1115.040.15 Computing Averaged Self-employment Income
IM-#88 October 4, 2006, IM-#167 September 10, 2001
The manner in which income is received and expenses paid determines the method of budgeting and computing income. Net self-employment income (income after expenses of producing are deducted) is included in the discussion below on self-employment income.
Anticipate monthly income as follows.
- Determine all types of self-employment income and expenses of producing that income. Review IRS schedules to locate all income sources and expenses of producing income.
NOTE: Do not count recaptured depreciation as income for food stamps. The IRS requires that depreciation claimed as an expense be shown as income if the depreciated item is sold prior to what is considered the end of its useful life.
EXAMPLE: A combine is depreciated over a ten-year period of time and the machine is sold after five years.
- Establish the period of time over which the self-employment income is intended to cover by reviewing IRS tax forms, business ledgers, and other dated documentation (also discuss this information with the EU).
- Self-employment income received monthly but which represents an EU's annual support is normally averaged over a 12-month period. If, however, the averaged amount does not accurately reflect the EU's actual monthly circumstances because the EU experienced a substantial increase or decrease in business, calculate the self-employment income on anticipated, not prior, earnings. A substantial increase or decrease results when averaged income does not accurately reflect monthly income.
- Self-employment income intended to meet the EU's needs for only part of the year is averaged over the period of time the income is intended to cover.
EXAMPLE: For self-employed vendors working only in the summer and supplementing their income from other sources during the balance of the year, average self-employment income over the summer months rather than over a 12-month period.
- If an EU's self-employment enterprise has existed for less than a year, the income from that self-employment enterprise is averaged over the period of time the business has been in operation and the monthly amount projected for the coming year.
- If an applying or ongoing EU expects income from a new self-employment enterprise, average the income over the period of time it is expected to cover, but do not budget the averaged amount until the first month income is actually received.
EXAMPLE: An EU begins a self-employment enterprise in January, but does not expect the first of its income until March. Anticipate and average but do not count any income until the budget month of March.
- Rental property income is annualized to prevent counting rental property as a resource during vacancy periods.
- Income from rental property or a beauty operator may be received monthly, but some expenses are paid once per year (such as property tax, insurance, license fees). In determining monthly income, prorate the yearly cost and deduct the monthly amount from income.
- If income shown from tax records and such is not expected to continue, or will continue at a different amount, record the decision of how income was anticipated for the current certification period.
- If information is received during the certification period, indicating the current year's income differs from the prediction (such as crop failures, hail damage, and the like), process the changes.
NOTE: Information correctly reported by the EU and correctly anticipated at the time of certification, requires no action if overissuances or lost benefits are later found. If the self-employed person reports a change in income or expenses, adjust the benefits within the time frames for the remaining portion of the certification period.
To enter income information in FAMIS, take the following steps.
1115.040.20 Anticipating Current Year's Expenses
Anticipate the current year's expenses by:
- reviewing any information (dated documents or verbal discussion) available showing the past year's expenses;
- discussing with the self-employed EU any changes they expect or can predict in the current year's expenses through comparison with last year's records or information;
- arriving at a mutually agreed upon prediction of the current year's expenses with the EU based on the above; and
- process a change if a change is reported or information is received from the EU during the certification period indicating the current year's expenses differ from those predicted, for reasons such as crop failures, increases or decreases in costs, etc.
If the predication was based on unreported/incorrect information or the eligibility specialist made an error in the budget, action may be necessary on the overissuance or refund.
1115.040.25 Expenses of Producing Self-employment Income
IM-62 May 31, 2017, IM-#49 July 1, 2009, IM-#88 October 4, 2006, IM-#124 September 15, 2003, IM-#167 September 10, 2001
Allowable expenses for producing income are not limited to the following items.
EXCEPTION: Show taxes assessed on the home of the self-employed EU as shelter expenses.
Since property taxes are shown on the tax bill in two categories, real and personal:
- determine the amount of personal taxes paid;
- establish with the household a mutually agreed upon value of all personal property being taxed; and
- determine the portion of personal taxes that apply to livestock, machinery, equipment, buildings, and merchandise. This portion is the same percentage of the tax as the percentage of the value the business property is to the total value of all personal property. Show this amount as an expense of producing income.
|PERSONAL PROPERTY TAX
- Costs of insurance (IC). Insurance premiums on fire, storm, crop, theft, business interruption, or other insurance on other farm business items/assets.
EXCEPTION: Cost of insurance on the house must be shown as a shelter cost. The cost of insurance on personal belongings is not a shelter cost or expense of producing income.
- Costs of utilities (BU).
EXCEPTION: Costs of utilities used in the home for personal comfort must be shown as a shelter expense. A business utility is an allowable cost of producing income if the utility is billed separately from the residential utilities.
- Costs of freight or trucking (SF).
- Conservation expenses (CE). The difference between the cost of the conservation method and the reimbursement from the conservation agency, if any, is the expense allowed.
- Fees for legal or professional services (FL) to maintain the business.
EXCEPTION: Legal or professional fees to gain or improve property holdings or to settle inheritances are not deductible.
- Licenses for business purposes (FL).
- Commissions paid (CO).
- Dues for professional organizations (FL).
- Bad debts arising from sales or services (BD).
To enter expenses in FAMIS take the following steps after you have entered the income information and comments on the appropriate screens.
1115.040.30 Non-Expenses of Producing Self-employment Income
IM-#49 July 1, 2009, IM-#88 October 4, 2006, IM-#167 September 10, 2001
The following are expenses that are not allowable for the Food Stamp Program.
- Net losses from previous periods.
- Federal, State, and local income taxes; money set aside for retirement purposes; and other work related personal expenses, such as transportation to and from work (these expenses are accounted for by the percent earned income deduction, therefore, not allowed as individual deductions)
- Depreciation (DE).
- Depletion (DP).
- Cost of meals for EU members (MN).