Can I File for Unemployment if I earned 1099 Income?
In general unemployment insurance qualification is based on payments into an unemployment fund and qualification to withdraw from the fund. If you never paid into such an account then you don't have funds to withdraw unless an investigation results in reclassification of your income from 1099 to W2. See the notes below
There are a lot of details. Let's stick to a high level overview. For more details search the IRS site and also review this document: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Understanding-Employment-Taxes
What are the typical Income Tax Categories?
Tax is paid on income (see line 44 of IRS 1040/yr 2014). If employed as a W2 earner then you and your employer made matching payments of approx. 6.2% to your Social Security account and 1.45% to Medicare. Notice the employer has matched your payment. This is an advantage of W2 income.
No taxes are deducted on 1099 Income thus when filing taxes one must calculate all taxes due and if underpaid then also pay a penalty. For self-employment, tax is paid on income plus taxes are due for social security and medicare. The self-employment tax rate was 15.3% for 2014. The rate consists of two parts: approx. 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance). Unfortunately 1099 compensation is used by too many employers to avoid responsibility for paying matching taxes on behalf of employees to the state and federal government.
What About Federal Unemployment Tax (FUTA)?
Employers report and pay FUTA tax separately from Federal Income tax, and social security and Medicare taxes. You pay FUTA tax from your own funds. Employees do not pay this tax or have it withheld from their pay.
For W2 wages, FUTA is a payroll tax at a rate of approx. 6.2% on earnings up to about $7,000. Most states have their own State Unemployment Insurance Tax Act (SUTA or SUI) and work with the Feds. to manage programs.
For 1099 wages, the employee can secure and pay into their own unemployment insurance policy. If you never paid into such an account then you don't have funds to withdraw unless an investigation results in reclassification of your income from 1099 to W2.
What Happens When You File for Unemployment Compensation?
They cross check the employers name, employer employer identification number (EIN), your social security, employment period and other information to confirm that FUTA was paid into the system for your benefit and for the required period. There are other details that are not addressed here. Talk to a tax expert.
If sufficient information matches their records check then the payment process can start.
If insufficient information is available or missing then they could trigger an audit. For example if you are claiming unemployment and there are no records of your employer paying into the system then it might require actions by the state/feds.
a) Maybe there is an error in the paperwork that needs discovery and correction
b) Maybe the employer deducted insurance and didn't file (this can result in fines and penalties for the employer)
c) Maybe you qualify as an employee even if the employer had you sign paperwork stating you are an independent contractor. In this case they could go after the employer for fines and penalties
d) Maybe you are not qualified to receive unemployment benefits and the case is closed.