should check your online account to make sure you have no payment due.
Per the bill, you should receive a notice in the next few weeks about your specific loan.
To take advantage of the employer-repayment, contact your tax advisor about how to account for the payments.
If my payments stop, will interest continue to accrue?
No. The bill says interest will not accrue.
What if I’m currently behind?
All collections like seizure of tax refunds or wage garnishment should be suspended per the bill.
There’s a few other provisions in the CARES Act that may apply to your situation.
The deadline to file (and pay) income taxes has been delayed from April 15 to July 15 for filing of 2019 taxes.
The bill puts a temporary, nationwide 120-day eviction moratorium in place with no fees or penalties for nonpayment of residential rent. (Some states have also expanded this program or have their own program, check here for your state)
You qualify for the eviction moratorium if your landlord has a mortgage through Fannie Mae, Freddie Mac and other federal entities.
Menstrual products, over-the-counter medical products, such as drugs and surgical masks, and telemedicine are now eligible for reimbursement through health savings accounts and flexible spending accounts.
There are two main expansions of Small Business Administration Loans and Programs.
First is a new program called the Paycheck Protection Program. This new program sets aside $350 billion in government-backed loans, and it is modeled after the existing SBA 7(a) loan program.
Paycheck Protection Program loans can be forgiven in whole or part if used for payroll to retain or rehire workers through June 2020.
The SBA just issued guidance on the much-talked about Paycheck Protection Program.
The Paycheck Protection Program IS a forgivable loan program AND freelancers do qualify.
However (and this is a HUGE However), at least 75 percent of the PPP loan proceeds shall be used for payroll costs.
That means, if you get a Paycheck Protection Program loan, you HAVE to use the majority of it to pay employees (NOT contractors).
So you will have to pay the loan back in full if you don’t have employees on payroll.
Secondly, the CARES Act expands eligibility for the SBA’s Economic Injury Disaster Loans (EIDLs).
These changes include:
- EIDLs are now also available to Tribal businesses, cooperatives, non-profits, and individuals operating as sole proprietors or independent contractors.
- EIDLs can be approved by the SBA based solely on an applicant’s credit score.
- EIDLs that are smaller than $200,000 can be approved without a personal guarantee.
- Borrowers can receive up to $10,000 emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue losses.
Update (April 14, 2020)
The SBA just issued a new formula for calculating the advance.
To ensure that the greatest number of applicants can receive assistance during this challenging time, the amount of your Advance will be determined by the number of your pre-disaster (i.e., as of January 31, 2020) employees. The Advance will provide $1,000 per employee up to a maximum of $10,000.
Paycheck Protection Program
The Paycheck Protection Program offers loans for small businesses with fewer than 500 employees, select types of businesses with fewer than 1,500 employees, 501(c)(3) non-profits with fewer than 500 workers and some 501(c)(19) veteran organizations.
Additionally, the self-employed, sole proprietors, and freelance and gig economy workers are also eligible to apply. Businesses, even without a personal guarantee or collateral, can get a loan as long as they were operational on February 15, 2020.
The maximum loan amount under the Paycheck Protection Act is $10 million, with an interest rate no higher than 4%. No personal guarantee or collateral is required for the loan. The lenders are expected to defer fees, principal and interest for no less than six months and no more than one year.
You qualify if you are one of the following:
- A small business concern as defined in section 3 of the Small Business Act (15 USC 632), and subject to SBA’s affiliation rules under 13 CFR 121.301(f) unless specifically waived in the Act;
- A tax-exempt nonprofit organization described in section 501(c)(3) of the Internal Revenue Code (IRC), a tax-exempt veterans organization described in section 501(c)(19) of the IRC, Tribal business concern described in section 31(b)(2)(C) of the Small Business Act, or any other business;
- An individual who operates under a sole proprietorship or as an independent contractor or eligible self-employed individual, you were in operation on February 15, 2020. You must also submit such documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings, or Form 1099- MISC, or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.
You must also have been in operation on February 15, 2020 and either had employees for whom you paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC.
Even if you meet the criteria above, you will be denied if:
- You are engaged in any activity that is illegal under federal, state, or local law
- You are a household employer (individuals who employ household employees such as nannies or housekeepers)
- An owner of 20 percent or more of the equity of the applicant is incarcerated, on probation, on parole; presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of a felony within the last five years; or
- You, or any business owned or controlled by you or any of your owners, has ever obtained a direct or guaranteed loan from SBA or any other Federal agency that is currently delinquent or has defaulted within the last seven years and caused a loss to the government
How to get it
Payment Protection Program
The Payment Protection Program works like other SBA Loans through a network of lenders. You can use Lender Match, a free online referral tool that connects small businesses with participating SBA-approved lenders within 48 hours.
However, the CARES Act expanded the lending network so more banks, credit unions and lenders can issue those loans.
Check with your local bank or credit union on how to apply for Paycheck Protection Loan (note, I attempted to contact several bankers on Monday, March 30 and they were still waiting on guidance from the SBA.). Applications open for small businesses and sole proprietorships on April 3rd. Independent contractors and self-employed individuals can apply starting April 10th.
Here’s what you’ll need when you apply:
- Most recently filed tax return
- EIN documentation (proving you were in business prior to Feb. 15)
- Payroll reports (proving you had employees prior to Feb 15th and their pay rates)
- Payroll tax forms
- Proof of rent, utility, and health care costs in the form of receipts/invoices.
Economic Injury Disaster Loan & Grant
This program goes directly through the SBA (not lenders like the PPP).
You can apply for the Economic Injury Disaster Loans (EIDLs) including the advance grant ($1,000 per employee up to $10,000) with a new streamlined online questionnaire found here.
Information that you need during the application process includes:
- Gross revenues for 12 months prior to January 31, 2020
- Cost of Goods Solds/Cost of Services for 12 months prior to January 31, 2020
- Rental Properties lost rents due to the disaster
- Business Details (number of employees, years in business, etc.)
- Ownership information including SSN
Then a loan officer will followup if they have additional questions.
- There’s no immediate deadline to apply.
- There’s no fee to apply.
- No credit card information is required.
Can I get both loans?
Yes, as long as they don’t pay for the same expenses.
If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.
How much money can I get?
This is the methodology the SBA has recommended lenders use for the Paycheck Protection Program:
- Step 1: Aggregate payroll costs (defined in detail below in f.) from the last twelve months for employees whose principal place of residence is the United States.
- Step 2: Subtract any compensation paid to an employee in excess of an annual salary of $100,000 and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year.
- Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).
- Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.
- Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less the amount of any “advance” under an EIDL COVID-19 loan (because it does not have to be repaid)
If you are an Independent Contractor or freelancer with no employees,
- Step 1: Find your 2019 IRS Form 1040 Schedule C line 31 net profit amount (if you have not yet filed a 2019 return, fill it out and compute the value). If this amount is over $100,000, reduce it to $100,000. If this amount is zero or less, you are not eligible for a PPP loan.
- Step 2: Calculate the average monthly net profit amount (divide the amount from Step 1 by 12).
- Step 3: Multiply the average monthly net profit amount from Step 2 by 2.5.
- Step 4: Add the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 that you seek to refinance, less the amount of any advance under an EIDL COVID-19 loan
What qualifies as “payroll costs”?
Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.
Does my own salary count?
If you have a corporation or LLC and pay yourself a salary, that counts as a payroll expense if:
- you were in business before February 15, 2020
- you pay yourself less than $100,000 per year
- your primary residence is in the US
- you’re not in jail
- you pay yourself as an employee of the business (meaning you issue yourself a W2, pay payroll taxes, FICA, etc.)
Any owner’s draw or non-payroll checks you issue yourself do NOT count as a payroll expense.
Do independent contractors count as employees for purposes of PPP loan calculations?
No, independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.
What if I’m a new business or a seasonal business?
Per the SBA: In general, borrowers can calculate their aggregate payroll costs using data
either from the previous 12 months or from calendar year 2019. For seasonal businesses,
the applicant may use average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019. An applicant that was not in business from
February 15, 2019 to June 30, 2019 may use the average monthly payroll costs for the
period January 1, 2020 through February 29, 2020.
What can the PPP be used for in order to be forgiven?
- payroll costs (as defined in the Act and in 2.f.)
- costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
- mortgage interest payments (but not mortgage prepayments or principal payments); iv. rent payments; v. utility payments
- interest payments on any other debt obligations that were incurred before February 15, 2020
- refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020. If you received an SBA EIDL loan from January 31, 2020
However (and this is a HUGE However), at least 75 percent of the PPP loan proceeds shall be used for payroll costs. For purposes of determining the percentage of use of proceeds for payroll costs, the amount of any EIDL refinanced will be included. For purposes of loan forgiveness, however, the borrower will have to document the proceeds used for payroll costs in order to determine the amount of forgiveness.
The CARES Act Hardship Distribution waives the 10% early withdrawal penalty tax under Internal Revenue Code Section 72(t) on early withdrawals up to $100,000 from a retirement plan or IRA for an individual.
The bill also permits those individuals to pay tax on the income from the distribution over three years.
This means that you can get emergency cash from your retirement account regardless of your age.
Also, if you are currently on a retirement distribution schedule, you are not required to take a required minimum distribution from any individual retirement accounts or workplace retirement savings plans, like a 401(k)
You can have the 10% penalty waived for up to a $100,000 withdrawal if you:
- are diagnosed with COVID-19;
- have a spouse or dependent diagnosed with COVID-19;
- experienced adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19; or
- other factors as determined by the Treasury Secretary.
So, eligibility criteria number 3 is the big one for most of us.
This change would not affect old-fashioned pensions.
How to get it
Speak with your retirement account holder or financial adviser on how to withdraw funds. Many financial institutions allow you to process your withdrawal online.
Other Useful Information
Many organizations are supporting freelancers at this time. The best list we’ve found so far is this one, created from members of the Freelancer’s Union.
The programs above are for US-Based freelancers.
The CBC has put together this list of resources for Canadian artists and freelancers.
Also, a professor from Carleton University did this breakdown of new government programs.