Can small business owners claim unemployment insurance?

Guidelines around unemployment insurance have changed over time. Unemployment rates have been between 3.7% and 3.9% since August of 2023. The federal government has offered targeted tax credits and special voluntary state programs for those starting a business.

Unemployment insurance guidelines

Businesses such as sole proprietorships, LLCs and other forms of business were not usually able to claim unemployment benefits. In other words, self-employed individuals had limited access to unemployment benefits.

To collect benefits, a small business owner has to demonstrate that they both own their business and work as an employee for their business. This means that the individual reports their information on a Form W-2, the Wage and Tax Statement Form instead of a Form 1099 NEC, which is for independent contractors.

As with other employees, these self-employed individuals must demonstrate that they have lost their employee status and prove that they are actively seeking new employment in order to be eligible for unemployment insurance.

To prove employee status, the individual has to clearly define their role within their business. This might often include roles such as CEO, president or director with a set of responsibilities. Then, they’d need to provide documentation and other evidence to prove that they are regularly performing duties in the defined role.

A guide to unemployment benefits for small business owners

If a small business owner qualifies for unemployment, the benefit amount they are entitled to varies according to the state their business operates in as each state is responsible for administering a separate unemployment insurance program. The owner will need to conduct further research to determine their eligibility in their state.

Unemployment compensation

If a small business owner is eligible for regular unemployment compensation, they can file a claim. Depending on the state, claim amounts vary based on the percentage an individual earned during a recent year up to a maximum amount set by the state. States may also have individual eligibility requirements.

How do you apply for small business unemployment insurance benefits?

To apply for unemployment insurance benefits, small business owners must file for regular unemployment insurance. Individuals should make sure to review eligibility requirements before selecting which to file. Then, they can apply with the state in which their business operates by finding the correct State Unemployment Insurance agency. Small business owners will need to complete two forms: one as a business owner and another as an employee.

Document requirements vary according to states, but small business owners should ensure that they have the following documents and information available:

• Their Employer Identification Number (EIN)
• Business and personal tax returns
• The prior year’s paystubs

This article is for information purposes only and is not intended to constitute legal advice. Consult with an attorney or lawyer for any legal issues you may be experiencing.