4004.1 Sources of Earned Income

1. Wages - Gross earnings paid to the employee before deductions for taxes, FICA, insurance, etc. are counted. Sick pay or vacation pay is considered as a wage as long as it is paid as a wage. If sick pay is paid through an insurance company as disability pay, it is considered unearned income. NOTE: Earnings paid to employees under contract are averaged over the number of months covered by the contract. EXAMPLE: A teacher is under contract for a full calendar year, but may choose to collect his pay during the school year. His wages for public assistance purposes are budgeted over the full year. 2. Self-employment – Gross earned income from self-employment is determined by subtracting business expenses (supplies, equipment, etc.) from gross proceeds. The individual’s personal expenses (lunch, transportation, income tax, etc.) are not deducted as business expenses but are deducted by using the standard allowance for work connected expenses (See DSSM 4004.2 and 4004.3). Self-Employment Standard Deduction for Producing Income The cost for producing income is a standard deduction of the gross income. This standard deduction is a percentage of the gross income determined annually and listed in the Cost-of-Living Adjustment (COLA) notice each October. The standard deduction is considered the cost to produce income. The gross income test is applied after the standard deduction. The earned income deductions are then applied to the net self-employment income and any other earned income in the household. The standard deduction applies to all self-employed households with costs to produce income. To receive the standard deduction, the self-employed household must provide and verify it has business costs to produce income. The verifications can include, but are not limited to, tax records, ledgers, business records, receipts, check receipts, and business statements. The self-employed household does not have to verify all its business costs to receive the standard deduction. Self-employed households not claiming or verifying any costs to produce income will not receive the standard deduction. The self-employment standard deduction will be reviewed annually to determine if an adjustment in the percentage amount is needed.