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Library: Policy

340:10-3-32. Determination of earned income

Revised 9-15-20

(a) Self-employment income determination.Self-employment income received by a member of the assistance unit whose income is derived from a self-employment business enterprise owned solely or in part by the person; or when the person works for an employer, but is considered self-employed, per Oklahoma Administrative Code (OAC) 340:10-3-31(a), is considered per the procedures listed in (b) of this Section. Other types of self-employment income are listed in (1) through (3) of this subsection.

(1) Room or board.When a person:  1

(A) rents a room in the client's home, the worker subtracts 25 percent of the gross earned income amount received as a business expense; or

(B) pays for room and board in the client's home, the worker subtracts 50 percent of the gross earned income as a business expense.

(2) Rental property.Income from rental property is considered earned self-employment income when none of the activities associated with renting the property is conducted by an outside person or agency.When the client does not manage the rental property, it is considered unearned self-employment income.When the client incurs business expenses, such as a mortgage payment, the worker subtracts 50 percent of the client's rental property income as a business expense.  2

(3) Profit sharing.Households who operate S corporations, general or limited partnerships, or limited liability companies (LLC) may receive profit sharing that is reported on the household's personal income tax return.

(A) S corporation profit sharing is considered unearned profit sharing income.Refer to (c)(3) of this Section and OAC 340:10-3-39(o) for information regarding S corporations.

(B) Partnerships are unincorporated businesses with two or more partners. When a household member is a partner in a business, he or she is considered self-employed and not an employee of the business.Each partner receives a profit share from the business.When a business is considered a:   • 3

(i) general partnership or LLC with a member-manager, each partner's share of the business income is shown as self-employment income on his or her federal income tax form; or  4

(ii) limited partnership or other LLC member, each partner's share of the business income is shown as self-employment income or unearned profit sharing income on his or her federal income tax form.  5

(b) Self-employment income procedures. Self-employment income that represents the person's annual support is prorated over a 12-month period, even when the income is received in a shorter period of time.The worker uses the gross self-employment shown on the person's most recent federal tax return, when filed, or computes the person's gross self-employment income from the person's business or employer records.When the person claimed business expenses, the worker subtracts 50 percent of the person's gross self-employment income as business expenses and divides the remaining income by the number of months to be averaged to arrive at the person's net monthly self-employment income.   • 6

(1) New income source.When self-employment income was received for less than a year, the income must be averaged over the period of time received and the monthly income projected for the coming year.  • 7

(2) Averaged over period of time received.When there is insufficient data to make a reasonable income projection from this income source, the worker does not consider income from this source until the six-month renewal.At renewal, the worker averages the income over the number of months received until a full year's data information is available.   • 8

(3) Substantial increase or decrease in income.When the person who would normally have the self-employment income annualized experiences a substantial increase or decrease in income, the worker does not calculate self-employment income on the basis of prior earnings, such as income tax returns.Instead, the worker calculates the self-employment income using only the income that can reasonably be anticipated to project future earnings.

(c) Earned income from sources other than self-employment.

(1) Earned income from wages, salary, or commission.When the income is from wages, salary, commission, or contract employment, the earned income is the gross income prior to payroll deductions and withholdings.   • 910Money from the sale of whole blood or blood plasma is also considered as earned income.

(2) Earned income from work and training programs.

(A) Workforce Innovation and Opportunity Act (WIOA) of 2014.Per Section 181 of WIOA, earned income from WIOA is exempt.  • 11

(B) On-the-job training (OJT).Earned income from OJT is considered as any other earned income.

(3) S corporations.When a household member is a shareholder in an S corporation, he or she may receive profits from the business in two ways; as a salary and/or as a profit share of the business.Both types of income are reported on the household member's personal income tax return.Salary income is considered as earned income and profit share income is considered as unearned income.   • 12

INSTRUCTIONS TO STAFF 340:10-3-32

Revised 9-15-20

1.A person acting in the role of spouse, per Oklahoma Administrative Code (OAC) 340:10-3-57(e)(3) must not be considered as a roomer or boarder.

2. Rental income is treated as self-employment income.This means that the 50 percent business expense is allowed when the client claims expenses, such as the mortgage for the rental property.

(1) Example:A client collects rent of $1000 per month from a rental property and pays an $850 mortgage payment on the property.The client states she does not actively manage the property.Since the client has business expenses, the worker considers 50 percent of the $1000 as countable income and enters unearned income of $500 in the 'other' field and 'R' for rental income in the 'other indicator' field in the Income tab of the FACS Interview Notebook.The worker also enters a FACS case note explaining income calculations.

(2) Example:A client collects rent of $900 per month from a rental property and pays a $650 mortgage payment on the property.The client states he does actively manage the property.Since the client has business expenses, the worker considered 50 percent of the $900 as countable income and enters self-employment earned income of $450 in the 'self-employment' field in the Income tab of the FACS Interview Notebook.The worker also enters a FACS case note explaining income calculations.The system subtracts the standard work-related expense and one-half of the remaining earned income.

3.The worker looks at line G on Schedule K-1 (Form 1065), Partner's Share of Income, to determine if a partnership is a general partnership/limited liability company (LLC) member-manager or a limited partnership/other LLC member.

4.When the household member is a partner in a general partnership or LLC member-manager, the worker adds together the income shown on lines 1, 4, and 14C of Schedule K-1 (Form 1065) to determine his or her annual gross self-employment income.The worker subtracts 50 percent of the income for business expenses and divides the remaining income by 12 or the number of months the business existed in the tax year to arrive at the household member's gross monthly self-employment income.The worker codes the income in the Income Tab of the Family Assistance/Client Services (FACS) as self-employment and documents income calculations in FACS case notes.

5.(a) When the household member is a partner in a limited partnership or other LLC member, the worker adds together the income shown on line 4 and line 14C of Schedule K-1 (Form 1065) to determine his or her annual gross self-employment income.The worker subtracts 50 percent of the income for business expenses and divides the remaining income by 12 or the number of months the business existed in the tax year to arrive at the household member's gross monthly self-employment income.The worker codes the income in the Income tab of FACS as self-employment and documents income calculations in FACS case notes.

(b) The worker uses the 'ordinary business income' shown on line 1 of Schedule K-1 and divides the income by 12 or the number of months the business existed in the tax year to arrive at the household member's monthly gross unearned income from profit sharing.

6.(a) The worker divides the person's self-employment income by 12, or the number of months the business has existed when less than 12 months, to determine monthly self-employment income.When the gross self-employment income shown on the income tax return or business records is not representative of the person's current situation because of a substantial increase or decrease in the person's self-employment income, refer to (b)(3) of this Section.

(b) When the person did not incur business expenses, the worker does not subtract 50 percent of the person's gross self-employment income as business expenses.

(c) Income tax documents provide acceptable documentation of self-employment income and expenses. Income tax return forms include, but are not limited to:

(1) Form 1040 with Schedule C, Profit or Loss From Business (Sole Proprietorship), for sole proprietors and some limited liability companies.The worker uses the gross income shown on line 3 of Schedule C as the household's annual self-employment income.The worker divides the income by 12 or the number of months the business existed in the tax year to arrive at the monthly gross income and subtracts a 50 percent deduction for claimed business expenses;

(2) Form 1065, Partnership Return of Income.Refer to Instructions 3 through 5 of this Section for calculation information; or

(3) Form 1040 with Schedule F for farmers.The worker uses the gross income shown on line 9 of Schedule F to determine farm income and line 34 to determine the net loss or profit of the farm.When line 34 shows a profit, the worker uses line 9 and determines net monthly income the same as all other self-employment income.

(d) After determining the person's net monthly self-employment income, the worker subtracts applicable earned income deductions, per OAC 340:10-3-33.

7.Examples of self-employment income calculations include, when:

(1) a crop farmer does not receive income from crops every month, but this income represents the farmer's annual support.Income from this source is averaged over a 12-month period; or

(2) self-employment income was received from February 18th to the application month of November, the income is averaged for nine months, February through October.It is correct to count the first month of income received through the last complete month when computing an annualized figure for new self-employment income.

 8.(a) When the person is considered self-employed as a contract laborer, receives a set salary that does not vary, and has been employed for a period of time where sufficient data is available from the employer to make a reasonable income projection but not sufficient data to annualize income, earnings are anticipated by multiplying the amount received by the appropriate conversion factor.For example, the person begins a new self-employment contract labor job.He or she works 40 hours per week at $10 per hour.He or she has received two weekly checks in the amount of $400 each.The month is not over, but the employer states the person will continue to be paid $400 per week.It is correct to use $400 X 4.3 to anticipate the person's monthly income.

(b) At renewal, the worker averages the income over the number of months received until a full year's information is available.

 9.When the employer adds money to the employee's gross income as a benefit allowance to pay for a reimbursable expense, such as insurance, the worker counts the regular gross earnings plus any excess money left after deducting the insurance or other reimbursable expense from the benefit allowance.For example, when a person:

(1) receives a $300 benefit allowance to purchase insurance and uses the entire amount to purchase the insurance; none of the benefit allowance is counted as income;

(2) receives a $300 benefit allowance but only purchases $280 in insurance, the worker counts the remaining $20 as income; or

(3) has an option of purchasing insurance with a $300 benefit allowance when insurance is purchased or $150 if insurance is not purchased, the worker counts the $150 as an excess benefit allowance when the person chooses not to purchase insurance.

 10.(a) Refer to OAC 340:10-3-31to determine when contract income is considered self-employment income.

(b) Income from contract employment received by persons, such as school employees is annualized over a 12-month period even when the income is received over a period of time shorter than 12 months.

 11.Refer to OAC 340:10-3-40(34).

  12. Shareholders of S corporations complete Form 1120-S, U.S. Income Tax Return for an S Corporation with Schedule K-1, Shareholder's Share of Income.When the household member is a shareholder and receives a salary from the business, the household member must supply a copy of his or her W-2, Wage and Tax Statement.Line 1 on Form W-2 shows the household member's annual wages for the tax year.To calculate the household member's monthly income, the worker divides the income shown on line 1 by 12 or the number of months the S corporation existed during the tax year.

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