Eligibility Online Manual

M902 Treatment of Self-Employment Income

Purpose: This section provides information on the treatment of self-employment income for calculating an individual’s eligibility for benefits.


Current Policy Effective Date: December 1, 2015

Date Last Reviewed: February 4, 2016

Previous Policy: July 1, 2007

POL M902: TREATMENT OF SELF-EMPLOYMENT INCOME

1. Applicants Must Report Gross Self-Employment Income

2. MAGI Programs Use The Adjusted Gross Income If There Is Not A Change In Income From Previous Year.

If current self-employment income is the same as the previous year, use the Adjusted Gross Income (AGI) on the previous year tax return plus:

    • Foreign Income excluded from AGI (line 37 or IRS Form 1040, line 4 on IRS Form 1040EZ, or line 21 of IRS Form 1040A)

    • Nontaxable Social Security benefits (line 20a on IRS Form 1040)

    • Tax-exempt interest received or accrues during the tax year (line 8b on IRS Form 1040)

3. Actual Business Expenses That May Be Deducted From Gross Self-Employment Income For MAGI Programs.

If self-employment income amount is different from the previous year or there is a change in the business source, a ledger or profit/loss statement can be used. Deduct from self-employment income the following business expenses:

    • Rent and utilities.

    • Storage and warehousing charges.

    • Upkeep of premises used for business.

    • Depreciation.

    • Advertising.

    • Legal and Professional Fees.

    • Interest on loans from your business (including mortgage interest paid to banks).

    • Machinery repairs and maintenance.

    • Wages and salaries paid to employees of business. Employees must be people that are not the applicant or other members of the assistance unit.

    • Feed, stock, raw material, seed, plants and fertilizer.

    • Taxes and insurance premiums paid on income-producing property.

    • Rental payments on income-producing equipment.

    • Privilege taxes such as licensing fees, gross receipts, and general excise taxes.

    • Cost of merchandise and supplies.

    • Transportation costs required to perform services or deliver goods that are related to the business.

    • Other expenses incurred exclusively for the function of the business.

4. Actual Business Expenses That May Be Deducted From Gross Self-Employment Income For Aged, Blind or Disabled, and Medicare Savings Programs.

Deduct from self-employment income the following business expenses:

    • Rent and utilities.

    • Storage and warehousing charges.

    • Upkeep of premises used for business.

    • Machinery repairs.

    • Wages and salaries paid to employees of business. Employees must be people that are not the applicant or other members of the assistance unit.

    • Feed, stock, raw material, seed, plants and fertilizer.

    • Taxes and insurance premiums paid on income-producing property.

    • Rental payments on income-producing equipment.

    • Privilege taxes such as licensing fees, gross receipts, and general excise taxes.

    • Cost of merchandise and supplies.

    • Transportation costs required to perform services or deliver goods that are related to the business.

    • Other expenses incurred exclusively for the function of the business.

Deduct out of pocket expenses for meals, toys and materials for child-care providers.

Do not deduct the following as business expenses:

    • Payments on the principal of the purchase price of income-producing real estate and capital resources, Examples of capital resources are equipment, machinery and other durable goods.

    • Expenses and net losses from previous periods.

    • Federal, state, and local income taxes.

    • Money set aside for retirement purposes.

    • Money set aside for other work-related personal expenses. Examples of other work related expenses are transportation to and from work, or entertainment expenses.

    • Repayment on the principal of a bank loan.

    • Depreciation on any equipment of resource used by the business.

    • Penalties and fines related to the business.

    • Charitable contributions made by the business.

5. Business Expenses Are Deductible When They Are Billed

Deduct allowable business expenses when they are billed or become due.

6. Self-Employment Income May Be Annualized

Annualize self-employment income when the following conditions are met:

    • Income is received over a short period of time but is intended to meet the financial needs of the assistance unit over the course of a year.

    • Income is received on a monthly basis but represents annual income.

    • Income is received from involvement in a business for less than a year but has been received for long enough to be able to average the income. In this case, income must also be indicative of future months.

7. Self-Employment Income May Be Averaged

Average self-employment income when the following conditions are met:

    • Income is intended to meet the financial needs of the assistance unit for a portion of the year and is indicative of the future.

    • Income is received from involvement in a business that has not been in existence for long enough to provide sufficient information to annualize the income. In this case, income must also be indicative of future circumstances.

    • Income substantially increases or decreases over the course of a year.

8. Self-Employment Income May Be Calculated on Monthly Basis

Allow applicant to anticipate self-employment income on a month-to-month basis rather than over the period of time covered by the income when this is advantageous to the assistance unit.

Re-calculate self-employment income when the most advantageous method is determined.

Reference:

Defining Requirement: 20 CFR 416 - 1110

Clarifying Information:

Self-employment income is defined as earning one's own living directly from one's own profession or business rather than earning a salary or commission from another.

Income related to an 'S Corporation' should be calculated in the same manner as self-employment income.

Worker Responsibilities: