Navigating the chaos of COVID-19 the last few weeks has been especially tough for us in the food and hospitality industry. Many, if not most, of us saw our work grind to a standstill – I had many of my projects halted and future contracts canceled or put on indefinite hold. With this uncertainty of the future (and my next paycheck), I channeled my energy towards learning about all my options regarding questions like, “Can I withdraw money from retirement?” and “Do I have to pay rent?”
Especially in light of the (very confusing) recent stimulus bill, I’ve also been reading up on if I can apply for loans as someone who works as an independent contractor. Here, I’ve put together a few categories of major personal finance-related questions many individuals affected by the coronavirus crises may be asking themselves. Hopefully, I can save you some of the headache of going out to find all this disparate information. For a very full and detailed breakdown of all of the below, you can head over to the personal finances resources document on my nonprofit’s blog here.
Do I still have to pay rent?
This has been quite unclear, with governors issuing memorandums yet landlords still asking for payment. While cities like NYC and L.A. have both declared a temporary halt to evictions (for renters) or foreclosures (for owners), you are still liable to pay the rent whenever the rule is lifted and you may be charged interest. (Landlords can also technically pursue legal action if they want to.) The only exception to this rule is for tenants whose landlords have mortgages backed by government entities like Fannie Mae, in which case landlords cannot charge any extra fees or evict non-paying renters. If you really cannot afford rent and you are considering not paying this month, make sure to notify your landlord in advance and communicate how you’ve been impacted by COVID-19 so the two of you can figure out a payment plan. Here’s some more information for both cities:
Can I apply for unemployment?
Most likely, yes! I was relieved to see freelancers, independent contractors, self-employed and gig workers can now all apply for unemployment benefits under Pandemic Unemployment Assistance (PUA) in the CARES Act (aka the stimulus bill).
The normal waiting period of one week for benefits has been waived, and under the Pandemic Emergency Unemployment Compensation (PEUC) there are another 13 weeks of unemployment benefits (up to 39 weeks) available. Even if you are still working but had your hours cut, you can apply for partial unemployment. Just make sure you apply for unemployment as soon as you have a change in employment history – while benefits are retroactive, if you file late there may be questions on why you waited.
Another important thing to note is the Pandemic Unemployment Compensation (PUC) which adds another $600 a week in unemployment benefits for up to four months, for those whose unemployment applications are accepted. Unemployment benefits vary by state. Find the appropriate link to your state here.
Can I put money on my credit card if I need funds?
If you need to, your credit card is a common and very accessible place to access debt. You’ll want to try and minimize the negative impact of carrying a balance (i.e. not paying the full amount due each month) by at least paying the minimum amounts and keeping your credit utilization rate (the percentage amount of what you use on your credit card, plus your carrying balance, over the card’s total credit limit) as low as possible.
You should also call your credit card provider and ask if they are able to extend you help such as temporary credit limit increases, forbearances (where payments can be missed for a period of time without penalties), or not charging interest.
Can I withdraw from my retirement account if I need money?
Yes, you can, but be aware of the consequences of doing so. The CARES Act has removed the 10% penalty usually associated with taking money from either your 401K or IRA account, but you still have to pay income taxes on it over the next three years. If you have a 401K, you may also consider a 401K loan, which is advantageous over direct withdrawal in some ways. The new law has also extended the amount you can loan from your own 401K to the maximum in your account (instead of the usual 50%) for 180 days.
If you have a ROTH IRA or 401K, you are able to withdraw your contributions (i.e. what you paid into the accounts) without penalty, but any earnings (i.e. money that was made from your contributions) are still subject to the usual bevy of penalties and taxes.
Can I apply for one of the SBA loans?
Maybe. Freelancers, independent contractors and self-employed workers are eligible to apply for both the Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP).
The EIDL is a standard SBA loan that’s been in existence; it is up to $2 million with an interest rate of 3.75% (2.75% for nonprofits) and a repayment term of up to 30 years. This is the loan that also comes with the Emergency Economic Injury Grant of up to $10,000 (which doesn’t need to be repaid). When you are applying for the EIDL, you’ll see a checkbox at the end of the application that asks if you want to be considered for the grant. From the latest news, it looks like the grant is $1,000 per employee of the business that’s applying.
The PPP is a new loan that is administered directly through your bank. You can borrow up to 2.5x your monthly payroll (or monthly income that does not total more than $100,000 per year), and if you spend that on categories the government has deemed forgivable, you will not need to pay that portion of the loan back. Everything not forgivable turns into a loan with a 1% interest rate with a maturity of two years, first payment in six months.
Applications for independent contractors, freelancers and self-employed people opened April 10, but since many banks are experiencing intensely high demand, a lot of places have either stopped offering them or will not offer them to new customers. So far, I’ve found three places that are accepting online applications: Kabbage, Cross River and Live Oak Bank. I haven’t banked with any of them before so I can’t vouch for them, but at least those are some options.
Finally, you can apply for both the EIDL and PPP, but you can’t use both sets of money for the same thing. If you receive grant money from the EIDL, that is subtracted from your forgivable amount in the PPP.
Do I still need to pay my taxes?
Yes. However, you have more time to do so. The federal tax filing deadline has been extended to July 15, 2020. If you owe taxes, you can delay filing to manage your cash out; if you are owed taxes, you can still file now to receive your refund faster.
I hope that was helpful! For a deeper dive into all of these topics above, visit studioatao.org.
Read more about financial planning for small business owners and see ICE's resources for restaurant industry workers.
