Losing a job has given many people the spark they need to start a business. This can be a great time to start since its rarely ever “the right time” since the income during the first few years of a business are unpredictable. A very common question is whether a person can collect unemployment while trying to start their business.
By having the safety net of unemployment income, this seems like the perfect opportunity. Every state is different in regards to collecting unemployment insurance benefits while running a business that can affect the eligibility of those benefits should the business make a profit. Similar to a person who works at a part-time job while collecting unemployment benefits, income from the part-time job must be reported. Income from a business is typically considered the same.
While each state is different, eligibility for unemployment while self-employed typically depends on the amount of income generated by the business, the business activities are being performed and the amount of time spent on the business.
Some states don’t restrict a person from collecting unemployment while making self-employment income from business ownership, however, the income received from the business will offset the benefits. For example, if your weekly benefit is $500 and you made $300 in wages or earnings from the business, you would receive the remaining $200 in unemployment compensation.
Some states will permit a person to collect benefits while starting a business provided it is different from their previous source of income. Other states do not have this requirement.
Some states have an even more strict policy against starting a business while receiving unemployment, even if the business is not making any money. Just the mere filing an LLC could put the recipient’s benefits in jeopardy. With how many information systems are connected, it’s pretty easy for states to find this out.
One factor that may impact receiving benefits is the amount of time spent on the business that could have been spent looking for or being able to start at a full-time job. If the unemployment office determines that too much of the recipient’s time is being spent on the business, benefits could be reduced or eliminated.
While it’s tempting to try and hide a business and collect benefits, it’s a good idea to follow the rules otherwise there is risk in having to pay back benefits. Each state varies, but they all have the ability to come back after funds several years later.
Unemployment Programs to Help Start a Business
A few states have initiatives encouraging people on unemployment to start a business. The Department of Labor has a program called the Self Employment Assistance program (SEA). This program allows people to collect unemployment compensation while they work on their business and don’t have the same reporting requirements as job-seekers.
That program was launched during the last recession and many states have since stopped offereing it. A few states that still offer the SEA program include:
Who is Eligible for Self-Employment Assistance?
Some eligibility requirements for SEA include:
- The recipient being eligible for and currently be receiving unemployment benefits.
- Not likely to return to employment.
- The recipient having a viable business idea, willing to work full time in developing your business, and having the finances necessary to start the business.
If those elibility requirements are met, there are some activities that need to be first demonstrated which include writing a business plan, taking business classes and showing progress in starting a business.
Minnesota has a similar program called the Converting Layoffs into Minnesota Businesses or Climb.
Similar to SEA, Climb is an initiative through the state’s Dislocated Worker Program to promote entrepreneurship as an alternative our out-of-work individuals to finding another job.
State’s Unemployment Office Links
As eligibility varies from state to state, it’s best to first check with your state unemployment office to get the correct information.
Links for each state are included below.
• New Hampshire
• New Jersey
• New Mexico
• New York
• North Carolina
• North Dakota
|• Rhode Island
• South Carolina
• South Dakota
• Washington, D.C.
• West Virginia