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Financial Info Every U.S. Freelancer Needs to Know During the COVID-19 Pandemic
Not Just for Small Businesses: How the SBA is Helping US-Based Freelancers Get Though the COVID-19 Crisis
The recent COVID-19 pandemic has turned life upside down for most freelancers. What will you do if your income disappears? How will you pay your bills?
This is a very scary time, but, you’re not alone! In addition to helping small businesses, the Small Business Administration (SBA) and other government agencies have programs in place to assist freelancers operating out of the United States. We’ve gathered up the most important information you need to know and some actionable steps for getting the help you need.
By the time you’re through reading this article, you’ll know exactly what options are available to you and the best ways to take advantage of them. This includes a deep dive into the CARES act, tips for applying for SBA assistance, and what you need to know about student loan payments and retirement withdrawals.
At a time like this, it's easy to dive head-first into a tub of Ben and Jerry's and try to ignore your problems -- but that won't make them go away. A bit of uncertainty is nothing new for freelancers and there's plenty of assistance available to help you get through this. Stick with us as we go through the most important financial information every freelancer needs to know during the COVID-19 pandemic.
The COVID-19 emergency relief bill, commonly known as the CARES Act, was passed into law on March 27th. This bill is designed to help boost the U.S. economy during this unprecedented time. It provides benefits for most businesses, employees, and freelancers.
The program provides assistance in several different ways, and offers freelancers more benefits than ever before. Let's take a look at some of the provisions that may be able to help you get back on your feet.
One-Time Stimulus Checks
All workers, including freelancers, are eligible to receive a one-time cash payment of $1,200 per adult and $500 per child. To qualify for the full amount, you must have an adjusted gross income (AGI)—which is your gross income minus deductions—of $75,000 or less on your 2019 tax return. If you make between $75,000 and $99,000 ($150,000 and $198,000 for married couples filing jointly), you’ll receive a smaller check.
However, the stimulus check is not guaranteed. There are some exclusions, so make sure you look up the rules before you add that money to your budget.
If you haven’t filed your 2019 taxes yet, don’t worry. Your check will be based on the information provided on your 2018 return.
If you are eligible, and you've filed your taxes electronically, you don’t have to do anything to receive this check. The funds will be deposited into the bank account used for your most recent tax return filing. You can learn more about these stimulus checks by visiting the Economic Impact Payment Information Center on the IRS website.
Knowing that there's some cash on the way should give you a little bit of breathing room while you figure out the rest. Keep in mind that hundreds of millions of people are filing right now, so early indicators point to September for the stimulus check's arrival.
Deferred Tax Filing
The IRS has also pushed the deadline to file and pay your taxes to July 15th, 2020. If you make estimated tax payments, your first-quarter payments also aren’t due until July 15th. This is true regardless of how much you owe, and you don’t have to call the IRS or file any paperwork to take advantage of this change.
This is one time, however, when you might want to think about getting things done well before the deadline. If you're due a refund on your 2019 tax return there's no sense in letting the IRS hold onto your cash for any longer than necessary. According to the IRS website, they're still issuing most refunds within 21 days.
If you work with a professional tax preparer, give them a call and see if they'll file your return now. If you do your own, put this on your "to-do" list for this week and you could have some extra cash flow by early next month.
Student Loan Provisions
While the CARES act doesn't address debts like mortgages and credit cards, it does offer some relief for if you're still repaying your student loans. Federal student loans that are also federally held will receive an automatic forbearance until the end of September, and no interest will accrue during this time.
This seems like a great time for our Word of the Day: Forbearance—Temporary postponement of payments granted by the lender or creditor in lieu of forcing a loan into delinquency. This is different from Deferred Payments in a key way. When a lender defers payment, they often keep interest locked. In forbearance, your interest and payments are likely to increase.
In this case, per the CARES act, you will accrue no interest during this period.
However -- and this is important -- not all student loans qualify. If the lender is the federal government, you automatically qualify and don’t have to do anything. However, lenders like Sallie Mae and loans held at banks don’t qualify. This means you must keep making your student loan payments and you'll likely still be charged interest.
This can be pretty confusing, and you don't want to make a mistake that could end up hurting your credit or racking up more debt. So, before you make any changes, make sure you reach out to your lender to find out how (or if) this impacts your specific loan.
If you’re having trouble making payments and you don't have a federally serviced loan, you're not out of luck. Call your lender and ask about forbearance and other options for reduced payments.
We know how stressful all this can be, so please enjoy a break with this puppy.
As a freelancer, unemployment benefits have always been something reserved for "other people." Not anymore!
The CARES act expands unemployment coverage so that it also applies to:
- Self-employed individuals
- Independent contractors
- Those with a limited work history
To qualify, you must be willing to work, but unable to do your job as a result of the COVID-19 pandemic. The benefit amount you receive will depend on the provisions of your state’s unemployment program. In addition, the CARES act adds an extra $600 per week, and allows you to collect benefits for 13 weeks longer than your state’s program. It also waives the one-week waiting period that is typically required before you begin receiving benefits.
The states are receiving extra money from the federal government to help pay for the mass influx of unemployment benefit claims. To receive benefits, you’ll need to find your state’s unemployment office and submit an application.
Unfortunately, there are many reports of websites crashing and long hold times, so make sure you pour a cup of coffee and channel plenty of patience before you begin. Once you're done, however, the peace of mind this extra financial support will give you is well worth the effort — we promise!
Paycheck Protection Program
One of the most important parts of the CARES act is the Paycheck Protection Program (PPP), which will distribute $350 billion in loans to small businesses. These loans are 100% guaranteed by the federal government and can be forgiven as long as you meet the requirements. Note that the requirements for forgiveness are very strict, so make sure you read the rules on the website.
The PPP is available to small businesses as well as freelancers, sole proprietors, and independent contractors, as long as you were in business before February 15th, 2020.
Following are the key things you need to know about these loans:
- The loans are backed by the SBA and issued through banks and other lenders
- You must apply no later than June 30, 2020
- The maximum loan amount is 2.5 times your average monthly payroll or $10 million (whichever is lower)
- The loan matures in 2 years and has a 1% interest rate
- Payments are deferred for 6 months
- There's no requirement for personal guarantees or collateral
As long as you use the funds for payroll costs, mortgage, utilities, or rent, and at least 75% went to payroll, the loan can be 100% forgiven. This means that you won't have to repay the money you borrowed! Again, these rules are incredibly strict. Read the website and be prepared for a bit of back and forth if you apply for forgiveness.
- You cannot adjust your staff during this time. Your level of forgiveness will be reduced by the same amount you reduce your headcount
- Your forgiveness is reduced if you lower salaries
- You have until June 30, 2020 to fully restaff if you are using the loan to rehire employees
It's also important to remember that the Federal Government is likely to issues millions of these loans, which means a backlog for any paperwork filed, which means you will be on the hook for loan payments at least in the short term. You shouldn't use this option if you cannot afford at least 8 weeks of payments.
It is also important to note that you can’t get both a PPP loan and unemployment at the same time. Make sure you weigh the pros and cons of each before you submit any applications.
A loan like this might sound too good to be true...because there are a LOT of caveats. If you're considering the PPP to help out your small business during this time, we recommend you do your research, talk to your financial advisor (if you have one, otherwise use a friend's), and do your due diligence before signing up.
SBA EDIL Loans
Another option for freelancers who don’t qualify for PPP or need additional assistance is the SBA’s Economic Injury Disaster Loan (EIDL). This loan is currently open to small businesses and freelancers affected by COVID-19 in all 50 states, territories, and Washington, DC. You can also apply for a loan advance of up to $10,000.
The advance will be made within a few days from when your application is processed and it does not have to be repaid. Learn more about this program by reviewing the SBA’s EIDL program web page.
Again, there is no such thing as free money. Make sure you are reading all the rules and requirements and sticking to them! If you have questions, you can submit them to the SBA through their website.
You can apply directly through the SBA by clicking here.
Retirement Plan Withdrawals
Lastly, you may be wondering whether it’s a good idea to tap into your retirement savings to help you get through this economic crunch (it is not, but keep reading). As part of its response to this crisis, the government has loosened the rules regarding hardship distributions from company retirement plans.
You can now access up to $100,000 of your savings without having to pay the 10% early withdrawal penalty. If your 401(k) allows loans, you can choose to borrow from your account instead. Under the new rules, you can borrow 100% of your account balance or $100,000 (whichever is lower).
You've surely heard the cliche "Just because you can, doesn't' mean you should."
Well, in addition to questionable fashion trends and decisions you'll regret in the morning, this phrase also applies to taking money from your retirement account.
With all the other options available to you, disrupting your retirement savings plan should be an absolute last resort. This is especially true if your holdings are down significantly due to market declines. In this case, selling now will lock in your losses and guarantee you don’t have a chance to recover.
Unless you absolutely need that money to survive, we suggest you don't touch it.
The Bottom Line
As a freelancer, you now have access to the same financial assistance offered to larger companies. Choosing one or more of the benefits discussed above can help you stay on your feet during this COVID-19 pandemic.
With so many options available, it's important not to jump into anything too fast. Take a deep breath and weigh the pros and cons of each before you start making decisions. Play your cards right, and you may be able to come out of this stronger that ever!
Beth Deyo is a a Certified Financial Planner® Professional with 14 years of experience.
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