Self-Employment SNAP
Self-Employment Determination
In general, self-employed individuals:
- incur costs in producing income;
- control their work by working either independently of an employer, freelance, or by running the business;
- assume all risks and responsibilities of a business enterprise; and
- are subject to self-employment tax in addition to income tax on net income from self-employment activities; self-employment tax is paid in lieu of Social Security payments.
During the interview, the amount of hours the client worked must be reviewed and entered into BEACON to properly screen for ABAWD Work Program Requirements.
Rental, roomer, and boarder income types are treated as self-employment for SNAP purposes. Rental, Roomer, and Boarder Income
Important: SNAP only clients who are paid in cash but have no business expenses are not considered self-employed. Income received in these situations must be entered as wages in BEACON
| Self-Employed | Employee | |
|---|---|---|
| Work Rules | Set by self-employed individual | Set by employer |
| Work Hours | Set by self-employed individual | Set by employer |
| Payment | By the job | By the hour or time worked, even if the job is not completed |
| Federal/State Taxes, FICA | Not withheld from pay-self-employed individual pays | Employer withholds from pay |
| Number of clients/employers | Set by self-employed individual | One employer |
| Location | Multiple or owned by self-employed individual | Set by employer |
| Risk | Assumed by self-employed individual | Assumed by employer |
Self-Employment Ownership Types
Sole Proprietorship
- Proprietor has complete control over the business
- Financially and legally responsible for all debts and legal actions regarding the business
- Responsible for taxes
Partnership
Two or more proprietors have control over the business and contribute money, property, labor or skill to it, and share in the profits and losses of the business
There are three types of partnerships:
General Partnership
- Two or more general partners that have equal liability for any legal action and debt
- The general partners have management control and share the profits of the business in predetermined proportions
Limited Partnership
- One or more general partners, and one or more limited partners
- Limited partners are partners that may invest in, but are not directly involved in the management of the business. They also have limited liability for any legal action or debt
Limited Liability Partnership
- All partners have the right to manage the business directly
- All investors take an active role in the management of the business
Limited Liability Company (LLC)
- Business owners form an LLC to reduce personal liability
- Hybrid business entity that can be structured as a sole proprietor, partnership, or corporation. The structure determines if the income is counted as self-employment or earned income.
- Please see Limited Liability Company (LLC) Income for more information.
Determining Monthly Income for SNAP Calculation
To determine the monthly income for SNAP households with income from self-employment enterprises, the monthly net self-employment income must be added to any other earned income, or in the case of unearned rental income, to other unearned income received by the household.
If the cost of producing self-employment income exceeds the income derived from self-employment as a farmer, the losses must be offset against any other countable income in the household, provided that the:
- farmer has received or is anticipating receiving annual gross proceeds of one thousand dollars or more from the farming enterprise
- method used to determine any net income from self-employment farm operations, such as the previous year’s tax return or current income is the same method used in determining any net loss, and
- losses must be prorated over the year
Determining Eligibility and Benefit Level
For the period of time over which self-employment is determined, add all gross self-employment income (including capital gains), exclude the allowable costs of producing the self-employment income, and divide the self-employment income by the number of months over which the income will be averaged.
Anticipating Self-Employment Income
For households whose self-employment income is not averaged but is instead calculated on an anticipated basis:
- add any capital gains (the gain the household makes from the sale of a capital asset, such as real property used to carry out the household’s business enterprise, in excess of the value of the property or cost of the property) the household anticipates it will receive in the next 12 months to the anticipated monthly self-employment income, starting with the date the application is filed
- divide this amount by 12; this amount shall be used in successive certification periods during the next 12 months except that a new average monthly amount must be calculated for this 12 month period if the anticipated amount of capital gains changes
- subtract the cost of producing self-employment income; except for depreciation, the cost of producing the self-employment income must be calculated by anticipating the monthly allowable costs of producing the self-employment income
Self-employment income that is intended to meet the household's needs for only part of the year must be averaged over the period of time the income is intended to cover.
Example
Self-employed vendors who work only in the summer and supplement their income from other sources during the balance of the year must have their self-employment income averaged over the summer months rather than a 12-month period.
If a household's self-employment enterprise has been in existence for less than a year, the income from that self-employment enterprise must be averaged over the period of time the business has been in operation and the monthly amount projected for the coming year.
Averaging Self-Employment Income
Self-employment income that represents a household’s annual support must be averaged over a 12-month period, even if the income is received in a shorter period of time than 12 months. This income must be annualized even if the household receives income from other sources in addition to self-employment.
Example
Self-employment income received by farmers must be averaged over a 12-month period if the income is intended to support the farmer on an annual basis. This self-employment income must be annualized even if the household receives income from other sources in addition to self-employment.
Allowable Costs of Doing Business
Allowable costs of doing business include, but are not limited to, the identifiable costs of:
- costs of goods sold
- labor
- wages paid to an employee or work contracted out
- stock (inventory)
- raw materials used to make a product
- seed and fertilizer for farming
- payments on the principal of the purchase price of income-producing real estate and capital assets, equipment, machinery and other durable goods
- interest paid to purchase income producing property
- insurance premiums
- taxes, assessments
- utilities paid on income-producing property
- advertisement
- licenses and permits
- service and repair of income-producing property
- legal and professional fees
- business supplies
- business use of home (see Common IRS Forms Used)
- transportation (if not reimbursed)
- meals and entertainment (if the expense was not reimbursed, is reasonable for the business type, and SNAP benefits were not used in the transaction)
Important: When entering mortgage principal as an allowable expense, select Other as the Expense type to ensure the amount is included in the benefit calculation. The expense type, entitled Mortgage Principal has not been coded in BEACON to be countable and must not be used when attributing this allowable expense to a household.
Expenses Not Allowed as a Cost of Doing Business
For SNAP only clients, expenses not allowed as a cost of doing business include but are not limited to:
- net losses from previous periods of time
- 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 earned income deduction
- depreciation
Note: When determining expedited eligibility for households with self-employment income, the averaged or prorated monthly self-employment income amount minus the allowable costs of doing business must be used.
Capital Gains as Income
Capital Gains is the gain the household makes from the sale of a capital asset, such as real property used to carry out the household’s business enterprise, in excess of the value of the property or cost of the property.
The proceeds from the sale of capital goods or equipment related to the business must be included when determining self-employment income. Even if only 50% of the proceeds from the sale of capital goods or equipment is taxed for federal income tax purposes, the full amount of the capital gain must be counted as income for SNAP purposes.
Determining Partnership Income
Partnerships file the IRS form 1065 U.S. Return of Partnership Income. The 1065 form is the profit and loss of the entire business and cannot be used for the individual’s portion of profit and loss.
The Schedule K-1 (1065) is also filed by the business and submitted with the form 1065. The Schedule K-1 (1065) shows each individuals share of the total profit and loss.
You must determine what the client’s portion of the total profit and loss is and enter as a self-employment record. You must enter the gross income, any allowable business expenses, and leave a detailed narrative explaining the action taken.
Important: All partners in a SNAP household must verify their percentage of the profit and loss. It must not be assumed that two partners each own 50% of the business. Further, it cannot be assumed that two partners split the profit and loss of the business 50/50.
Self-Employment Examples
Cash Income
Kwame babysits for his neighbor Jill for 20 hours a week and makes $12 per an hour. He incurs no business expenses to watch Jill’s child. Kwame is paid in cash and does not receive a W-2 or 1099 form for tax filing purposes.
Based on the case details, Kwame is not considered self-employed. He is paid in cash and does not incur any business expenses. Therefore to verify his income, he must submit a letter from his employer Jill verifying his gross income, the amount of hours he works, and the frequency the income is received.
1099 Income
Chad is a driver for Uber. He receives a 1099 form each year for his gross income. He incurs business expenses and keeps a personal record of them.
Chad is considered self-employed for SNAP purposes. He must supply business records that verify his gross income and may provide optional business expenses. You must review the expenses to determine whether there are any expenses that are not allowed as deductions for SNAP. If there are expenses meeting those criteria, you must not give credit for them.
Note: For Uber and Lyft specifically, drivers may receive a 1099-K and/or a 1099 MISC depending on the amount of income earned. This may also vary if the driver received non-driving income types such as bonuses or referral fees.
Allowable Expenses
Melissa is a self-employed realtor and her business is not a part of her home. You receive Melissa’s Schedule C and see that she is claiming the following line item expenses: depreciation, meals and entertainment, utilities, and supplies.
You must:
- not include depreciation as an expense because it is not allowable for SNAP.
- include meals and entertainment because they are an allowable expense (it’s reasonable for the business type and SNAP benefits were not used in the transactions).
- include utility costs because the business is separate from her home. You must enter the actual costs incurred as a business expense.
- include business supplies because they are an allowable expense.