Income - Self Employment Income
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Income - Self Employment Income


Revised April 3, 2014



WAC 388-450-0080What is self-employment income?
WAC 388-450-0085Does the department count all of my self-employment income to determine if I am eligible for benefits?

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Self Employment Budgeting

 


WAC 388-450-0080

WAC 388-450-0080

Effective October 1, 2013

WAC 388-450-0080 What is self-employment income?

This section applies to cash assistance and Basic Food.

1.    Self-employment income is income you earn from running a business, performing a service, selling items you make, or re-selling items to make a profit.

2.    You are self-employed if you earn income without having an employer/employee relationship with the person who pays you. This includes, but is not limited to, when: 

a.    You have primary control of the way you do your work; or

b.    You report your income using IRS Schedule C, Schedule C-EZ, Schedule K-1 or Schedule SE.

3.     You usually have an employer/employee relationship when:

a.    The person you provide services for has primary control of how you do your work; or

b.    You get an IRS Form W-2 to report your income.

4.    Your self-employment does not have to be a licensed business for your business or activity to qualify as self-employment. Some examples of self-employment include:

a.    Childcare that requires a license under chapter 74.15 RCW;

b.    Driving a taxi cab;

c.    Farming/fishing;

d.    Odd jobs such as mowing lawns, house painting, gutter cleaning, or car care;

e.    Running a lodging for roomers and/or boarders. Roomer income includes money paid to you for shelter costs by someone not in your assistance unit who lives with you when: 

                              i.        You own or are buying your residence; or

                            ii.        You rent all or a part of your residence and the total rent you charge all others in your home is more than your total rent.

f.     Running an adult family home;

g.    Providing services such as a massage therapist or a professional escort;

h.    Retainer fees to reserve a bed for a foster child;

i.      Selling items you make or items that are supplied to you;

j.      Selling or donating your own biological products such as providing blood or reproductive material for profit;

k.    Working as an independent contractor; and

l.      Running a business or trade either on your own or in a partnership.

5.    If you are an employee of a company or person who does the activities listed in subsection (2) above as a part of your job, we do not count the work you do as self-employment.

6.    Self-employment income is counted as earned income as described in WAC 388-450-0030 except as described in subsection (7).

7.    For cash assistance and Basic Food there are special rules about renting or leasing out property or real estate that you own.   

a.    We count the income you get as unearned income unless you spend at least twenty hours per week managing the property.  

b.    For TANF/SFA, we count the income as unearned income unless the use of the property is a part of your approved individual responsibility plan.

 

This is a reprint of the official rule as published by the Office of the Code Reviser. If there are previous versions of this rule, they can be found using the Legislative Search page.

Determining Self Employment Income

 

Calculating Self Employment Income - For SSI Related Medical

 


Clarifying Information

1.    Child Care:

  1. Child care providers that are subject to the licensing requirements under chapter 74.15 RCW are self-employed, even if they do not have a current license. Child day-care center operators and family home day-care providers are self-employed.
  2. People who aren’t required to be licensed under state law to provide care are considered to have an employer/employee relationship with the parent of the child for whom they provide care. These unlicensed individual providers are considered to be employees.

EXAMPLE

Betty is an individual provider paid by Ms. Lee to provide care in the child's home. Betty is Ms. Lee's employee.


EXAMPLE

Mary watches several neighborhood children in her home after school.  She is not licensed, but she receives $100 a month for each child that comes to her house for a few hours after school each day.  Mary is subject to licensing requirements under chapter 74.15 RCW, regardless of whether she has obtained the required license, and Mary is self-employed.


EXAMPLE

Ted provides child care for Ms. Thomas, who has been approved for WCCC. Ted receives payments through SSPS and from Ms, Thomas for the remaining co-pay. Ted is an employee.


EXAMPLE

Ron states he is a financial advisor and is paid on commission. To determine if Ron is self-employed, ask if he receives a W-2 (employee) or 1099 (self employed). If he just began working, ask the company he works for which tax document he will receive (W-2 or 1099) or if taxes and FICA will be deducted from his commission checks.


2.    ADSA

The Aging and Disability Services Administration (ADSA) individual providers work at the direction and control of the person to whom they provide care as well as the state. Their hours and wages are set by the customer and the state. Also, they receive benefits and have representation. WAC 388-71-0505 requires COPES customers to establish an employer-employee relationship. COPES and other ADSA individual providers are employees.

3.    Corporations:

People who own a corporation are not coded as self-employed. This is true even if the person is the sole investor in the business. Corporations are separate entities from their investors and employees. The person is considered an employee of a corporation, and may also have income from dividends related to any investment in the corporation. Any income received from the corporation other than wages must be coded as unearned income. This includes any payments made by the corporation for personal expenses (for example: mortgage payments, car insurance, household items). See Treatment of Income for information on budgeting income from dividends and regular earnings.

Corporations include S Corporations and can include Limited Liability Companies (LLC) if they are set up as corporate structures. Partnerships are not incorporated, and are considered self-employment enterprises. For more information on various business structures, visit the IRS website.

4.    WorkFirst:

For more information about how self-employment affects the WorkFirst participation of TANF / SFA clients, see the WorkFirst Handbook, Section 8.2. Self-Employment.

 


WAC 388-450-0085

WAC 388-450-0085

Effective October 1, 2013

WAC 388-450-0085 Does the department count all of my self-employment income to determine if I am eligible for benefits?

This section applies to cash assistance and Basic Food programs. We decide how much of your self-employment income to count by:

For cash and Basic Food:

  1. We must count actual income in the month of application.

a.  Adding together your gross self-employment income and any profit you make from selling your business property or equipment;

b.  Subtracting your business expenses as described in subsection (2) below; and

c.  Dividing the remaining amount of self-employment income by the number of months over which the income will be averaged.

2.  We subtract one hundred dollars as a business expense even if your costs are less than this. If you want us to subtract your actual costs of more than one hundred dollars, you must list and give us proof of your expenses for us to count them. We never allow the following expenses:

  1. a. Federal, state, and local income taxes;

    b. Money set aside for retirement purposes;

    c. Personal work-related expenses (such as travel to and from work);

    d. Net losses from previous periods;

    e. Depreciation; or

    f. Any amount that is more than the payment you get from a boarder for lodging and meals.

3.  If you have worked at your business for less than a year, we figure your gross self-employment income by averaging:

  1. a. The income over the period of time the business has been in operation; and

    b. The monthly amount we estimate you will get for the coming year.

4.  For cash assistance, if your self-employment expenses are more than your self-employment income, we do not use this "loss" to reduce income from other self-employment businesses or other sources of income to your assistance unit.

5.  For Basic Food, we use a "loss" from self-employment farming or fishing income to reduce other sources of income only if you meet the following three conditions:

a. Someone in your assistance unit is a self-employed farmer or fisher;

b. Your gross yearly income from farming or fishing is or is expected to be at least one thousand dollars; and

c. Your allowable costs for farming or fishing are more than your income from farming or fishing.

This is a reprint of the official rule as published by the Office of the Code Reviser. If there are previous versions of this rule, they can be found using the Legislative Search page.

Clarifying Information

  1. Determine gross self-employment income:

To determine gross self-employment income, add together the total sales for all items the business sold and all income from providing services.

2.    Always allow the $100 standard deduction if the person doesn't choose to claim actual costs for non roomer / boarder self-employment income. 

This includes when the person:

a.    Claims no self-employment expenses;

b.    Has self-employment expenses under $100.00;

c.    Has gross self-employment income under $100.00; or

d.    For Basic Food and cash assistance, the self-employment income is unearned. See WAC 388-450-0080(5) for when self-employment income is treated as unearned income.

3.    Transportation costs such as gas, oil, replacing worn items, registration and licensing fees, and auto loans:

a.    The person may claim the actual transportation costs; or

b.    Claim the State standard cost per mile. The Office of Financial Management publishes the standard cost for a privately owned vehicle in section 10.90.20 of the State Administrative and Accounting Manual: http://www.ofm.wa.gov/policy/10.90a.pdf

c.    The client must provide detailed mileage records or other documentation showing beginning and ending mileage and destination of each trip to support the expense.

4.   If someone chooses to use their actual expenses instead of the standard $100 deduction, they must list out and provide documentation of the expenses before we can use them.


NOTE:

The mileage rate as of January 1, 2014 is $.56 / mile.


Business Expenses

Generally, someone may claim any business expense that is allowed by the Internal Revenue Service (IRS), with the exception that we don't allow a deduction for depreciation.

IRS Topic 509 - Business use of a home - Explains how to calculate business use of a home and that a qualified day care provider must apply the percentage of hours an area is used for business when calculating the allowable home business expenses.

IRS Publication 463 - Travel, Entertainment, Gift, and Car Expenses - Explains the rules and limits associated with these business deductions. Entertainment expenses are subject to the "directly related" test that specifies the main purpose was to conduct business with an expectation of getting income or other business benefit, and certain other restrictions

Some examples of allowable business expenses are:

  •         Materials used to produce goods
  •         Maintenance of business property
  •         Space rent
  •         Payroll or wages
  •         Chemicals, fertilizers, and supplies used to produce goods or services
  •         Vehicle expenses for business purposes with documentation
  •         Business loans (interest and principle)
  •         Business phone
  •         Banking fees

Some examples of line items we don't count as an expense are:

  •         Health insurance for you and your family
  •         Personal Utilities (no separate meter from home)
  •         Personal phone
  •         Rent or mortgage of your home
  •         Depreciation
  •         Vehicle expenses without documentation
  •         Guaranteed payments

Examples of allowable documentation of expenses are:

  •          Receipts for expense claimed.
  •          Itemized bank statements that correspond to expense claimed.
  •          Itemized bank card statements that correspond to expense claimed.

EXAMPLE

Bob's Paintland holds an annual holiday party for employees. This is not an allowable business expense because its purpose is to celebrate with employees, not increase customer business.


EXAMPLE

Ginny is a real estate agent. She holds open houses every month at the various homes she has listed for sale. She serves food and drinks at the open houses, and even hires musicians on occasion. The expense is allowable because the purpose of the open house is to increase her customer base and sell homes.


Worker Responsibilities

1. Calculating self-employment income:

Calculate countable self-employment income by taking all income received from sales or services and subtracting the allowable expenses for the same period of time.

2. Budgeting self-employment income:
When someone earns self-employment income, average the income over the period the income covers. If they choose to claim actual self-employment expenses, average their allowable expenses over the same period.

a.    If the person earns their annual income as self-employment income, and they receive this income over a period of less than a year, average the self-employment income over the year.

b.    If a person's income is from self-employment for only part of the year (they have another source of income for the remainder of the year), average the income over the period of time the income covers.

c.  Use income averaging (CA) method to budget self employment income for all benefit months including the application month.


NOTE:

Subsection #1 of WAC 388-450-0085 is incorrect and will be updated as soon as possible.  Use income averaging (CA) method for self employment income for month of application as under WAC 388-450-0215.


EXAMPLE



Self-employed client applies for Basic Food on April 14.  Worker determines income from self-employment is primary source of household income and calculates average monthly income verified from most current federal tax return which shows gross income from Schedule C for previous year as $16,500.  Worker divides this amount by 12 to get average monthly income income of $1,375.  This amount is used to calculate benefits for month of application and ongoing months. The deduction would be either $100 or verified allowable expenses per WAC 388-450-0085.  Benefits for application month are prorated to include April 14-30.



  1. Change in self employment income:

If the averaged income doesn't reflect what the person will receive because of a significant increase or decrease in business:

a.    Anticipate the person's self-employment income for each month; and

b.    Average any capital gains they will get over the year.

c.    If someone chooses to use their actual expenses instead of the standard deduction, average or anticipate the expenses for the same period of time you use for the income.

  1. Calculate each self-employment business separately:

Each self-employment business is separate.  Calculate the net self-employment income for each self-employment enterprise separately.

a.    Don't use the losses of one business to offset the profit of another business.

b.    Don't use the losses of one period to offset the profits of another period.

  1. Farming or fishing income for Basic Food:
    1. Calculate the client's total net farm or fishing self-employment income.
    2. If allowable expenses are more than the self-employment fishing / farming income, ACES uses this loss to reduce any other sources of self-employment income.
    3. If there are remaining losses from fishing / farming, ACES uses this income to reduce other sources of earned and unearned income to the assistance unit after allowing the earned income deduction under WAC 388-450-0185.

6.      Boarder income (room and meals provided):

a.    Count only payments people pay directly to the AU for room and board as income. This includes foster care payments if the person in foster care is a member of the AU.

b.    Don't  use the standard $100 deduction as an expense.  Instead, use either:

                                                i.            The maximum Basic Food allotment for a household size equal to the number of boarders (see WAC 388-478-0060 ); or

                                              ii.            The actual, verified cost of providing room and meals if it is more than the maximum allotment and the cost is separate from normal living expenses.

7.    Roomer income (home owner or renter who receives income for renting out rooms):

a.    A person may choose to use their entire shelter cost toward their shelter deduction or use a portion of it as a business expense.

b.    Calculate prorated share of the rent, or mortgage, taxes, and insurance if they don't use the entire shelter cost toward the shelter deduction. Base the pro-ration on the number of total bedrooms in the house; and

c.    Allow verified costs directly related to the cost of renting rooms, such as laundry expenses or advertising expenses, even if the entire housing cost is used as a shelter deduction.

d.    To calculate the shelter expense, see the Shared Living / Roomer section of Clarifying Information under WAC 388-450-0190.

e.  People that share a residence are not considered to have roomers if they:

i. Don't charge their roommates an amount above the total rent as shown on the lease; and

ii. Don't own or aren't buying the residence.


NOTE:

People in the same Assistance Unit who share household costs are not roomers. We do not count these shared household costs as roomer income.


EXAMPLE

Louise is renting her two bedroom townhome for $500 per month. She charges Jolene $650 to sublet her second floor. Louise chooses to use actual expenses. The prorated portion of her rent is $250 ($500 / 2 bedrooms).

Louise has $400 in net self employment income. Her shelter deduction would be the utility allowance she is eligible for under WAC 388-450-0195  and $250 rent (the portion of her housing costs that wasn't taken as a business expense.)

Enter $650 as roomer income and enter the rent and number of bedrooms in Stan's home for ACES to calculate his expenses correctly.


EXAMPLE

Louise is renting her two bedroom townhome for $500 per month. She charges Jolene $650 to sublet her second floor. Louise chooses to use actual expenses. The prorated portion of her rent is $250 ($500 / 2 bedrooms).

Louise has $400 in net self employment income. Her shelter deduction would be the utility allowance she is eligible for under WAC 388-450-0195  and $250 rent (the portion of her housing costs that wasn't taken as a business expense.)

Enter $650 as roomer income and enter the rent and number of bedrooms in Stan's home for ACES to calculate his expenses correctly.


Rental property:

a.    Rental property that is subject to the criteria in WAC 388-450-0080 (5) is property that someone owns, but is not their residence.

b.    We count any managerial duties toward the 20-hour weekly requirement for rental   property to be treated as self-employment earned income under WAC 388-450-0080. Count time people spend bookkeeping, showing the property to possible tenants, doing yard work, repairs, etc. as time spent managing the property.

c.    Budget the gross earned or unearned income from renting the property after subtracting the standard self-employment deduction or the following verified expense payments:

                                              i.        Property tax or a prorated share of the tax if their home and the rental property are taxed as a single unit;

                                             ii.        Maintenance costs for the property;

                                           iii.        The mortgage or sales contract payment for the rental property or a prorated share if their property and the rental property are in the same loan or contract; and

                                           iv.        The insurance premium, or a prorated share, if they insure their home and rental property as a unit.


EXAMPLE

Marsha is renting out a house she doesn't live in for $1,500 a month. She has mortgage on the house that includes an escrow account for taxes and insurance. Marsha has stopped making the mortgage payments on the rental house.  We can no longer allow the mortgage obligation as a rental income business expense because she isn't actually paying the mortgage or taxes.  Allow the $100 standard self-employment deduction.


ACES Procedures

For Work Study income, see Income Eligibility and Budgeting - Special Income Situations - Work Study Income

See Interview - EARN screen

See Income Eligibility and Budgeting - Special Income Situations - Cash Gifts

Modification Date: April 3, 2014