7122 Self-Employment Income

See 6313 for guidelines to determine if an individual is self-employed. For self-employment income, an average shall be established based on the guidelines below.

Tax Return Filed - When a tax return has been filed, the average shall be based on the most recent year's income tax return filed. Provided the return reflects a full year of self-employment earnings, a twelve-month average shall be established.

Tax Return Not Filed or Does Not Contain Full Year's Earnings - If a tax return has not been filed (e.g., employment just started or client has not filed a return) or does not reflect a full year of earnings, an initial average shall be established based on at least 3 calendar months of income which are reflective of the individual's income pattern. If the earnings reported on the tax return are representative, an average can be established based on that information dependent on the number of months reflected for the earnings reported. Otherwise, the calendar months used to establish an average must be consecutively prior to the month of application or the month in which the average is being calculated. Income must be counted by the calendar month received. An average shall exclude only the first month of earnings when that amount is not representative. See 7110 . A prospective estimate shall be used until an average can be instituted based on methodologies for using actual or anticipated income in 7110 . When at least 3 calendar months of income are known following use of the prospective estimate and these months reflect the individual's income pattern, an average is to be established. However, if additional calendar months are necessary to more accurately reflect this pattern, the average should incorporate these months. Once an average is established, it may continue through the review period. When income is re-averaged (e.g., review or redetermination), at least 3 of the most recent calendar months shall be used. Once again, additional months should be used if necessary to accurately reflect the person's income pattern. However, once a full year of earnings is obtained based on tax return information, a new average is to be established with this information at the time of the next scheduled review and remain in effect until the following year's tax return information is available except as indicated below. For self-employment, the average is determined by totaling all adjusted gross earnings in the months being counted and dividing by the respective number of months. The calendar months being used, and the corresponding earnings must be clearly documented in the case record.

Need for New Estimate/Average Based on Changes in Income - Income shall not be calculated on the basis of prior income (i.e., income tax returns) when the individual has experienced a substantial increase or decrease in earnings. If the averaged amount does not accurately reflect the individual's actual circumstances because he or she has experienced a substantial increase or decrease in business, the self-employment income shall be calculated on anticipated earnings until a new average can be established. Self-employment earnings may also be re-averaged prior to the review period or the availability of tax return information if the current average is no longer reflective of the person's income. This can be done by either establishing a new average which incorporates the change in income pattern or an estimate until at least three calendar months of income which are reflective are known. See 9121.1 for the effective date when a change is reported.

New or Ending Self-Employment - Changes to begin or terminate self-employment or to go from self-employment to regular employment shall be made based on what is anticipated in the forthcoming month or until a representative amount can be established. If a representative amount of standard employment (converted amount) or self-employment (averaged amount) is already established and that representative amount is expected for the forthcoming month, then that amount will be applied. If a representative amount is no longer anticipated for the upcoming month, then the actual amount anticipated shall be applied in the determination.

Unearned Income - If unearned income is treated as self-employment and received on a basis other than monthly it is budgeted as intermittent income per 6213 so that income received prior to the first eligibility base shall not be considered. (See 6313 (1) ).