903 Treatment of Self-Employment Income

Effective Date - January 1, 2009

903 Treatment of Self-Employment Income

Child Care - ARW, Chapt. 1, Purchase of Service

SNAP - 7 CFR 273.11; ARW. Chap. 1

POWER - ARW, Chapt. 1, Section 6

A. Allow the following deductions as business expenses from self-employment income:

1. Rent and utilities (see B., 9.);

2. Storage and warehousing charges;

3. Upkeep of premises/machinery repairs;

4. Wages and salaries paid to employees other than the individual herself/himself or other assistance unit members;

5. Feed, stock, raw material, seed, plants and fertilizer;

6. Transportation costs required to perform the service or deliver the goods should be calculated by using the current “state” rate;

7. Taxes and insurance premiums paid on income-producing property;

8. Privilege taxes such as licensing fees and gross receipts and general excise taxes;

9. Rental payments on income-producing equipment;

10. Cost of merchandise and supplies; or

11. Out-of-pocket expenses of meals, toys and materials for child care providers:

a. Consider the USDA food reimbursement exempt for SNAP unless the provider states the payment was for more than the cost of doing business;

b. Document how the income was considered.

12. Other expenses connected solely with the function of the business.

SNAP - 7 CFR 273.11

13. The interest portion of payments on business or operating loans.

14. Payments on the principal and interest of the purchase price of income-producing real estate and capital assets such as equipment, machinery and other durable goods.

Child Care - ARW, Chapt. 1, Purchase of Service

SNAP - 7 CFR 273.11; ARW, Chapt. 1

POWER - ARW, Chapt. 1, Section 6

15. Use a 25% business expense deduction from the assistance unit’s gross self-employment income, excluding farm losses:

a. When at least one expense, relevant to the self-employment business, has been verified;

b. The expense does not have to be equal to 25% of the self-employment gross income.

16. Use actual business expenses as listed in 1. – 14. when a receipt of the expense or a tax return exists and the 25% is disputed.

17. Do not allow a 25% gross self-employment income business expense deduction when the client states they do not have any business expenses.

B. DO NOT allow the following as business expenses:

1. Expenses and net losses from previous periods;

2. Federal, state and local income taxes;

3. Money set aside for retirement purposes and other work-related personal expenses such as transportation to and from work or entertainment expenses;

4. Repayment on the principal of a bank loan;

5. Depreciation;

6. Penalties and fines;

7. Charitable contributions.

Child Care - ARW, Chapt. 1, Purchase of Service

POWER - ARW, Chapt. 1, Section 6

8. Payments on the principal of the purchase price of income-producing real estate and capital assets such as equipment, machinery and other durable goods;

9. Rent and utilities when the business is run in the home except in room and board situations.

Child Care - ARW, Chapt. 1, Purchase of Service

SNAP - 7 CFR 273.11

POWER - ARW, Chapt. 1, Section 6

C. Allow costs when they are billed or otherwise become due but not overdue.

D. Annualize self-employment income when:

1. Received over a short period of time, meant to support the assistance unit for a year and is indicative of the future;

2. Received on a monthly basis but represents the annual income and is reflective of the assistance unit’s circumstances;

3. Received from an enterprise in business for less than a year but long enough for sufficient information to be available to average income and the average is indicative of future months.

E. Average self-employment income when:

1. Intended to meet the needs of the assistance unit for only a portion of the year and is indicative of the future;

2. Received from an enterprise not in existence long enough to provide sufficient information for annualizing and is indicative of future circumstances;

3. Substantial increases or decreases exist.

F. Use the total capital gains as income as calculated on the federal tax forms.

G. Determine the net profit of the business by:

1. Adding all gross self-employment income;

2. Adding any capital gains;

3. Subtracting allowable costs of producing the income (aka deductions);

4. Dividing the result by the number of months the income is to cover.

SNAP - 7 CFR 273.11

H. Allow farm losses to be offset against other countable income when the costs of producing the farm income exceeds the gross farm income:

1. Require the farmer to receive or anticipate receiving annual gross proceeds of $1,000 or more from the farming enterprise;

2. Follow the steps in G. to compute the monthly net income;

3. Use actual expenses;

4. Offset in the following order when there is a monthly net farm loss:

a. Against the total amount of other monthly net self-employment income;

b. Any remaining farm loss against other earned income (after the earned income deduction only) and unearned monthly income if other monthly net self-employment income is not enough to cover the farm loss.

c. Certify the assistance unit based on zero net income when a net farm loss exists after applying a. and b.

5. DO NOT carry forward the monthly excess farm loss to subsequent months.

I. Use the DFS 108 worksheet to compute self-employment income and self-employment income from farm operations.

Child Care - ARW, Chapt. 1, Purchase of Service

SNAP - 7 CFR 273.11

POWER - ARW, Chapt. 1, Section 6

J. Use the following Table to determine treatment of self-employment income:

TYPE OF INCOME

TREATMENT

CODING

An “X” under the program column indicates the statement applies, as written, to that program.

SNAP

Child care

Nonexempt.

Property Income

DO NOT allow the countable value of the real property combined with other nonexempt assets to exceed the asset limit, excluding FS, before considering the income.

Nonexempt:

1. Treat the amount from the rental of real property or personal property as self-employment if the client is involved in the production of the income of at least an average of 20 hrs/wk.

2. Consider the income as unearned income if the client is receiving the rental check without exerting any effort or less than at least an average of 20 hrs/wk.

Room and board

Nonexempt

Note: Exempt the portion of the payment which is the cost of doing business and equal to:

a. The cost of the FS thrifty food plan equal to the number of roomers/boarders; or

b. The actual documented cost of providing room and meals when it exceeds the FS thrifty food plan.

Sale of produce/animal by-products

Nonexempt.