340:10-3-32. Determination of earned income
(a) Self-employment income determination. Self-employment income received by an assistance unit member from a self-employment business enterprise he or she owns solely or in part; or from an employer when the assistance unit member 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 (4) 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 an outside person or agency does not conduct any of the activities associated with renting the property. 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 an assistance unit 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 assistance unit member's annual support is prorated over a 12-month period, even when the income is received in a shorter time period. The worker uses the gross self-employment shown on the person's most recent federal tax return, when filed, or computes the member's gross self-employment income from the member's business or employer records. When the member claimed business expenses, the worker subtracts 50 percent of the member'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 member's net monthly self-employment income. • 6
(1) New income source. When self-employment income is received for less than a year, the income must be averaged over the time period received and the monthly income projected for the coming year. • 7
(2) Averaged over time period 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 assistance unit member experiences a substantial increase or decrease in income, the worker does not use prior self-employment income, such as income tax returns, to calculate anticipated self-employment income. Instead, the worker only uses the self-employment 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. • 9 & 10 Money 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 an assistance unit member is a shareholder in an S corporation, he or she may receive profits from the business in three ways; as a salary, as a profit share of the business, or as salary and a profit share of the business. Salaries and profit share of the business 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
(d) Earned income determination. TANF cash assistance benefit amount is determined based on actual gross income received in the current or past month, when known, and the best estimate of anticipated gross income for future months.
(1) Income verification. When income verification is needed, the worker gives or sends Form 08AD092E, Client Contact and Information Request, to the client specifying the income verification needed and gives the client at least 10-calendar days to provide the verification.
(A) When an application includes a past month, the worker obtains actual income, when available, to determine income eligibility for the application month.
(B) Once the client provides acceptable verification, no further information is required unless a change occurs or the renewal is due.
(C) When the client reports new employment and has not received representative pay yet, the worker determines the best estimate from information provided by the client and the employer.
(2) Varying income. When the assistance unit member receives income in varying amounts, the worker averages the most recent 30-calendar days of income to anticipate income for future months unless the:
(A) member starts new employment and paystubs are not available. When pay stubs are not available, the worker contacts the employer to obtain the member's hourly wage, anticipated weekly hours, and pay frequency; • 13
(B) hourly wage changes. The worker obtains a paystub(s) that shows the member's new hourly rate, uses the past 30-calendar days of paystubs to average the member's weekly hours, and multiplies the hours by the new pay rate to anticipate income. When a paystub showing the new hourly rate is not available, the worker contacts the employer to verify the new hourly rate;
(C) member's work hours change. When paystubs are not available, the worker contacts the employer to verify the increase or decrease in hours. The worker multiplies the new hours by the hourly wage to anticipate the member's new earnings;
(D) member obtains a second job. The worker averages the client's first 30-calendar days of paystubs from the second job, when available, or contacts the employer to obtain the member's hourly wage, anticipated weekly hours, and frequency of pay. The worker computes the monthly earnings from each job separately and then adds the earnings together for the total month's gross earnings; or
(E) paystubs are not representative of the normal circumstances. In this instance, the worker only uses the representative paystubs to anticipate future income. • 14
(3) Income conversion to monthly amount. When the assistance unit member receives income more often than monthly, the worker converts the income to a monthly amount as described in (A) - (D) of this paragraph. Income received: • 15
(A) on a daily basis is converted to a weekly amount, then multiplied by 4.3;
(B) weekly is multiplied by 4.3;
(C) twice a month is multiplied by 2; or
(D) every two weeks is multiplied by 2.15.
(e) Benefit changes. The client is responsible for reporting income changes within 10-calendar days of when the change takes place. The worker is responsible for taking timely action within 10-calendar days of the date the client reports the change. • 16 All client notices must include the timely reporting requirement.
(1) The TANF cash assistance benefit may be closed based on actual or anticipated earnings when the assistance unit's net income is over the payment standard, per Oklahoma Human Services Appendix C-1, Schedule IX. To determine net income, the worker subtracts the earned income disregard, when applicable, per OAC 340:10-3-31.1 and the earned income exemptions, per OAC 340:10-3-33, from gross earned income.
(2) The TANF benefit may be reopened due to administrative error, per OAC 340:65-5-6, when the client reports within 30-calendar days of the effective closure date that the anticipated income was not received or was less than expected and did not cause ineligibility.
INSTRUCTIONS TO STAFF 340:10-3-32
1. A person acting in the role of spouse, per Oklahoma Administrative Code (OAC) 340:10-3-57(e)(3), is not considered a roomer or boarder.
2. Rental income is considered self-employment income. This means the worker allows a 50 percent business expense when the assistance unit member 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 unearned income and enters $500 in the 'other' field and 'R' for rental income in the 'other indicator' field in the Family Assistance/Client Services (FACS) Interview Notebook's Income tab. 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 self-employment earned income and enters $450 in the 'self-employment' field in the FACS Interview Notebook's Income tab. 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 assistance unit 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 by the number of months the business existed in the tax year, to arrive at the assistance unit member's gross monthly self-employment income. The worker codes the income in the FACS Income Tab as self-employment and documents income calculations in FACS case notes.
5. (a) When the assistance unit 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 by 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 FACS Income tab 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 by 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 assistance unit member's self-employment income by 12, or by 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 member's current situation because of a substantial increase or decrease in the member's self-employment income, refer to (b)(3) of this Section.
(b) When the assistance unit member 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 by 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. Example: The client started work as a cosmetologist two months ago and has mainly serviced walk-in clientele and overflow referrals from other cosmetologists. The client earned $300 the first month and $400 the second month and pays $100 booth rent per month plus supplies. The client has had only had one repeat customer. The worker averages the income for two months. The client must report the self-employment income monthly when he or she turns in Form 08TW013E, Time and Progress Report to report participation hours. The worker recalculates the income monthly to include all months of earnings until a full year is received.
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 340:10-3-31 to 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 assistance unit 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 assistance unit 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.
13. When the employer's statement lists an approximate number of employment hours, the worker uses the assistance unit member's scheduled employment hours to anticipate income, when possible.
14. The worker documents in FACS case notes why the current pay stubs are not representative of the normal work week and, therefore, not used in the computation.
15. The worker exercises caution when determining if income is received twice a month or every two weeks. In computing monthly income, cents are carried at all steps until the monthly amount is determined and then rounded to the nearest dollar.
16. The worker is responsible for explaining timely reporting requirements to the client at initial application and each renewal.