1115.040.00 Self-Employment INCOME

IM-#88  October 4, 2006IM-#167  September 10, 2001

Determine self-employment income by considering total income less the expense of producing that income. Self-employment income can be considered earned or unearned income. However, even if the income is considered unearned self-employment, the EU is entitled to the expenses of producing that income. FAMIS income type is EI for earned income and UI for unearned income.

If an EU member is actually working at a job, consider the income earned, therefore eligible for the 20 percent earned income deductions and losses offset from other self-employment enterprises regardless of the number of hours. For example, wood chopping, lawn work, and baby-sitting are considered earned income regardless of the number of hours worked per week.

Not all self-employment income can be considered as earned income. An example of self-employment income that is considered unearned is rental income when the person is not actively engaged in managing the property more than 20 hours per week.

Other examples of unearned self-employment income may include income from partnerships, estates, and trusts. The income is considered unearned if the person is not engaged in activities to earn this income. Consider these income types as earned only if activities consume 20 hours or more per week. Allow the expense of taxes, insurance, interest and principal on the mortgage, and the like.

The following table illustrates income types and income sources used in FAMIS.

INCOME TYPE INCOME SOURCE EXPLANATION
EI Earned Income SE Self-employment  
UI Unearned Income RN Rental Income Not actively engaged in managing the property for more than 20 hours per week.
EI Earned Income RE Rental Income Actively engaged in managing the property for more than 20 hours per week.
EI Earned Income CC Child Care  
EI Earned Income FA Farm Income Gross income is more than $1000 per year.
EI Earned Income FM Farm Income Gross income is less than $1000 per year.
EI Earned Income RB Room/Board  

Consider EUs with self-employment income as its primary source as self-employed EUs. However, EUs in which one or more members are engaged in an enterprise for gain (such as an independent contractor, owner-operator, or operator), may have self-employment income but will not necessarily be classified as a self-employed EU. A person who owns land and has sharecroppers working the land may be considered a self-employed farmer, if actively engaged in financial management of the farming operation. All EUs with self-employment income, nevertheless, require special attention to:

1115.040.01 Partnerships, S Corporations, and Corporations

A partnership is a type of business in which multiple individuals manage the business and are equally liable for its debts. Each partner shares equal responsibility for the company's profits and losses, and its debts and liabilities. The partnership does not pay income taxes. Each partner reports his/her share of the business's profits and losses on his/her individual tax return.

Common forms used to verify this income are:

S Corporations are set up to limit liability and allow owners to pay income tax as a sole proprietor or partner. Owners are considered employees and are not considered self-employed. They are not entitled to the costs of producing income.

Common forms used to verify this income are:

In a Corporation, the owner is considered an employee of the corporation and receives a salary. The Corporation pays taxes on profits left after salaries, bonuses, overhead, and expenses are paid. Self-employment expenses are not allowed.

Common forms used to verify this income are:

1115.040.05 Income to Self-Employed Households

IM-#88  October 4, 2006IM-#167  September 10, 2001

Show the following items as income to self-employed EUs.