340:50-7-30. Self-employed households
(a) Person considered self-employed. A person is considered self-employed when:
(1) he or she declares himself or herself to be self-employed;
(2) there is an employer/employee relationship and the employer does not withhold income taxes or Federal Insurance Contributions Act (FICA), even when required by law to do so; or
(3) the employer withholds taxes and the person provides proof he or she files taxes as self-employed.
(b) Self-employment income. Self-employment income received by household members whose income is derived from a self-employment enterprise owned solely or in part by the household member or when the household member works for an employer, but is considered self-employed per (a) of this Section, is treated per (1) through (10) of this subsection.
(1) Capital gains. The worker counts as income the proceeds from the sale of capital goods or equipment and calculates it in the same manner as a capital gain for federal income tax purposes. Even though a percentage of the proceeds from the sale of capital goods or equipment are taxed for federal income tax purposes, the worker counts the full amount of capital gain as income. • 1
(2) 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 Oklahoma Administrative Code (OAC) 340: 50-7-29(b)(2) and (c)(7) 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 or the business. Each partner receives a profit share from the business. When a business is considered a: • 2
(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; • 3
(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. • 4
(3) Self-employed farm income. To be considered a self-employed farmer, the farmer must receive or anticipate receiving annual gross proceeds of $1,000 or more from the farming enterprise.
(A) Farming is defined as cultivating or operating a farm for profit either as owner or tenant.
(B) A farm includes stock, dairy, poultry, fish, fruit, truck farms, or plantations, ranches, ranges, or orchards.
(i) A fish farm is an area where fish are grown or raised, artificially fed, protected, and cared for, and does not include an area where they are only caught or harvested.
(ii) A plant nursery is a farm for purposes of this definition.
(C) Per Section 273.11(a)(2)(ii) of Title 7 of the Code of Federal Regulations (7 C.F.R. § 273.11(a)(2)(ii)), when the cost of producing self-employment farm income exceeds the income received, the worker offsets the losses against other countable household income by:
(i) first offsetting the losses against other self-employment income; and
(ii) then offsetting any remaining farm self-employment losses against the total amount of earned and unearned income received by the household after applying the earned income deduction, per OAC 340:50-7-31(a)(2). • 5
(D) When the household's self-employment farm income exceeds the cost of producing the farm income and there are no losses to offset, the worker calculates the self-employment farm income as regular self-employment income per (b)(7) of this Section.
(4) Monthly self-employment income. Self-employment income received on a monthly basis that represents a household's annual support, is normally averaged over a 12-month period. When the averaged amount does not accurately reflect the household's actual monthly circumstances because the household experienced a substantial increase or decrease in business, the worker calculates the self-employment income based on anticipated earnings.
(5) Seasonal self-employment income. Self-employment income intended to meet the household's needs for only part of the year is averaged over the period of time it is intended to cover. For example, the income of self-employed vendors who work only in the summer and supplement their income from other sources during the balance of the year is averaged over the summer months rather than a 12-month period.
(6) Annualized self-employment income. Self-employment income that represents a household's annual support must be annualized over a 12-month period, even when the income is received in a shorter period of time. For example, self-employment income received by crop farmers must be averaged over a 12-month period when the income represents the farmer's annual support.
(A) When the household's self-employment income has been received for less than a year, the income must be averaged over the period of time received and the monthly amount projected for the coming year. • 6
(B) When the household's self-employment income has been received for a short time and there is insufficient data to make a reasonable income projection, the worker does not consider income from this source until the benefit renewal or certification renewal month. At benefit renewal or certification renewal, the worker averages the income over the number of months received until a full year's information is available. • 7
(7) Determining net monthly annualized self-employment income. When the household has business expenses associated with its self-employment income, the business expenses must be deducted before determining if the household meets the maximum gross income standards per Oklahoma Department of Human Services (DHS) Appendix C-3, Maximum Food Benefit Allotments and Standards for Income and Deductions. When the household does not have business expenses, the gross self-employment income is used.
(A) When the household filed an income tax return on its self-employment income for the most recent year, the worker uses the gross self-employment income shown on the income tax return, subtracts 50 percent of the income for claimed business expenses, and divides the net self-employment income by the number of months to be averaged per 7 C.F.R. § 273.11(b)(3)(iv). • 8
(B) When the household did not file an income tax return on its self-employment income for the most recent year, the worker uses (i) through (iii) of this subparagraph to determine the net monthly self-employment income.
(i) The worker computes gross self-employment income, including capital gains, using the household's self-employment business records or employer records, when applicable.
(ii) When the household declares incurred business expenses, the worker subtracts 50 percent of the gross self-employment income as business expenses per 7 C.F.R. § 273.11(b)(3)(iv). When the household did not incur business expenses, a business expense deduction is not given.
(iii) The worker then divides the net self-employment income by the number of months to be averaged.
(C) The worker adds monthly net self-employment income to all other earned income received by the household. When the household reports a loss instead of a profit on the business, the worker does not deduct the loss from other household income.
(i) The worker adds the total monthly earned income, less the earned income deduction per DHS Appendix C-3 to all other monthly income received by the household.
(ii) The worker subtracts the standard deduction, dependent care, and shelter costs as for any other household per OAC 340:50-7-31 to determine the monthly net income of the household.
(8) Anticipated income. When a household 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. The worker uses procedures in (b)(7)(B) and (C) of this Section to determine net monthly self-employment income.
(9) Household with income from boarders. A household that operates a commercial boarding house may be considered a food benefit household and self-employed per (7) of this subsection. A household with boarders or roomers that is not a commercial boarding house may receive food benefits per (A) through (C) of this paragraph.
(A) The worker excludes a person paying a reasonable amount for room and board from the household and counts payments from the boarder as self-employment income when determining the household's eligibility and benefit level.
(i) The income from a boarder includes all direct payments to the household for room and meals, including contributions to the household for part of the household shelter expense.
(ii) The worker does not count expenses paid directly by a boarder to someone outside the household as income to the household.
(B) The worker excludes 50 percent of the boarder payment as the cost of doing business.
(C) The worker includes the net income from self-employment with other earned income minus the earned income deduction.
(i) The worker computes the shelter cost incurred by the household, even when the boarder contributes part of the shelter expense, to determine if the household qualifies for a shelter deduction.
(ii) The shelter and utility cost must not include any expense billed to and directly paid by the boarder to a third party.
(10) Income from rental property. The worker considers income received from rental property as self-employment income. • 9
(A) The worker treats rental income as earned income when a member of the household actively manages the property an average of at least 20 hours per week.
(B) When a household member does not actively manage the property at least 20 hours each week, the worker considers the income as unearned. The person is eligible for business expenses per (7) of this subsection.
1. Capital gains income is located on Form 1040, U.S. Individual Tax Return, line 13 and Schedule D, Capital Gains and Losses, line 16. Line 13 on Form 1040 should match line 16 on Schedule D. The worker divides the income on these lines by 12 to arrive at the monthly countable unearned capital gains income.
2. 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.
3. 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 the 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.
4. (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 the 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.
5. (a) Example: The food benefit household's income includes self-employment farm income and non-farm self-employment income. The household files Form 1040, Schedule F, Profit or Loss From Farming, for the farm income and Schedule C for the non-farm income. Schedule F, line 34 shows a loss of $15,500 and Schedule C, line 3 shows $37,500 in non-farm self-employment income. The worker:
(1) first determines the net non-farm income by subtracting 50 percent for business expenses. This equals $18,750;
(2) then subtracts the $15,500 from the net non-farm income to offset the farm income losses. This equals $3,200 in yearly self-employment income. $3,200 divided by 12 equals $267 in monthly self-employment;
(3) enters $267 in the self-employment income field and zero in the business expense field in the Interview Notebook Income tab in FACS system; and
(4) documents income calculations in FACS case notes.
(b) Example: The food benefit household's income includes self-employment farm income and earnings. The household files Form 1040 with Schedule F for the farm income. Schedule F, line 34 shows a farm loss of $12,000 for the year. $12,000 divided by 12 equals $1,000 per month in farm losses. The household furnished the last 30-calendar days of earnings that, after calculation, equal $2,500 per month. Information Management System (IMS) and FACS subtracts the 20 percent earned income deduction from the amounts in blocks F64 and F68 of the FACS Income tab. The worker uses the following steps to deduct self-employment farm losses from non-self-employment-based earned income. The worker:
(1) calculates the earned income deduction for the gross earned income by multiplying $2,500 by 20 percent. The earned income deduction equals $500 ($2,500*.20=$500);
(2) subtracts the earned deduction from the gross non-self-employment earned income. $2,500-$500=$2,000;
(3) subtracts the farm losses from earned income remaining after deducting the earned income deduction. $2,000-$1,000=$1,000;
(4) calculates a number that is 20 percent greater than the monthly countable amount to allow the system to deduct the earned income deduction. This is $1,250. Multiply the number in (3) of this subsection by 100 ($1,000*100=$100,000), and divide the product by 80 ($100,000/80=$1,250). When IMS and FACS subtract 20 percent from this number, it will equal $1,000 ($1,250*.20=$250; $1,250-$250=$1,000);
(5) does not enter any self-employment income or business expenses in FACS;
(6) enters $1,250 in the earned income field (F64) of the FACS Interview Notebook's Income Tab for the person; and
(7) documents income calculations in FACS case notes.
6. (a) To average the income and expenses when the self-employment is received for less than a full year, the worker divides the total income by the number of months received. For example, when the household receives varied self-employment income from February 18th to the application month of November, the worker averages the income from February, the first month the business started, through October, the last complete month when computing an annualized figure for new self-employment income.
(b) The worker documents in the Family Assistance/Client Services FACS Case Notes how income was calculated and why the full 12-month average was not used.
7. (a) When the person is 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 to annualize income, earnings are anticipated by multiplying the amount received by the appropriate conversion factor. For example, the client starts a new self-employment contract labor job and works 40 hours per week at $10 per hour. The client 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 weekly. It is correct to use $400 X 4.3 to anticipate the person's monthly income.
(b) At mid-certification renewal or certification renewal, the worker averages the income over the number of months received until a full year's information is available.
8. (a) 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 allows a 50 percent deduction for claimed business expenses;
(2) 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 net loss, offset the loss per (b)(3)(C) of this Section. When line 34 shows a profit, the worker uses line 9 and determines net monthly income the same as all other self-employment income; or
(3) Form 1065, Partnership Return of Income, with Schedule K-1. Refer to Instructions 2 through 4 of this Section for calculation information.
9. 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 of 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 does not actively manage the property at least 20 hours per week. 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 at least 20 hours per week. Since the client has business expenses, the worker considers 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.