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State of Wisconsin |
HISTORY |
The policy on this page is from a previous version of the handbook.
4.3.3.2 Identifying Farms and Other Businesses
4.3.3.3 Capital and Ordinary Gains
4.3.3.4.1 Unearned Rental Income
4.3.3.8 Self-employment Expenses
4.3.3.10 Self-Employment Worksheets
4.3.3.11 Self-employment Income Report Form (SEIRF)
7 CFR 273.11(a) and (b)
Self-employment income is earned directly from one's own business rather than as an employee with a specified salary from an employer. Self-employment income is reported to the IRS as farm, self-employment, rental, or royalty income. If it is not reported to the IRS, the IM worker must determine if it is self-employment income. All self-employment income is earned income, except royalty income and some rental income.
A business is operating if it is ready for business, even if there are no sales and no work is being performed. A seasonal business operates in the off season (unless there has been a significant change in circumstances) see 4.3.3.5.2 for part year income. A business isn't operating when it can't function in its specific purpose.
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Example 1: A mechanic cannot work for four months because of an illness. He or she may claim the business was not operating for those months. |
Identify a self-employment business by the following criteria:
By Organization
It is organized in one of three ways:
A sole proprietorship is an unincorporated business owned by one person.
A partnership exists when two or more persons conduct business. Each contributes money, property, labor, or skills, and expects to share in the profits and losses. Partnerships are unincorporated.
A corporation is a legal entity authorized by a state to operate under the rules of its charter. A corporation:
Is taxed as an entity rather than its owners being taxed as individuals.
Provides only limited liability. Each owner's loss is limited to his or her investment, while each owner of an unincorporated business is also personally liable.
By IRS Tax Forms
A self-employed person earning more than $400 annual net income must file an end-of-year federal tax return. Anyone who owes more than $400 in taxes at the end of the year must file quarterly estimates.
By Employee Status
A self-employed person earns income directly from his or her own business, and:
Does not have federal income tax and FICA payments withheld from a paycheck.
Does not complete a W-4 for an employer.
Is not covered by employer liability insurance or worker's compensation.
Is responsible for his or her own work schedule.
Examples of self-employment are:
Businesses that receive income regularly, for example, daily, weekly, or monthly, such as - merchant; small business; commercial boarding house owner or operator; owner of rental property.
Service businesses that receive income frequently and, possibly sporadically, such as - craft persons; repair persons; franchise holders; commission sales persons (door-to-door sales, delivery, etc.); subcontractors; sellers of blood and blood plasma.
Businesses that receive income seasonally, such as - summer or tourist oriented business; seasonal farmers; custom farm machine operators; migrant farm work crew leaders; fishers, trappers, or hunters; roofers
Farming, including income from cultivating the soil or raising or harvesting agricultural commodities, earned by full-time, part-time or hobby farming.
Fishing with gross annual proceeds or expected income of $1,000 or more.
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Example 2: Pam baby sits for her cousin in her cousin’s home. This is regular employment. Pam’s cousin is her employer. Linda provides child care in her own home for three neighborhood children. This is self-employment because Linda is her own employer. |
The IRS uses different tax rates for capital and ordinary gains from selling assets. However, include the entire gain or loss from IRS form 4797 as earned income for food units who have an ongoing self-employment business. When self-employment is terminated and the business is sold, the sale of property essential to self-employment is considered an asset and therefore excluded.
7 CFR 273.9(b)(1)(ii)
Rental income is earned if the owner actively manages the property an average of 20 or more hours per week. See 4.3.4.1 Unearned Income if the person manages the property less than 20 hours per week.
Include gross receipts minus allowable business expenses as earned income. Tax Forms 1040 Schedule C or Schedule E are used to determine rental income. Use that income recorded on the tax forms plus the principal paid if using tax form Schedule E to estimate future income. If the applicant/member has not completed a Schedule C or Schedule E tax form, use the following method to calculate earned income.
When the owner is not an occupant, "net rent" is the total rent payment(s) received minus the total mortgage payment (principal and interest) and other verified operational costs such as (but not limited to) hazard insurance, mortgage insurance and taxes.
When income is received from a multi-unit property and the owner lives in one of the units, compute "net rent" as follows:
Step 1: Add the total mortgage payment (principal and interest) and other verified operational costs such as (but not limited to) hazard insurance, mortgage insurance and taxes common to the entire operation.
Step 2: Multiply the number of rental units by the total in Step 1.
Step 3: Divide the result in Step 2 by the total number of units, to get the proportionate share.
Step 4: Add the proportionate share in Step 3 to any operating costs paid that are unique to the rental unit. This equals total expenses.
Step 5: Subtract total expenses in Step 4 from gross rent payments to get net rent.
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Example 3: Jena owns an apartment building with 10 units. She lives in one of them and charges $700 in rent per month for the other 9 units. Step 1: The total mortgage and operational expenses are $50,000 per year. Step 2: Multiply $50,000 (in Step 1) x 9 units = $450,000 Step 3: Divide $450,000 (in Step 2) by 10 units = $45,000 proportionate share Step 4: One of the rental units needed a new dishwasher at a cost of $400, add to proportionate share in Step 3 $45,000 + $400 = $45,400 in total expenses Step 5: Calculate gross rent by multiplying the number of units by the monthly rent by 12. 9 x $700 x 12 = $75,600 in gross rent Subtract total expenses in Step 4 from gross rent $75,600 - $45,400 = $30,200 net rent |
If someone receives rental income but does not actively manage the property 20 or more hours a week, the income is unearned. See Self-Employment 4.3.3.4 if he or she manages the property for at least 20 hours per week.
Average self-employment income represents a food unit’s yearly income over a 12-month period, even if the income is received within only a short period of time during those 12 months.
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Example 4: A hot dog vendor works from April through October and uses the income for living expenses for the entire year. Average the income over a 12-month period. |
Average self-employment income that is intended to meet the food unit’s needs for only part of the year, over the period of time the income is intended to cover.
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Example 5: A landscaper works from May through the end of August and supplements this income with other sources during the rest of the year. Average his self-employment income over a four-month period rather than a 12-month period. |
Calculate self-employment income based on anticipated earnings when:
The business was not in operation for at least one full month in the prior tax year;
The business has not been in operation for six or more months at the time of the application; or
Past circumstances do not represent the present.
Examples of a significant change in circumstances include, but are not limited to:
The start of a business.
The owner sold a part or all of his or her business.
The owner is ill or injured and will be unable to operate the business.
There's a substantial cost increase causing less profit for each unit sold.
Sales are consistently below previous levels beyond normal sales fluctuations.
The business is consistently earning above previous levels beyond normal fluctuations.
Changes are effective according to the normal prospective budgeting cycle. The date of an income change is the date the IM worker agrees a significant change occurred. The IM worker must judge whether the person's report was timely to decide any over or underpayment.
Self-employment income, by its very nature is somewhat uncertain. Use of SEIRFs and/or IRS forms to determine monthly average income takes this into consideration.
When a new self-employment business is reported or when a significant change in circumstance occurs and the past circumstances no longer represent the present, recalculate self-employment income:
When six or more months of actual self-employment information is available, calculate monthly average self-employment income using at least six months of prior earnings beginning from the date self-employment began or the date of the significant change.
When two or more full months of actual self-employment income information is available, use all of the actual income available to establish a monthly net income amount. See example 6.
When at least one full month but less than two full months of actual self-employment income information is available, calculate a monthly average net income amount using the actual net income received in any partial month of operation, the one full month of operation and an estimate of net income for the next month. See example 7.
When there is less than one full month of actual income information available, calculate a monthly average net self-employment income using the actual net income received in the partial month (since the significant change in circumstance occurred) and estimated income and expenses for the next two months. See example 8.
Use the average until the person's next renewal or if a significant change in circumstances is reported between renewals.
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Example 6: Bonnie applies for FoodShare on April 5, 2016. She reports that she started self-employment in January 2016. The agency uses a SEIRF for January, February, and March to determine the prospective self-employment income estimate for Bonnie’s FoodShare certification period (April 2016- March 2017).
On Bonnie’s September SMRF, no change in self-employment income is reported and the IM worker continues to use the average determined at the time of application. |
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Example 7: Ricardo is applying for FoodShare and Medicaid eligibility on February 5, 2016. He started his self-employment on December 15, 2015. To calculate his prospective self-employment income, he completes a SEIRF for December, January, and February including his actual and expected income and expenses for three months. The IM worker divides this total by three to determine an anticipated monthly average income amount. This amount is used until a change in self-employment is reported, or until Ricardo completes a new application or a renewal. |
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Example 8: Jenny is a FoodShare member who has been self-employed as a hair dresser since 2012. Jenny’s FoodShare certification period is December 2015 to November 2016. The IM worker previously used Jenny’s 2014 tax return to establish a monthly income amount.
In April 2016 Jenny reports that she has been unable to work since breaking her arm on March 17. She is not sure when she’ll be able to return to work, but it will not be until at least June. This qualifies as a significant change in circumstances. The worker has Jenny complete a SEIRF for March 17-March 31 (actual income since the change in circumstance occurred) and for April and May using the best estimate of income to establish her prospective self-employment income. The worker will use these three months to determine a prospective self-employment income estimate for the remainder of the certification period. Jenny does not need to submit any additional SEIRFs. |
Shelter Expense
When a self-employed food unit claims the total shelter costs as a business expense, do not allow any shelter deduction. If the food unit claims a percentage of the shelter costs as a business expense, the remaining percentage is a shelter deduction.
If the percentage used for the business expense was not self-declared, use IRS form 8829 or the “Expenses for business use of your home” line from IRS form 1040 Schedule C to determine the amount of the home that was claimed as a business expense. Any remaining amount that was not counted as a business expense should be allowed as a shelter expense.
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Example 9: Fred, a self-employed farmer, uses 50% of his homeowners insurance and property taxes as a business deduction. His yearly homeowners insurance and property taxes are $1,200. Use the remaining $600 as a shelter deduction. Prorate the $600 over 12 months. |
Farm and Self-Employment Expenses - Utilities
A self-employed food unit is allowed the standard utility allowance (SUA), if eligible for it, regardless of the percentage of utility expense claimed on the taxes for business use of the home.
Self-employed Child Care Provider
A child care provider can deduct the cost of meals provided to the enrolled children from the income earned by the child care business. They may report the actual cost of the meals or they may use the federal standard deductions. Tier 1 applies to food units with income at or below 185% of the FPL income guidelines. Tier 2 applies to all other households.
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Federal Standard Deductions |
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| Meals |
Tier 1 |
Tier 2 |
| Breakfast |
$1.32 |
$0.48 |
| Lunch or Supper |
$2.46 |
$1.49 |
| Supplement (snacks) |
$0.73 |
$0.20 |
Some specific expenses that are not allowed in the calculation of Self Employment Income for FoodShare are:
Depreciation
Net loss carryover from previous periods (long term capital loss), known as net operating loss (NOL) on IRS tax forms
Federal, state, and local income taxes
Charitable donations
Work-related personal expenses, such as transportation to and from work
Employer work-related personal expenses such as pensions, employee benefit and retirement programs and/or profit sharing expenses (Business expenses for employees’ pensions, benefits, retirement programs, and profit sharing expenses are allowable, but the work-related personal expenses of the employer are not).
Amortization and depletion
Guaranteed payments to partners
Next, divide self-employment income by the number of months the business was in operation, including partial months, during the previous tax year. The result is monthly income. Add this to the food unit’s other earned. If monthly income is a loss, add zero to the income.
When a food unit has more than one self-employment operation, the losses of one can offset the profits of another. Do not use losses from self-employment to offset other earned or unearned income.
Exception: Offset farm income losses with any other countable income only if the farmer received or anticipates receiving annual gross proceeds of $1,000 or more from the farm operation.
If more than one worksheet is used because there is more than one operation, combine the result of each worksheet into one monthly self-employment income amount. Then add that total to any other income. A salary or wage paid to a food unit member is an allowable business expense, but included in the earned income of the payee. Next, divide self-employment income by the number of months the business was in operation, including partial months, during the previous tax year. The result is monthly income. Add this to the food unit’s other earned. If monthly income is a loss, add zero to the income.
Use IRS tax forms to average income only if:
The business was in operation at least one full month during the previous tax year,
The business has been in operation six or more months at the time of the application, and
The person does not claim a significant change in circumstances since the previous year.
If all three conditions are met, and the tax forms are not complete, ask the applicant/member to either complete the appropriate tax form(s) or have the applicant/member complete one self-employment income report form (SEIRF) for the previous year’s circumstances. Completing the form(s) is solely the applicant/member's responsibility.
Use self-employment income worksheets to calculate self-employment income. Following the worksheet instructions will ensure that income, expenses, depreciation, and other disallowed expenses, gained from IRS tax forms, will be correctly budgeted for FoodShare. Worksheets contain built in formulas and should be completed electronically. This practice will ensure accurate information is entered into CARES Worker Web. Completed worksheets must be scanned into the electronic case file (ECF).
The worksheets are:
Personal capital gains are not counted income for FoodShare (4.3.4.3 Disregarded Unearned Income). When personal capital gains are reported, and a Schedule D is submitted, follow the instructions on Self-Employment Income Worksheet Personal Capital Gains or Losses (Schedule D) (F-01985). This will ensure that any unearned income that is budgeted on the case is excluded from the FoodShare budget.
The SEIRF simplifies reporting income and expenses when earnings must be anticipated. The applicant/member must enter previous and/or expected income information on the SEIRF to determine an average. Budget this average prospectively. Use it to report income for any type of business. If the SEIRF is not completed, ask the applicant or member to complete it. The IM worker should not fill out the SEIRF.
Note: IM workers should request a SEIRF if the applicant or member does not file taxes or does not have the most recent tax forms available.
Tip: Farm operators may find it easier to complete the IRS tax form when income and expenses are more complex.
This page last updated in Release Number: 16-02
Release Date: 12/19/2016
Effective Date: 12/19/2016
Notice: The content within this manual is the sole responsibility of the State of Wisconsin's Department of Health Services (DHS). This site will link to sites outside of DHS where appropriate. DHS is in no way responsible for the content of sites outside of DHS.
Publication Number: P-16001