Self-employment definition - examples

The following examples are taken from the Social Security Administration (SSA) Program Operations Manual System to help determine whether a person meets the program requirement of employment.

Example: #3

Mrs. Bell reports she started babysitting for her grandchild while her daughter works. Sometimes the child comes to her home, but usually, she goes to her daughter's home because the child's toys and other items are there. She does not babysit for anyone else. She receives about $20 a week from her daughter.

Although a caregiver is a recognized occupation, Mrs. Bell is not holding herself out as a provider of daycare services, nor does she have intent to produce income. Therefore, Mrs. Bell is not considered self-employed when determining whether she meets the program requirement of employment.

However, if the income meets the definition of wages for the title II annual earnings test (e.g. an employer/employee relationship exists between Tina and Martha), it would be considered wages even though no Federal Insurance Contributions Act (FICA) taxes are being deducted. If a determination is made that the activity does not result in wages or Net Earnings from Self-employment Contributions Act (FICA) taxes are being deducted. If a determination is made that the activity does not result in wages or Net Earnings from Self-employment (NESE), then the income derived by the activity is unearned income, coded as type SW on the SSR.

Example: #4

Mrs. Simon files for SSA benefits. When asked about any income she receives, she says she babysits for various neighbors and friends, but does not consider herself self-employed. She does not file taxes for this income. She began babysitting when her own children were young to make some extra money. She gets new business by word of mouth.

Although Mrs. Simon does not consider herself to be in the daycare business, she meets all of the factors indicating the existence of a trade or business. Therefore, Mrs. Simon is considered to be self-employed when determining whether she meets the program requirement of employment.

Example: #5

Mr. Lyons, an SSDI recipient, reports that since he needed extra money to meet his rent and food expenses, he started collecting aluminum cans from the street. He redeems them at the recycle center for cash. Sometimes his neighbors or local organizations call him to pick up their cans. He does not file any tax returns, but he thinks he makes about $200 a month.

Since this is an ongoing, regular activity that includes some third-party collection pickups and was established with the intent of producing income, it is determined that Mr. Lyons is self-employed. To establish and document this eligibility criteria, Mr. Lyons must provide completed IRS forms or legitimate business records as described above.

Example: #6

Mr. Kent reports that he earned some money cutting the lawn for one of his neighbors. His car needed some repairs and he did not have the money. His neighbor told Mr. Kent that he could cut his lawn for the month of July for $80. Since he needed the cash to pay for the repair, he decided to cut the lawn. Mr. Kent is not holding himself out as a lawn service. Further, this is not an ongoing regular activity nor does Mr. Kent plan to do this activity to make a profit. He only did it to earn enough to pay for the car repair. Therefore, Mr. Kent is not considered to be self-employed when determining whether he meets the program requirement of employment.

However, even though there was no FICA withheld, the Claims Representative (CR) should explain whether the income is wages for annual earnings test purposes (e.g. does an employer/employee relationship exist). If a determination is made that the activity does not result in wages or NESE, then the income derived by the activity is unearned income.