What Freelancers and Small Business Owners Need to Know about the New Stimulus Package?
Amid the economic crisis, Congress approved a new $900 billion stimulus package last year. The package is meant to help Americans overcome the prolonged economic fallout caused by the worldwide pandemic. But, what does this mean for freelancers, contractors, small businesses, and alike?
The bill is still evolving as President Joe Biden is working with Congress to expand the package’s offerings. But, self-employed folks would certainly like to know what the bill has for them as of now.
Here’s a straightforward recap of what the new stimulus package entails so far:
Who qualifies for the new stimulus package?
As per the CARES Act, Pandemic Unemployment Assistance (PUA) offers help and support to workers who do not qualify. These include freelancers, self-employed, small businesses, gig workers, contractors, and parents who cannot work due to child-care needs. PUA provides assistance for up to 39 weeks.
Workers who were to stop receiving these benefits on December 26 will continue receiving the same for another 11 weeks.
Those individuals who are getting Pandemic Unemployment Emergency Compensation will be covered for 24 extra weeks. This is in addition to what the state government provides to individuals with long-term unemployment.
Every freelancer or small business owner is advised to keep checking the program for updates.
You will get a $600 stimulus payment.
Have you received a stimulus payment at the beginning of the year 2020? If yes, you are eligible to receive funding from the new stimulus package termed as Economic Impact Payments (EIP) 2.
This year, you will get $600 per adult who earned less than $75,000 in the year 2019. In addition, for every dependent under the age of 17, you will get an additional $600.
If you made more money in 2019 than in 2020, then you will be ineligible for this payment according to your 2019 tax return. You can claim the new stimulus payment as a tax credit when you file 2020 taxes in this scenario.
If you received the payment with the previous stimulus package, you would get the payment with the new stimulus package in the same bank account. You don’t have to do anything to get it.
Alternatively, you can receive a prepaid debit card or a check for the payment. But this mode of payment takes longer to arrive. In case you change your bank account, the IRS will deposit the sum to your old account.
Extension of Pandemic Unemployment Assistance (PUA) + $300 per week
PUA covers part-time workers, freelancers, and other professionals who are often ineligible for other state-funded unemployment programs. Congress has decided to extend this program for another 11 weeks, until March 14, 2021.
In case you have not reached your maximum benefit by March 14, the extension will further expand until April 5th. During that period, the government will include an extra $300 per week to the sum of money you are currently eligible for.
You may Benefit from Economic Injury Disaster Loan (EIDL) Advances.
The EIDL program consists of two parts:
- Loan: Capped at $150,000 for every business
- Advance: Capped at $10,000 – $1,000 for each employee
So, if you are a freelancer or a business one, you are eligible to claim $1,000. But earlier the year 2020, the advance EIDL went cash crunch and stopped accepting applications.
In the face of economic crises, the EIDL program may come into existence once again. The new bill provides EIDL with an amount of $20 billion, and it will soon start accepting applications.
Impact of CARES Act II on businesses working with independent contractors
Most of the independent contractors will file applications to PUA without a designation that the claimant is self-employed. This could lead to legal challenges for companies because they may end up having a false record.
That is why businesses should contest applications timely to prevent the improper assessment of pending unemployment taxes. In this case, the state workforce agency could also conduct an immediate audit of independent contractors’ classification status.
Ideally, the response strategy should include the following:
- Quick collection of an applicable independent contractor agreement.
- Checking the legal status of an independent contractor in their state.
- Finding out the required information from the claimant supporting the independent contractor status.
- Submitting a persuasive response to the notice when a company employs the claimant.
- Instant transmittal of claim notices to the company’s human resources or legal department.
- Identify the independent contractor’s eligibility for PUA benefits as a self-employed individual.
New Payment Protection Program (PPP)
The new PPP program allows small business owners to use their borrowed money to purchase supplies and protective equipment. They can also use the loan amount for repairs of property damages caused by public disturbance.
The new PPP program imposes very tight limitations so that genuine and eligible small business owners can leverage it.
The aid is also available to minority-owned community development financial institutions and has less than ten employees.
The basic requirements for the new PPP program are:
- Companies’ revenue should be below 25% or more from the last year. New businesses can also apply for the program by showing that their revenue is down 25% or more from the 2020’s earlier quarter.
- Those who have already applied to PPP wait for 90 days before applying again.
- Businesses cannot have 300+ employees.
- Businesses cannot be on the stock market.
When it comes to the new PPP limitations, hospitality businesses can get a loan of up to 3.5x of payroll. This time the cap may be lower than the original $10 million, according to your business. For instance, new businesses and firms operating in multiple locations have a $2 million loan cap.
Finally, if you have already applied for this program, the new loan is capped at $2 million. In any case, the loan amount cannot get more than $10 million.
Takeaway
The New Stimulus Package seems very helpful to small business owners, freelancers, and contractors. If you are eligible and take care of all criteria, this can prove to be a powerful tool to deal with your financial crisis.
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