Eidl Loan: Impact On Unemployment Benefits And Claims

The Economic Injury Disaster Loan (EIDL) program was established to provide assistance to small businesses following natural disasters such as tornadoes, wildfires, or floods. The Covid-19 pandemic created an opportunity for small businesses to seek emergency financing through the EIDL program. However, the roll-out was rough, with a flood of applications overwhelming the system. This has led to questions about how EIDL funds interact with other benefits, such as unemployment compensation. While there is no definitive answer, some sources suggest that using EIDL funds to pay oneself while collecting unemployment benefits could be considered double-dipping and may affect one's eligibility for unemployment compensation.

Does EIDL loan affect unemployment?

EIDL and unemployment eligibility

The Economic Injury Disaster Loan (EIDL) program was established to provide assistance to small businesses after natural disasters. However, the Covid-19 pandemic saw the program expanded to include small businesses affected by the economic fallout of the crisis.

The EIDL funds cannot be used for losses that are compensated by other sources. The government has stated that you can have both EIDL and PPP loans as long as they are used for different expenses. It is recommended to keep the funds separate and use PPP loans to pay employees, as 75% of the funds must be used for payroll to be forgiven. EIDL funds can then be used for other operating expenses.

If you are a sole proprietor, you can pay yourself using the EIDL, but this is considered earned income for unemployment and must be reported when you certify each week. This is the case even if you are taking a draw instead of a salary, as both are earned income. If you are unemployed, you can pay yourself from the EIDL as long as you are working on your business in some way. However, this will affect your unemployment status, as you are no longer considered unemployed if you are working.

There is a lack of clear guidance on how these funds affect eligibility for Pandemic Unemployment Assistance (PUA) and other unemployment compensation programs. It is recommended to consult your state unemployment agency for specific information on how EIDL may affect your unemployment benefits.

EIDL and PUA

The Economic Injury Disaster Loan (EIDL) is a federal loan program that provides small businesses with up to $2 million in assistance following natural disasters such as tornadoes, wildfires, or floods. When the COVID-19 pandemic hit, the EIDL program was expanded to include small businesses affected by the crisis.

The Paycheck Protection Program (PPP) is another federal loan program that provides small businesses with eight weeks of cash flow to spend over 24 weeks. The PPP is meant for all U.S.-based small businesses, from sole proprietors to corporations.

The Pandemic Unemployment Assistance (PUA) program is a federal unemployment insurance program that provides benefits to self-employed business owners and independent contractors who have lost income due to the COVID-19 pandemic.

There has been some confusion about how these programs interact with each other. The general consensus is that you can receive both the EIDL and PUA as long as they are not used for the same expenses. The EIDL can be used for working capital and other business expenses, while the PUA is used for replacing lost income or payroll. If you use the EIDL to pay yourself during the weeks that you claim PUA, it may affect your PUA benefits. However, if you are not using the EIDL to pay yourself, it generally should not impact your PUA benefits.

It is important to note that the rules and guidelines for these programs may change, and it is always a good idea to consult with a financial professional or the relevant government agencies for the most up-to-date and accurate information.

EIDL, PPP and unemployment

The COVID-19 pandemic saw a large number of small businesses in the US apply for Economic Injury Disaster Loans (EIDLs) and Paycheck Protection Program (PPP) loans. These loans were designed to help businesses stay afloat during the pandemic and prevent business closures. However, the roll-out of these programs was not without its challenges, with a flood of applications overwhelming the system and leaving many applicants unsure about the specifics of their loans.

EIDL and PPP loans are distinct from one another and are designed to cover different types of expenses. EIDL funds are intended to cover operating expenses, while PPP funds are primarily for payroll costs, including gross salary and wages, tips, vacation leave, sick leave, and other forms of compensation. Notably, EIDL funds cannot be used for losses that are compensated by other sources.

The interaction between these loans and unemployment benefits is complex and not always clear. For example, it is advised that if you are collecting unemployment benefits, you should not use EIDL funds to pay yourself. However, as an independent contractor, you can use EIDL funds to "pay yourself" as long as you are working, which will affect your unemployment status. PPP loans, on the other hand, may affect your eligibility for state-administered unemployment compensation or unemployment assistance programs.

Additionally, there have been instances of identity theft and fraud associated with EIDL and PPP loans, with scammers using personal information to obtain loans without the knowledge or authorization of the individuals involved. If you believe you have been a victim of identity theft related to these loans, you should report it to the Federal Trade Commission and follow the recommended steps to protect your personal information.

EIDL and taxable income

The EIDL (Economic Injury Disaster Loan) is a loan offered by the Small Business Administration (SBA) to provide relief to small businesses during the COVID-19 pandemic. The EIDL loan has a term of 30 years with a 12-month payment deferment period and an interest rate of 3.75%.

As per the Consolidated Appropriations Act of 2021, EIDL grants are exempt from federal gross income. This means that the EIDL grant is not considered taxable income at the federal level. However, it is important to note that state tax treatment may vary. While some states may conform to federal directives and exempt EIDL grants from taxable income, other states, like California, may classify EIDL grants as taxable income.

The distinction between the EIDL loan and the EIDL grant is important. The EIDL loan is a typical loan with standard requirements, underwriting, and credit checks. On the other hand, the EIDL grant is an advance on the loan that is deposited into the applicant's account without notice. This grant does not need to be repaid, even if the loan application is denied.

The tax treatment of the EIDL loan and grant differs. The EIDL loan is not taxable, whether it is forgiven or not. In contrast, the EIDL grant is generally not considered taxable income at the federal level, but it may be taxable in certain states.

To ensure compliance and accurate financial reporting, businesses should maintain detailed records of all EIDL-related transactions, including applications, approval notices, disbursement records, and correspondence with the SBA. Consulting with tax professionals is advisable, especially for businesses operating in multiple states, as they can provide expertise in navigating federal and state tax codes.

EIDL and sole proprietors

A sole proprietor is someone who owns an unincorporated business by themselves. If you are the sole member of a domestic limited liability company (LLC) and elect to treat the LLC as a corporation, you are not a sole proprietor.

Sole proprietors can apply for Economic Injury Disaster Loans (EIDLs). EIDLs are loans that normally provide assistance after natural disasters like tornadoes, wildfires or floods. However, when President Trump declared Covid-19 a nationwide emergency on March 13, 2020, small businesses across the country were able to seek emergency financing. The program offered a maximum $10,000 advance to tide companies over until the effects of Covid-19 were under control.

If you are a sole proprietor, you can pay yourself using the EIDL (as they are considered owner draws, not salary). The payments from the EIDL are not taxable income. However, there are two things to be aware of. Firstly, paying yourself using the EIDL is considered earned income for unemployment, and you have to report that when you certify each week. Secondly, you can only pay yourself an amount that is considered reasonable compensation for services you are currently rendering to your business. If your business is operating at 100% of pre-Covid levels, you can use the amount on line 31 of your 2019 Schedule C divided by 52, and that's the amount you can pay yourself weekly.

As an independent contractor, you can use EIDL to "pay yourself" but the terms of the loan only specify you can do this if you are "working". This means that you can pay yourself to work on your website, or the accounting it takes to manage the EIDL. You can also stay on unemployment and not pay yourself, and use the funds to pay "business bills".

Frequently asked questions