104.1 Purpose

This section describes the special policies that apply to households that have self-employment income.

104.2 General Information

SNAP applicants and recipients may have income from self-employment. Self-employed people can include: child or adult care providers; taxicab/Uber/Lyft drivers; hairdressers, barbers or beauticians; handymen, odd jobs, landscapers or lawn care providers; newspaper delivery people; small business owners; farmers; fishermen or watermen; and, craft, art, or jewelry sales people. In general, people who have earnings from working for themselves are considered self-employed. They may work under a contract for another person or business or they may own their own business.

Here are some ways to identify self-employment:

If an employer reports a person’s wages on an IRS form 1099-MISC rather than a W-2 form, the person is almost always self-employed. See Section 104.91.

If the person is employed by a company or organization as a contractor, they should have an IRS form 1099-MISC provided by the employer showing their “nonemployee compensation.”

The self-employed person should also file a Schedule C with their 1040, showing their gross income from self-employment in Part 1, Line 1 (or Part II, Line 1 on the Schedule C-EZ). Schedule C is the first place you should look for self-employment income. See Section 104.92.

The IRS form 1099-MISC can also be used to report royalties (in box 2), which are considered unearned income for SNAP purposes.

Musicians or writers may have royalties from album or book sales.

If an employer does not withhold taxes and social security (FICA), the person is considered self-employed.

Some people, such as daycare providers or handymen, work directly for people who do not provide an IRS form 1099-MISC at the end of the tax year.

Often people in these jobs are paid in cash.

A self-employed person may file Schedule E to report income from rental real estate, partnerships, S corporations, and also unearned income from estates, trusts, and royalties.

In a partnership, each partner must file Schedule K-1 (form 1065) to report their income from the partnership.

An S corporation must also file a Schedule K-1 (form 1120S) to report on each shareholder’s share of income. The shareholders use the information on the K-1 to report on their individual return Schedule E.

Trusts and estates use Schedule K-1 (form 1041) to report income to their beneficiaries which are considered unearned income for SNAP purposes.

The Code of Federal Regulations requires that earned income includes all wages and salaries of an employee and the gross income from a self-employment enterprise.

Ownership of a rental property is considered self-employment unless the owner spends an average of 20 or more hours a week managing the property, then it is considered earned income.

Payments from a roomer or boarder are also considered income from self-employment.

Self-employed individuals may incorporate their businesses in several different ways, among them are:

Limited Liability Company (LLC) – the least complex business structure that protects personal assets and passes through taxes on profit (or loss) to the owners, who report it on their individual income tax returns.

S Corporation – also protects personal assets and passes through taxes to the owners who report their share of profit (or loss) on their individual income tax returns.

Partnership – incorporated partnerships also protect personal assets and pass-through taxes to the partners who report their share of profit (or loss) on their individual income tax returns.

To calculate self-employment income, allow a deduction of 50% from the gross income as the cost for producing the income before applying the 20% earned income deduction. Self-employed farmers may deduct actual losses from their gross income rather than the 50% if the cost to produce exceeds the income from the farm. To be considered a self-employed farmer, the farmer must have gross income of $1,000 or more from the farm.

All the policies and procedures described in the general sections of this manual apply to households with self-employed members. However, the following four specific areas require special consideration: