Discussion:Can a one member LLC who has a W-2 collect unemployment?

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Discussion Forum Index --> Advanced Tax Questions --> Can a one member LLC who has a W-2 collect unemployment?


Discussion Forum Index --> Tax Questions --> Can a one member LLC who has a W-2 collect unemployment?

Wkstaxprep (talk|edits) said:

22 February 2009
Hi,

If someone can answer this question I would be thankful.

I have a client who has worked as a full tim employee for same company for a number of years who just opened an LLC recently for his modest side business. (he just started the buisness and paid the $25 llc nys fee but has no activity yet)

If client gets laid off, will he lose his right to collect unemployment benefits after working all these years at same company only because he opened a single member LLC?

It would seem unfair but may be what the tax law dictates.

Thanks again !

TexCPA (talk|edits) said:

22 February 2009
IRS article (outdated link - if anybody knows what page it was going to, please post below!)

New York - Labor - LLC

New York - Labor - covered1

this should help

Good Luck TexCPA 21:48, 21 February 2009 (CST)

Actionbsns (talk|edits) said:

22 February 2009
I think the question here is "Can my client work his side business, earning however small an income, and still collect unemployment because he's worked for his employer for so long". I believe the answer would be no. Someone on UI has to answer questions to continue receiving benefits and one of those questions usually concerns having earned income from any source. I know people who have collected UI while getting businesses started, but if caught, the UI people would get pretty cranky about the whole thing. It's an ethical and moral issue. If you are counseling your client I believe you need to tell him that no he can't have his cake and eat it too. (Or Girl Scout cookies, if the box fits).

Taxea (talk|edits) said:

22 February 2009
However, if the sel-employment income does not equal or surpass what the client would receive in UI benefits...don't they just deduct that amount from the benefit? Wouldn't this be like taking a temporary or lesser job that pays less than UI benefits. I think it all depends on how much the client is making in income from the self-employment.taxea

Death&Taxes (talk|edits) said:

22 February 2009
I think this is decided at state level. I know right now of several staffers laid off by a newspaper who made the mistake of saying they are trying to write on their own, and now their benefits are being held up by Pennsylvania. One had her benefit reduced by the amount of free-lance monies she reported in 2007, but the others are still up in the air.

I would also note that if the activity is significant, the ex-employer can question the right to the claim.

Actionbsns (talk|edits) said:

22 February 2009
Tax and D&T, I think you are both right. It depends on the state and it's rules. When asked how much you earned, it would affect your benefits most likely and it could negate them. The previous employer can also challenge the benefits being paid if he/she believes the ex employee is working "under the table" for someone or themselves. Since UI benefits are experience rated for the employer, they have a vested interest in not having EE's on UI. WKS should either research the state's position so he can properly counsel the client or tell the client he's not sure what the UI rules are and the client should do his own research. I think I'd put it on the client to research and avoid any possibility of a liability issue or an angry client when things don't happen the way they discussed.

Blrgcpa (talk|edits) said:

22 February 2009
No.

Mblatour (talk|edits) said:

22 February 2009
Say for instance that we use the above example (first post) and in the month of February the taxpayer is laid off for 2 weeks from his regular job. In those 2 weeks, he does a "side job" for his LLC biz. He gets paid on the second week of those 2 weeks off for a total of $1000 for that side job.

Could he apply for UI benefits for the first week? In my state (MN) it goes on a week by week basis for employment. When you apply for UI benefits, it asks you whether or not you worked the previous week and if so, how much did you work (hours) and how much were you paid. If the amount you received was more than your allowed benefit, you then receive nothing. But say you applied for benefits for week 1 because you weren't paid until week 2, could you get paid a full weeks worth of unemployment and then just lose the benefit in the second week only?

Hope this makes sense!

Becky

Taxea (talk|edits) said:

23 February 2009
This is not a tax issue it is an unemployment benefit issue and the research and questions should be done through the state unemployment benefits office. taxea

Mblatour (talk|edits) said:

23 February 2009
So sorry to offend. :(

Death&Taxes (talk|edits) said:

23 February 2009
Sorry, but indirectly this can become a tax issue.

Many talented clients are on the verge of losing their jobs and want to know about going into business. Do they form S Corps or LLCs electing to be S Corps and pay unemployments taxes, never to be able to collect....ditto workmen's comp insurance.

And I wonder if any of us have seen clients collecting unemployment while having started businesses and realized that this can be almost as bad as not reporting income.

Wkstaxprep (talk|edits) said:

24 February 2009
Thanks for the feedback everyone!

Rwineland (talk|edits) said:

24 February 2009
I have had this same issue come up-and I'm sure it's not the last time this recession...

In Indiana, I found that the reporting of earned income results in diminished unemployment earnings AND if the client is not looking for full-time work, they become ineligible.

Wkstaxprep (talk|edits) said:

24 February 2009
What if the single member LLC had a loss? - gross receipts of $700 and expenses of $1,000 net loss =($300)

Jeannec (talk|edits) said:

25 February 2009
it also has to do with being "able and available" for work...if you are self employed and 'working' you are NOT able and available for work - unless you are....if you are working for your own company on a part time basis...then you may indeed be available for work.

Fsteincpa (talk|edits) said:

28 April 2009
http://taxalmanac.org/index.php/Discussion:Unemployment_and_New_Corporation

Adding the link to my situation because it fits here.

Another thing to consider is the fact that many people have side business or part time businesses even while employed for others. Does having this parft time "job" exclude them from receiving benefits?

If I work full time for a CPA firm and deliver for Domino's Pizza on Friday nights to supplement my income, am I therefore ineligible for benefits?

Whether allowable or not, there needs to be a line drawn between someone trying to start a full time business vs someone who has a part time gig.

We will definitely be seeing a lot more of this in the months to come.

Joanmcq (talk|edits) said:

29 April 2009
In CA, I did collect a small amount of unemployment based on my seasonal work, even though I had my own biz. Deducted the amount I made (gross unfortunately) if I made any in a week from the very small UI check. Yes I looked for work, but did have to explain there arent' a lot of tax jobs hiring in July.

Newtaxguy (talk|edits) said:

April 29, 2009
Joanmcq,

If memory serves, in CA, if you report earned income for a particular week, reducing or completely eliminating your elibility for benefits that week, the funds you would've been paid remain payable to you within your period of eligibility and you can get them later in the eligibility period when you don't have any earned income.

The New Tax Guy

Natalie (talk|edits) said:

April 29, 2009
Thank you, Wks, for asking this question. I have a client that lost a major contract just recently. It's a husband/wife 50/50 S-corp. The wife is going to focus more on her services, which don't rely on this contract. The husband, however, is planning on filing for unemployment. I hadn't even considered that he might not be eligible because they've paid into the system for years. (So many, that their rate is now 0%.)

AEM CPA (talk|edits) said:

30 April 2009
New Jersey has a Self-Employment Assistance program which allows people to collect while starting a business:

http://www.wnjpin.state.nj.us/business/sea.htm

Death&Taxes (talk|edits) said:

30 April 2009
We used to joke about laying ourselves off, but Natalie, it sure can come true. It varies state to state, but I have seen people collect in PA when their location was bought under Eminent Domain and they had to close, or in the event of fire.

Blrgcpa (talk|edits) said:

30 April 2009
In NY if you have p/t employment and laid off from full time work, you can't collect. If you are listed as an officer of a corp you can't collect.

Years ago when my husband incorporated his business, he listed me as the treasurer. Years later, when I was no longer employed by the CPA firm where I worked, I applied for UI benefits. It was denied because they checked with the sec of state and found that I was an officer of the corp, even though I did not own stock.

Natalie (talk|edits) said:

April 30, 2009
Barb, are you saying you were laid off one company and denied unemployment benefits because you were listed as an officer of another company? Is that the rule in all cases? Or did they assume officers are working and receiving compensation? And if that's the case, please tell me officers' compensation is not subject to unemployment tax in NY.

Cobbcpa (talk|edits) said:

1 May 2009
I've run into this issue, too. A client came to me in December with questions about starting a business and wondering in which year to deduct startup costs. He formed an LLC and started selling goods right away to take them in 2008. Then he found out that this could jeopardize his unemployment benefits, which was the most important thing to him, because he'd planned that to be his income stream while the business got going. He was angry that I hadn't warned him about the unemployment issue before he formed the LLC. It was earlier in the economic downturn, and I hadn't thought to ask if he was collecting unemployment and hadn't considered the possibility. Basically, I learned the hard way to always ask if clients are collecting unemployment when they've been laid off and want to start a business or have side jobs. I tell them to contact the State Dept. of Labor, because they need to understand the rules. I don't try to interpret the rules for them - another CPA suggested that I refer them to someone with a background in labor laws, and that seems like good advice.

Death&Taxes, in regards to your post above - Now I'm wondering if we have any liability as preparers if we do a return for someone who did collect unemployment while they had another (albeit small) income stream that they'd failed to report.

Cobbcpa (talk|edits) said:

1 May 2009
(To clarify my last sentence above) failed to report to the Dept. of Labor.

Natalie (talk|edits) said:

May 1, 2009
Well, if they failed to report other income to the DOL, that's fraud, and for that you can see probably half a dozen discussions on this board.

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