loading…
loading…
loading…
The case manager must first determine if the person is a self-employed farmer.
To be considered a self-employed farmer, the person must:
Earn at least $1,000 a year from the farm,
Be engaged in farming activity for the purpose of producing income, and
Have direct involvement in farming activity.
For example, a person who rents his land to another individual to raise a crop is not a self-employed farmer if he is not directly involved in the growing or harvesting of the crop.
The case manager must use his or her best judgment on a case-by-case basis to determine if a person is a self-employed farmer or a farm employee.
COMAR 07.03.17.39C allows self-employed farmers to offset farm losses against gross earnings and does not restrict them to the 50% cost to produce deduction.
104.82 Definition of a Self-Employed Business Person
Sole Proprietorship.
Self-employment income generally consists of earnings derived by an individual as the sole proprietor of her business.
A sole proprietorship is an unincorporated business that has no existence apart from the owner.
The business liabilities are the personal liabilities of the single owner.
Partnership.
There may also be some self-employment income situations that involve a partnership.
There should be an oral or written agreement. Generally, a partner's share of income, gain, loss, deductions, or credits is determined by the partnership agreement. In any matter not addressed by a written agreement, the provisions of local law are considered to be part of the agreement.
Independent Contractors.
Other self-employment situations for SNAP purposes include independent contractors who pay expenses and persons who do not have a direct employer/employee relationship.
In determining if the person is an independent contractor, the case manager should determine if a household operates a separate (perhaps more specialized) business than the proprietor of the main business.
In determining if there is an employer and employee relationship, the case manager may consider such things as whether the person has an established work schedule and specified wages, whether the employer withholds social security and income taxes from earnings.
A sharecropper who pays the costs of doing business and receives a portion of the net farm income in exchange for her labor is a self-employed farmer. A sharecropper who does not pay the costs of doing business is not a self-employed farmer.
Corporations.
If the household has shares in an S Corporation, the S Corporation income reported on the household's Form 1040 must be counted as self-employment income and annualized over a 12-month period.
An owner or employee of another corporation is not a self-employed person. If the person receives a salary from the corporation, she is considered an employee of the corporation. Shareholders who only receive dividends are entitled to neither the costs of producing self-employment income nor the earned income deduction. The dividends are counted as unearned income. Corporations are separate legal entities, and the corporation is responsible for its debts and obligations.
104.83 BASIC STANDARDS
104.831 Basic Standards for Farmers
Self-employed farm households are subject to the same basic processing, eligibility and allotment standards as other households. However, self-employed farmers’ monthly net income is computed differently, changes in their farm income are treated differently, and there is a special resource provision.
Non self-employed farmers are treated the same as other households that do not have farm income, e.g., wages of a farm laborer are counted as earned income, income from renting a farm is treated like other rental income.
Some farmworkers are given crops at harvest time in addition to salary. If the farmworker plans to sell the crop during the certification period in which it is received, the money received from the sale is counted as self-employment income. If the farmworker does not plan to sell the crop during the certification period in which it is received, the value of the crop is counted as a resource beginning the month in which it is received. If the household later sells a crop that was counted as a resource, the payments received are not counted as income. Resources are counted only for non-categorically eligible households.
There is a special expedited service provision for migrants and seasonal farmworker households. (See Section 122)
Gross self-employment income used in the income calculation is excluded from resources during the period of time that the income is counted.
Example: A household earned $10,000 gross self-employment income last year and expects to earn the same amount this year. Six thousand dollars of expenses were excluded from income to cover the costs of doing business. Four thousand dollars were annualized and prorated as income for the calendar year 2001. The household has $11,000 in a bank account. Only $1,000 is counted as a resource during 2001 for a non-categorically eligible household unless there are other changes. Resources are not counted for categorically eligible households.
Prorated Income Not a Resource
Gross Farm Income in 2000 $10,000
Allowable costs -6,000
Prorated for 2001 $4,000 (no changes were anticipated)
Bank Account $11,000
Gross Farm Income - 10,000
Count as a Resource $1,000
104.832 Basic Standards for Businesses
The treatment of resources of a corporation varies based on the type of corporation.
Profits of an S Corporation are not considered a resource essential to the employment of a household member even if they are used to purchase more stock in the corporation.
Resources of other corporations are not counted as the resources of an individual’s household. Bank accounts that a corporation owns must be in the corporation's name.
Ownership of Stock in a Corporation.
If a person owns stock in a corporation, the stock is considered a resource for a non-categorically eligible household unless it is essential to his or her employment.
If a person is employed by and owns stock in a corporation, the case manager must determine if the stock is essential to the non-categorically eligible person's employment.
To the extent that an employee of a corporation must hold stock in the corporation as a condition of employment, the stock is essential to the employment of that person and not considered a resource.
If ownership of the stock is not essential, the stock is considered a resource for non-categorical households.
Example: if a farmer has incorporated his farm, he is the sole worker and all of the corporation's assets are related to the farming operation, the farmer's stock in the corporation is essential to his employment and excluded from being considered a resource.
Sometimes the value of shares in a corporation with only one shareholder or just a few shareholders is not readily available. In such instances, the case manager may subtract corporate liabilities from assets and prorate the difference among the various shareholders based on the percentage of shares held.
104.832 Basic Standards for Businesses (continued)
Loans.
All loans, except deferred educational loans, are excluded as income.
Loans, other than deferred repayment educational loans, are considered a resource for non-categorical households in the month received even if the household anticipates spending some or all of it in the same month.
For an ongoing (certified) household, excess resources any time during the month makes a non-categorically eligible household ineligible. Any amount remaining after the month of receipt continues to be counted as a resource until the money is spent. This includes business loans as well as personal loans. NOTE: Almost all SNAP households are categorically eligible under expanded categorical eligibility rules.
Sometimes a farmer may obtain a loan, but funds can only be released by signature of both the lender and the farmer. In such cases where the farmer has a "line-of-credit," only the portion that is actually borrowed and held in an account is considered a resource.
Payment-In-Kind (PIK) payments.
Some farm households receive Payment-In-Kind (PIK) payments. Normally these are annualized as income. However, if the farmer indicates that he intends to retain PIK payments for longer than a year, the payments should not be annualized as income but considered a resource for a non-categorical household to the extent that they will be kept longer than a year.
Bankruptcy.
Some farmers or businesses declare bankruptcy. If so, the case manager must determine what resources are accessible to the non-categorically eligible household and, if they are accessible, whether the resources can be excluded under another provision such as being essential to self-employment if the person is still self-employed.
Non-liquid assets against which a lien has been placed as a result of taking out a business loan are excluded if the household is prohibited by the security or lien agreement from selling the asset. Verify using a loan agreement.
.
104.84 Computing Income and Farm Expenses
Annualized With Certain Exceptions:
Normally self-employment income and expenses are averaged over a 12-month period. Regardless of whether the household receives the income monthly or less often than monthly, annualizing is done when the self-employment represents a household's annual income. Self-employment is annualized even if the household receives income from other sources. For example, a man is a self-employed grain farmer. His wife is a part-time nurse in a doctor’s office. In this case, the self-employment income would be annualized and the wife’s nursing income would be considered earned income.
Normally self-employment income and expenses from the past year are counted for the current year. However, anticipated changes, such as a change in the type of farm operation or the amount of land farmed, crop failure, a substantial change in market prices, etc. which would affect the net income must be taken into account. In anticipating income, it may be helpful to review a cash flow plan prepared by a lender such as the Farmers Home Administration (FMHA), a bank, or a Federal loan bank. These plans
anticipate income and expenses. The income and expenses must be prorated evenly over a 12-month period to determine eligibility.
For example, last year a farmer earned $10,000 and had $5,000 in expenses. This year he inherited additional land and he expects to gross $22,000 and have $11,000 in allowable SNAP expenses. The case manager must annualize the anticipated income of $22,000 and the anticipated expenses of $11,000.
Capital Gains.
For SNAP purposes, proceeds from the sale of capital goods or equipment are calculated in the same manner as a capital gain for Federal income tax purposes.
For Federal income tax purposes, capital gains are generally computed by comparing the sales price to the "cost or other basis." If the sales price is greater, there is a gain. If the costs are greater, there is a loss. The "cost or other basis" in general is the cost of the property, purchase commissions, improvements, and sales expenses such as broker's fees and commissions minus depreciation, amortization, and depletion.
The full amount of the capital gain, if any, is counted as income for SNAP purposes.
104.84 Computing Income and Farm Expenses (continued)
If the self-employment was anticipated rather than averaged, any capital gains that the household anticipates in the 12-month period starting with the date of application must be divided by 12 and the average monthly amount added to the anticipated monthly self-employment income. The average monthly capital gain amount must be counted in each of the 12 months even if more than one certification period is involved. However, a new average must be calculated and used if the anticipated amount of capital gains changes.
Allowable Expenses.
When a farmer verifies expenses in excess of the 50 percent deduction you may exclude allowable costs of doing business from self-employment income such as those listed in 3 below.
Self-employment income for SNAP purposes is not computed the same way as it is for Internal Revenue Service (IRS) purposes. The IRS forms may only be used for verification purposes.
Allowable farming costs for SNAP purposes include costs such as identifiable costs of:
Labor such as wages and salaries paid to employees. However, an exclusion cannot be allowed for wages paid to the farmer himself or other household members;
Stock;
Raw material and supplies;
Seed and plants;
Fertilizer and lime;
The interest portion of (i) payments on business or operating loans and (ii) payments on income-producing real estate and capital assets such as equipment, machinery, and other durable goods;
Insurance premiums;
Taxes paid on the income-producing property;
Privilege taxes such as licensing fees and gross receipts and general excise taxes that must be paid in order to earn self-employment income;
Business transportation costs such as costs of carrying grain to an elevator trips to obtain needed supplies, etc.;
Rental payments on income-producing equipment. If a farmer is renting equipment with an option to buy, the rent payments are allowed until the purchase is made;
Costs of repairs and maintenance of equipment; and
Storage and warehousing charges.
104.84 Computing Income and Farm Expenses (continued)
Costs are allowed when they are billed or otherwise become due. When the income is annualized, only expenses billed or otherwise due in the current 12-month period are allowed. Costs that were billed or otherwise became due in a prior year which are not expected to recur in the current year may not be brought forward to the current year regardless of when they are paid.
There are some costs that specifically are NOT ALLOWABLE. They are:
Payments on the principal of the purchase price of income-producing real estate and capital assets such as equipment, machinery, and other durable goods;
Expenses and net losses from previous periods;
Federal, State, and local income taxes, money set aside for retirement, and other work-related personal expenses such as transportation to and from work. These expenses are allowed for by the 20 percent earned income deduction;
Depreciation. To allow such costs would result in an exclusion for amounts which are not actual costs to the household and would, in effect, constitute an exclusion for the costs of income-producing property and assets which otherwise are not allowed;
Repayment of the principal of a bank loan. The loan was never counted as income, and the repayments as such are not excluded as an expense. However, the household is given an exclusion for allowable expenses (see 104.83C) when purchases are made even if they are paid for with a business, operating or personal loan;
Penalties and fines. For example, an IRS penalty imposed on a farmer for failure to pay an employee's social security taxes is not an allowable cost of doing business. Likewise, penalties imposed by the U. S. Department of Agriculture for failure to comply with planting and marketing programs are not allowable costs;
Blue jeans and work boots are not specific to any one job, and their costs are not allowable exclusions. However, if a self-employed fisherman needs hip boots or a beekeeper needs protective headgear, the costs would be allowable exclusions; and