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Monthly Self-employment

Use monthly income when the household earns self-employment for at least one full month. Monthly employment is self-employment that a person performs on an ongoing basis to support the household's immediate needs. A person, by contrast, performs seasonal or annualized self-employment for only part of the year.

Ask the client how long the self-employment will last. If he or she expects the self-employment to last only part of the year, explore whether you should use a seasonal or annualized income calculation.

Calculate monthly self-employment income according to these instructions.

  1. Use the gross self-employment income shown on the person's federal income tax return or calculate the annual gross self-employment amount by using the client's business records. Remember, if the income has substantially changed, to use the verification that best reflects the income for the current or future months.
  2. Ask if there are self-employment expenses. If the client claims business expenses, subtract 50% from the client's gross self-employment income.
  3. Divide any remaining income by the number of months the client was self-employed during the last year or the timeframe the verification covers. Consider the partial first month a person is performing self-employment as a full month when considering how many months a person has worked in the past year.

Example 1:

Lamont, aged 40, applies for Child Care for his ten-year-old daughter Casey and his eight-year-old son Jasper. You interview Lamont on October 12, 2017. At the interview, Lamont reports he is working as a bricklayer. He began his employment last year on November 4 and included this income when completing his 2017 tax return. His tax return shows $5,500 in earnings. Lamont explains his earnings have not changed much since he started his employment, and he is responsible for business expenses. How much income should you count for Lamont?

$1375. Lamont's tax return provides the gross amount of his self-employment. The tax return shows $5,500 in gross income. Lamont claims business expenses, so you must allow deduct 50% for his business expenses. $5,500/2=$2,750. Lamont earned $2,750 after deducting business expenses in 2017. Lamont earned this income in November 2017 and December 2017. You must divide his earnings by 2 months to get his monthly average. $2,750/2=$1,375. 

Example 2:

Keegan, aged 45, serves as a subcontractor for a construction company. His company does not withhold taxes from his pay check, and he files a tax return as self-employed. Keegan applies for Child Care for his six-year-old daughter Kristin. He brings his 2017 tax return. His tax return shows he earned $40,000. Keegan reports that he responsible for his own tools and safety equipment and he will be working more than he did during the 2017 tax year. He reports the construction company is using him more and more in the last 3 months. His pay stubs show he earned $3,750, $3,500, and $4,000 in the last 3 months. How much income should you count for Keegan?

$1,875. Keegan's income has substantially changed, so you cannot use the gross amount from his 2017 tax return. You must use the verification that reflects the substantially changed income. Keegan has earned $11,250 over the past three months. He is responsible for $5,625 after deducting for business expenses. $11,250/2=$5,625. You must divide by 3 months to get his monthly average.  $5,625/3=$1,875.

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