Openforce Cares: Independent Contractor Toolkit

By Openforce,

April 2, 2020

Openforce CARES:

Independent Contractor Toolkit

Your guide to finding financial relief during COVID-19

The coronavirus pandemic is hitting the U.S. economy hard. And whether you call yourself an independent contractor (IC), owner-operator, gig worker or sole proprietor, as a self-employed individual you may be struggling right now and
looking for help.

But—for the first time ever—new emergency legislation gives independent contractors and other self-employed individuals access to significant benefits programs and financial assistance unavailable to than traditional employees. As a member of the Openforce independent contractor platform community, Openforce is supplying you with the helpful information in this toolkit to allow you to take advantage of as many of these benefits as possible.

What these laws do

The massive Coronavirus Aid, Relief and Economic Security (CARES) Act provides over $2 trillion in relief to American families and businesses. As an independent contractor you may qualify for a wide variety of relief options, such as loans (that may be forgiven in whole or in part), grants, unemployment benefits, deferred taxes and more. At the same time, the Families First Coronavirus Response Act (FFCRA) enables independent workers to access a form of emergency paid leave. Keep reading for a breakdown of these benefits and how they might help you.

Benefits guide

Paycheck Protection Program (PPP) Loans2020-08-07T02:38:56+00:00

How it works

As one of two new loan programs, the PPP loans are designed specifically to provide small businesses and the self-employed (like independent contractors) with cash support. The loan amount you are eligible for is 2.5 times your average monthly payroll expenses—which can include payroll and health insurance premiums for W-2 employees, but not payments to ICs (more on this below). ICs can apply in their own right for up to 2.5 times their monthly “payroll” expenses—which includes their average “salary” and health insurance premiums.

Importantly, almost the entire amount of the PPP loan may be forgiven (no payback requirement) when applied toward qualifying expenses. These qualified expenses include items such as payroll costs and other designated business expenses listed in the CARES Act.

Because these loans will be available through a list of approved lenders, some terms may vary but the interest rate will be 1% on the portion of the loan that is not forgiven.

Things to consider

As of the guidelines released by the Small Business Administration (SBA) on April 3, contracting companies cannot use payments made to or on behalf of ICs as part of their “payroll” costs. This directly impacts the maximum loan amount, the authorized use, and the eligibility for loan forgiveness. ICs also do not count as employees for determining the size limits for PPP relief (500 or fewer employees). The rationale for this appears to be that independent contractors can apply for their own PPP loan and other relief. As a result, much of the language in the CARES Act appears to only be applicable to employees (not contractors), so we encourage you to discuss these matters with your own legal counsel.

Additional resources

SBA’s PPP Interim Final Rule (clarifies guidelines in relation to independent workforces)
Treasury Department’s borrower fact sheet
Sample application (learn what information to provide to your bank or credit union)

Tax refunds for business losses2020-08-03T17:45:04+00:00

How it works
Under the CARES Act, businesses can now carryback up to five years of net operating losses (NOLs) for tax years 2018, 2019 and 2020. In short, this means some taxpayers will be able to receive additional refunds on taxes previously paid.

Things to consider
Consult with your tax preparer to estimate your business losses for 2020 and file amended returns to potentially receive refunds for previous years.

Payroll tax deferments2020-08-07T02:38:56+00:00

How it works
The CARES act allows employers to delay certain types of payroll taxes, including Social Security and Medicare. These deferred taxes are required to be repaid over the next two calendar years—one half by December 31, 2021, and the other by December 31, 2022. Self-employed individuals such as ICs can also defer half of their self-employment taxes.

Things to consider
Specific requirements for tax filings are still pending from the IRS. For more information, check the IRS Coronavirus page below and contact your accountant or tax preparer to discuss the options available.

Additional resources
IRS coronavirus tax guidance

Tax filing deadline extensions2020-08-07T02:38:56+00:00

How it works
The IRS has moved the tax filing deadline for individuals and businesses from April 15 to July 15, 2020, which includes first-quarter tax payments (second-quarter payments are still due on June 15). Although anyone can take advantage of the extension, those who choose to file early will receive expedited tax refunds.

Things to consider
You don’t need to take any specific actions, but you should check with your tax preparer to see if you’ll need to adjust quarterly payments based on projected income.

Additional resources
IRS Filing and Payment FAQs
IRS Tax Resources (see the Tax Help section)

Paid sick and family leave tax credits2020-08-07T02:38:56+00:00

How it works
Although independent contractors are not usually included in paid sick leave benefits (though some states may have laws that include them), the FFCRA entitles eligible self-employed individuals to a paid sick or family leave tax credit.

The paid sick leave credit is available to an IC if they are unable to work or telework while under quarantine or are experiencing symptoms of coronavirus and seeking medical attention. They may receive a credit of up to $511 per day (up to $5,110 for 10 days) or 100% of their average daily income for up to 10 days—whichever is less.

A paid family leave credit is available if the leave is taken to care for a sick individual or child at home due to a school closure. The credit amount is either $200 per day or 67% of their average daily income for up to 50 days.

Note: Under this act, daily average self-employment income is calculated as self-employment net earnings for the taxable year divided by 260.

Things to consider
If an IC meets the criteria, they can claim the credit on their returns for the 2020 tax year—this tax credit comes directly from the IRS, meaning it is independent of any connection to a specific contracting company. However, keep in mind that it also means ICs may take leave for up to 50 days for reasons related to coronavirus.

Additional resources
IRS paid sick leave FAQs for the self-employed

Unemployment benefits2020-08-03T17:42:32+00:00

How it works
Self-employed individuals such as ICs do not usually qualify for unemployment benefits, but the CARES Act for the first time broadens the eligibility guidelines to include them—meaning qualifying ICs have a direct claim for unemployment benefits under their own tax ID. The expanded program runs through December 31, 2020, and provides retroactive benefits from January 27, 2020.

The revised benefits add 13 weeks of unemployment payments to most states’ usual 26, increasing availability from six to nine months. States are required to use the Disaster Unemployment Assistance Program formula to determine the amount received. An additional flat weekly sum will be added on top of that for the first 4 months someone collects unemployment.

Things to consider
ICs can apply for these benefits if they can prove they are either partially or fully unemployed, or unable and unavailable to work because of circumstances related to COVID-19. To do so, they will provide their own EIN or SSN when asked for their employer’s tax ID number. However, several possible concerns exist related to this process, including a lack of clarity related to the mechanisms a state unemployment agency will use to process such a claim and what happens if an IC incorrectly lists a contracting company as their “employer.” (See the sample response below if an IC lists your company as an employer.)

The CARES Act as it pertains to ICs does not reference contributions by an employer or contracting company of an IC-claimant, suggesting that it intends to offer federally funded unemployment coverage directly to the ICs (rather than employer-contribution funded). However, several possible concerns exist related to this process, including a lack of clarity related to the mechanisms a state unemployment agency will use to process such a claim and what happens if an IC incorrectly lists a contracting company as their “employer.” In addition, what happens to the supply chain if unemployment benefits exceed an ICs’ normal pay, causing ICs to opt for unemployment coverage over performing their usual services? Once again, these are questions to discuss with your legal counsel.

Additional resources
Sample Response to a CARES Act UI Claim

Economic Injury Disaster Loans (EIDLs) and advances2020-08-07T02:38:56+00:00

How it works
EIDLs are the second of the two loan options available to small businesses and self-employed individuals through the CARES Act. These low-interest, flat-rate loans can be used to cover expenses like paid leave, payroll or lost revenue due to the pandemic.

When you apply through the SBA website, you may be able to obtain an advance of up to $10,000 and receive it in as little as three days. When used on covered expenses, this advance does not have to be paid back, even if you end up being denied for the loan itself.

Things to consider
Once again, ICs are small businesses, meaning they can apply for EIDLs by entering their own information in the business section of the application. This, however, raises additional questions: What if ICs incorrectly list a contracting company as their employer? Could such documentation have future ramifications on potential misclassification claims? These are matters to discuss with your legal counsel.

Additional resources
Chamber of Commerce step-by-step application guide
EIDL terms and conditions

Paycheck Protection Program (PPP) loans2020-08-03T17:38:29+00:00

How it works
As one of two new loan programs, the PPP loans are designed specifically to provide small businesses and the self-employed (like independent contractors) with cash support. The loan amount you are eligible for is 2.5 times your average monthly payroll expenses—which can include payroll and health insurance premiums for W-2 employees, but not payments to ICs (more on this below). ICs can apply in their own right for up to 2.5 times their monthly “payroll” expenses—which includes their average “salary” and health insurance premiums.

Importantly, almost the entire amount of the PPP loan may be forgiven (no payback requirement) when applied toward qualifying expenses. These qualified expenses include items such as payroll costs and other designated business expenses listed in the CARES Act.

Because these loans will be available through a list of approved lenders, some terms may vary but the interest rate will be 1% on the portion of the loan that is not forgiven.

Things to consider
As of the guidelines released by the Small Business Administration (SBA) on April 3, contracting companies cannot use payments made to or on behalf of ICs as part of their “payroll” costs. This directly impacts the maximum loan amount, the authorized use, and the eligibility for loan forgiveness. ICs also do not count as employees for determining the size limits for PPP relief (500 or fewer employees). The rationale for this appears to be that independent contractors can apply for their own PPP loan and other relief. As a result, much of the language in the CARES Act appears to only be applicable to employees (not contractors), so we encourage you to discuss these matters with your own legal counsel.

Additional resources
SBA’s PPP Interim Final Rule (clarifies guidelines in relation to independent workforces)
Treasury Department’s borrower fact sheet
Sample application (learn what information to provide to your bank or credit union)

Other help2020-08-03T17:37:57+00:00

These government aid packages offer a slew of additional assistance options that you may be eligible for, including:

  • A halt on foreclosures and evictions by lenders of mortgages backed by federal agencies for 60 days starting March 18, 2020. Read the official announcement from the U.S. Department of Housing and Urban Development.

 

  • Forbearance of mortgage loans where the individuals holding the loans can prove economic hardship as a result of COVID-19. Read up on how to get more help with your mortgage.

 

Early retirement fund access2020-08-07T02:38:56+00:00

How it helps
The CARES Act allows individuals under 59 ½ years of age to withdraw up to $100,000 from retirement plans such as 401(k)s or IRAs without incurring the 10% early withdrawal penalty tax. You may also pay tax on income from the distribution over three years. This option should be carefully evaluated and discussed with your plan provider.

How to get it
Contact your retirement plan provider to discuss early withdrawals and set up repayment terms. Anyone can apply if they have a 401(k) or IRA and are suffering health or financial impacts from COVID-19.

Additional resources
IRA and Retirement Plan Changes in the CARES Act

Tax refunds for business losses2020-08-07T02:38:56+00:00

How it helps
Under the CARES Act, small businesses and independent workers who pay themselves within a corporate structure (such as S-corporations and sole proprietorships) can now carryback up to five years of net operating losses (NOLs) for tax years 2018, 2019 and 2020. In short, this means some taxpayers will be able to receive additional refunds on taxes previously paid.

How to get it
Get in touch with your tax preparer to estimate your business losses for 2020 and file amended returns to potentially receive refunds for previous years.

Unemployment benefits2020-08-07T02:38:56+00:00

How it helps
Self-employed individuals, independent contractors, and gig workers do not usually qualify for unemployment benefits, but the CARES Act for the first time broadens the eligibility guidelines to include independent workers, meaning qualifying independent contractors have a direct claim for unemployment benefits under their own tax ID. The expanded program runs through December 31, 2020, and provides retroactive benefits from January 27, 2020.

The revised benefits add 13 weeks of unemployment payments to most states’ usual 26, increasing availability from six to nine months. States are required to use the Disaster Unemployment Assistance Program formula to determine the amount you will get. An additional flat weekly sum will be added on top of that for the first 4 months someone collects unemployment.

How to get it
If you want to apply for these benefits, you’ll need to prove you are either partially or fully unemployed, or unable and unavailable to work because of the circumstances related to COVID-19. Because as an independent contractor, you are self-employed, you’ll want to use your own EIN or SSN when asked for your employer’s tax ID number. As noted above, doing so allows you to aggregate revenues from all independent contractor sources in eligibility calculations. For more information, head to your state’s Department of Labor website or use the link below.

Note: The current unprecedented demand may cause delays in application processing and receiving funds.

Additional resources
How to apply for unemployment benefits (resources for every state)
Pandemic Unemployment Assistance information for ICs

Stimulus checks2020-08-07T02:38:56+00:00

How it helps
U.S. residents and citizens with an adjusted gross income of $75,000 or less (adjust this figure to $112,500 for head of household or $150,000 for married filing jointly) will receive a one-time stimulus check for $1,200. That number increases by $500 for every child under 17. The amount is determined based on your 2019 personal tax returns, but if you have not filed yet, it will be based on your 2018 returns.

To be eligible, you must have a work-eligible Social Security Number and not be a dependent on someone else’s tax return.

How to get it
These payments will be sent to you directly via mail or direct deposit (however you normally receive a tax refund) and are expected to begin going out in April 2020. If you filed your tax returns in 2018 or 2019, no action is required on your part. If not, click on the links below for more information on how to obtain your check.

Additional resources
IRS’s FAQs

We want to help, so keep checking back

As difficult as things are right now, the current crisis has made the vital role that independent workers play in the economy more visible. Thankfully, that means there is more relief available for independent contractors and the self-employed than ever before—and it includes options (like the loans and advances) that aren’t available to traditional employees.

Over the next few weeks, we will continue to update this page as the government releases new guidelines about each of these programs, so keep checking back. We’re committed to making sure you have the information you need.

Legal Disclaimer

Openforce provides general information and industry guidance related to solutions and services for independent contractor workforces. Openforce does not provide legal advice and is not a law firm. While we may have former lawyers and other legal specialists on staff, none of our representatives are licensed lawyers and no one at Openforce provides legal services. Although we go to great lengths to make sure our information is accurate and useful, we always recommend you consult a lawyer for legal advice or business/tax advisor for applicable business assistance.

About Openforce

Openforce is the leader in technology-driven services that reduce operating costs and mitigate risk for companies using independent contractors. Our cloud-based applications help companies and contractors alike achieve more sustainable, profitable growth by removing financial, operational, and compliance barriers to getting business done.

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