Starting a Business on Unemployment

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How to Start a Business on Unemployment

What to Know Before Starting a Business on Unemployment

Job loss can be a very unsettling thing, especially if you were not at fault. It leaves you with a whole mix of emotions, from the discomfort of having to tell your friends and family to the anxiety of not knowing how you’ll pay your bills.

But while job loss can be upsetting, it also offers you an opportunity to start fresh. You can file for unemployment as you decide whether to change careers, look for another job, or go into business. For those who choose to leap into entrepreneurship, you may be wondering whether you can start a business while on unemployment benefits.

What You Need to Know About Starting a Business on Unemployment

This post will highlight everything you need to know about launching a business while on unemployment to help keep you out of trouble.

Can You Launch a Business While on Unemployment?

So, can you set up a business while receiving unemployment benefits? Well, yes, you can. Being on unemployment doesn’t prohibit you from launching your startup. It may, however, affect your ability to collect unemployment benefits or reduce the amounts you receive. It all depends on your state.

The rules and requirements governing unemployment benefits vary from one state to another. It’s best to research the laws that apply to your state when starting your new venture.

Does Starting a Business Affect Unemployment?

two women talking in a waiting room.Being on unemployment may not prevent you from starting a business, but it can disqualify you from eligibility if you don’t follow the requirements. Most states require you to actively be hunting for a job to keep receiving the unemployment benefits. You are supposed to be ready and willing to work. Failing to search for a job or turning down a good position with no legible cause might result in disqualification.

Once you launch your new venture, you may lose interest in working for somebody else and decide to work for yourself.

The state still requires you to show your willingness to get a job to keep receiving the benefits. You can opt for a part-time job that doesn’t take much time away from your startup. Most states will offer you partial benefits if you have a part-time job.

Can I Collect Unemployment Benefits While Starting a Business?

As long as you follow the rules governing unemployment in your state, then you can keep collecting the benefits. There are, however, states that restrict you from receiving unemployment benefits if you are self-employed. This reason is why you need to research the rules and requirements in your state.

Alternatively, you can apply for the SEA (Self-Employment Assistance) program. This program is available in some states, namely, Washington, New Jersey, New York, and Oregon.

Other states might offer similar programs, so make sure you do your research. The SEA program allows you to engage full-time in your business by waiving the job search requirement. If you apply for this program, you will collect self-employment benefits as opposed to unemployment benefits.

For you to be eligible for the SEA program, you need to first qualify for unemployment. This means you need to have lost your job through no fault of your own. You are also required to enroll in the SEA training program to help develop your skills in starting and running a business.

There might be other eligibility requirements, so it’s best to check with your state.

Can You Use Your Unemployment Benefits to Fund Your Startup?

The short answer is no. You are not supposed to use your unemployment benefits or insurance to fund your startup. The purpose of unemployment insurance is to assist you with paying your bills and acquiring basic needs like food as you search for work. Using it to finance your business may be considered misuse.

You can, however, apply for the SEA program to receive self-employment benefits or seek other funding opportunities.

How Does Starting a Business Affect Unemployment Benefits?

Starting a business can affect the number of benefits you receive. But again, it depends on your state. Some states require you to report your business income the same way you would report earnings from a part-time job.

Reporting your income may reduce your unemployment benefits. For example, assume you collect $700 weekly as unemployment benefits. If you make a $400 profit from your business, you will receive the remaining $300 as compensation. There are, however, states that won’t pay you any benefits, regardless of whether your business is profitable or not.

Can You Own a Business and Collect Unemployment Benefits?

What if you already have a side venture, then you lose your job? Can you collect unemployment benefits? You may or may not receive the benefits depending on your state. Some states may allow you to collect unemployment benefits so long as you report earnings from your side business. Your unemployment benefits may, however, reduce depending on how much you earn from your side business.Two men and two woman having a strategy meeting.

But what if your business is not making money and your state doesn’t give unemployment benefits to self-employed people? In this situation, the CARES Act would have come in handy, although it expired. In 2020, the US Congress passed the CARES Act in response to the COVID-19 pandemic. This act allowed self-employed professionals to be eligible for unemployment benefits. The amount you collect depends on your state, business income, and other additional guidelines. The CARES Act expired in December 2020, and it provided relief to self-employed professionals like:

  • Freelancers
  • Small business owners
  • Independent contractors
  • Gig workers

After 2020, self-employed professionals could receive unemployment benefits through the PUA (Pandemic Unemployment Assistance) program. This program expired on 6th September 2021. The PUA program was also under the CARES Act.

Does Owning an LLC Affect Unemployment Benefits?

Owning an LLC can affect your unemployment benefits depending on whether the LLC treats you as an employee or just an owner. In an LLC, owners are not employees, which means they don’t get a regular salary. An LLC can choose to become an S-Corp or a C-corporation, during which the owners also become employees. They will receive regular pay like other employees in the company.

Owners of an LLC pay self-employment tax which covers benefits like social security and Medicare but excludes unemployment benefits. In an S-Corp or C-corporation, the self-employment tax covers all these benefits, including unemployment. If your LLC is an S-Corp or a C-corporation, you can receive unemployment benefits should you choose to leave the company. You can also get the benefits if you can no longer manage the company.

Can You Collect Unemployment Benefits if You Have a DBA?

Businesses can get a DBA (Doing Business As) if they want to use a name different from their registered business name. For example, say your legal business name is “Nick & Cole Ecommerce Shop.” If you want to use “Nicole Ecommerce” for branding and operations, you should file for a DBA.

Like any other business, having a DBA does not affect your unemployment benefits so long as you follow the requirements in your state. If your state requires you to report your income from the DBA, make sure you do so. In some states, the unemployment benefits may reduce on a dollar-for-dollar basis depending on your DBA income. Others may allow you to collect benefits regardless of your income.

Tips for Launching a Business While on Unemployment

Two men and a woman meeting in an office.If you want to launch your startup while on unemployment, here are some tips to help ensure you do it right.

  • Conduct Your Research

Each state has its laws and requirements for unemployment. Some may allow you to receive unemployment benefits while starting and running your business. Some may not. Do your research on the rules governing unemployment in your state so that you don’t violate any laws. You may find out that your state offers the SEA program.

  • Stick to the Rules

Make sure you follow all the rules and requirements to keep receiving unemployment benefits. Report your business income even though it may reduce your earnings. And keep searching for a job even when pursuing your entrepreneurial dream. You can run your business part-time as you use the rest of your time searching for a job.

  • Use Resources at Your Disposal

If the SEA program is not available in your state, there may be other resources geared to helping business owners, for example, your local SBDC (Small Business Development Center). Such resources can help you with counseling on how to start and run a business. There may be other resources that help with funding a business. You can consult someone in your unemployment office to advise you on your options.

  • Get a Part-time Job

Remember that most states require you to prove you are searching for work to keep receiving benefits. Failure to show willingness may lead to disqualification. You can get a part-time job to show your interest in acquiring work as you run your business part-time. Don’t forget to report your income from your part-time job and business earnings.


Three people having a meeting.Claiming unemployment doesn’t prevent you from opening a business. It might, however, affect your unemployment benefits, depending on the laws in your state. Some states may disqualify you from collecting unemployment benefits if you go into business. Others may keep giving you unemployment benefits as long as you follow the requirements. It’s best to research the unemployment rules in your state.

If your state offers the SEA program, you can consider applying for it. This program waives the job-search requirement and allows you to start your business while receiving self-employment benefits. You can also opt for a part-time job while running your business. Although, you will be required to report your business and part-time job income.

Resource Section

The following resources can help you gain a better understanding of starting a business and how it will affect you if you are unemployed.


Books are a fantastic way to expand your horizons on any topic. Unlike a brief essay of a few thousand words, a book will go deeper into a topic and most likely expand on the major themes.

A book is comparable to an online or classroom-based course.

Look for the most recent books on this topic from Google’s book search results.


a women thinking in an office.Taking a class is an excellent opportunity to expand your horizons and improve your skills. Some courses are in-depth and could take weeks to complete, while others are straightforward and can be completed in a few hours. But, of course, it all depends on how much you want to learn about the subject.

Assume you have some knowledge of the subject. Then you can focus on the modules you already know while diving deeper into the ones you don’t. Take a peek at the most recent Google results for Starting a Business on Unemployment courses.


Another great source of information is the news. Topics picked up by news networks across the globe are considered newsworthy and can be important.

Although watching the evening news to find information about a topic is impractical, you can use Google’s news search to hone in on your topic. You could find current information as well as archives.

For the latest news related to Starting a Business on Unemployment, see googles news search results.


Videos are an excellent method to learn more about a variety of subjects. I’m not a big reader, but I like watching films to learn about new things.

Furthermore, many YouTube videos are brief, and a 5 to 10-minute video may teach me a lot. Another advantage is that since the videos are short, I can watch them all in one sitting to get a variety of perspectives.

Starting a business on unemployment-related videos can be seen here.

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