self employment handbook

MNDHS Self-employment Handbook Updated – 3/12

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Minnesota Department of Human Services

Self-Employment

Handbook

CASH & Supplemental Nutrition

Assistance Program - SNAP

Expense

s

Income

DAYCARE

TAXI DRIVER


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Self- Employment Handbook

Table of contents Section Page 01.0 Introduction 3 02.0 Definition of a Self-Employed Person 4 02.1 Self-Employment Ownership Types 5 03.0 Self-Employment Verification Sources 7 03.1 Tax Form Use by Ownership Type 9 04.0 Self-Employment Certification Steps 10 05.0 Excluded Assets Specific to Self-Employment 11 06.0 Calculating Self-Employment Income and Expenses 12 06.1 Special Self-Employment Income Situations 14 07.0 Self-Employment Expenses 16 07.1 Self-Employment Transportation Expenses 18 07.2 Self-Employment Business Expense or Shelter Deduction 20 08.0 Self-Employment Reporting and Acting On Changes 23 09.0 MAXIS Self-Employment Income Types 24 09.01 Farming 25

09.01.1 Farm Loss Offset 27 09.02 Real Estate 28 09.03 Home Product Sales 31 09.04 Other Sales 33 09.05 Personal Services 35

09.05.1 Personal Services – Taxi Drivers 37 09.06 Paper Route 38 09.07 In-Home Day Care 40 09.08 Rental 42

09.08.1 Roomer/Boarder Rental Income 45 09.09 Other 47 10.00 Self-Employment Related Terms and Definitions 49 11.0 Frequently Asked Questions 55

Links to worksheets can be found under each self-employment type section.


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SE 01.0 INTRODUCTION Table of contents Self-employment (SE) cases make-up approximately one percent of Minnesota’s Supplemental Nutrition Assistance Program - SNAP case load and an even smaller percentage of MFIP and DWP cases. Self-employment cases can be highly complex, time consuming and are potentially very error prone. This Handbook is designed to help alleviate some of the issues and questions surrounding certification of self-employed households. It also provides you with tools (information, procedures and forms) that will be useful in the certification of self-employed households. Following the self-employment definition, the Handbook is divided into sections covering the steps to certification, computing income, self-employment expenses and self-employment types. There is also a list of self-employment terms and their definitions for your reference and a section of frequently asked questions.

Lastly, the Handbook includes the following worksheets:

SE HWS 1 Business Use of Home Worksheet SE HWS 1 Farming Worksheet SE HWS 3 Sales / Services Worksheet SE HWS 4 In-Home Day Care Worksheet SE HWS 5 Rental Worksheet SE HWS 6 Roomer / Boarder Worksheet

Self-employment forms included on DHS eDOCs are:

DHS-3336-ENG - Self-employment Report Form

DHS-3337-ENG - MFIP Self-employment Income Worksheet

Use this Handbook together with, not in place of, the Combined Manual (CM). Direct questions about the information provided in this handbook to PolicyQuest.

http://www.dhs.state.mn.us/main/idcplg?IdcService=GET_FILE&RevisionSelectionMethod=LatestReleased&Rendition=Primary&allowInterrupt=1&dDocName=dhs16_144586





http://edocs.dhs.state.mn.us/lfserver/Legacy/DHS-3336-ENG



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SE 02.0 DEFINITION OF A SELF-EMPLOYED PERSON Table of contents Use your best judgment on a case-by-case basis to determine if a person is self-employed or an employee. An individual is self-employed if they operate a business or profession as a sole proprietor, partner in a partnership, or S Corporation, independent contractor, or consultant and draw income from the trade or business. The person must demonstrate that he or she is in business for the purpose of making a profit. Self-employed persons: Incur costs in producing income. Deduct these costs in order to equate their income with income

from sources where there are no production costs. Control their work by working either independently of an employer, freelance or by running the

business. Assume all the risks and responsibilities of a business enterprise and are subject to self-

employment tax in addition to income tax on net income from self-employment activities. The self-employment tax is paid in lieu of the Social Security payments.

Self-Employed or Employee Determination Self-employed Employee Work Rules Set by self-employed individual Set by employer Work Hours Set by self-employed individual Set by employer

Payment By the job By the hour or time worked, even if job is not completed.

Federal/State Taxes, FICA

Not withheld from pay – self-employed individual pays Employer withholds from pay

Number of clients /employers Multiple One Employer

Tools/Materials Provided by self-employed individual Provided by employer

Location Multiple or owned by self-employed individual Set by employer

Costs Paid by self-employed individual Paid by employer

Risk Assumed by self-employed individual Assumed by employer

An individual's self-employed status is reinforced by: Obtaining an employer identification number from the IRS. Working under a business name Printing invoices, business cards, and stationery

http://www.investorwords.com/3609/partnership.html

http://en.wikipedia.org/wiki/Trade

http://en.wikipedia.org/wiki/Business

http://www.answers.com/topic/stationery


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SE 02.1 SELF-EMPLOYMENT OWNERSHIP TYPES Table of contents Sole Proprietorship The sole proprietorship is the oldest, most common, and simplest form of business organization. A sole proprietorship is a business owned and managed by one person. A sole proprietorship can be organized very informally, is not subject to much federal or state regulation, and is relatively simple to manage and control. In a sole proprietorship, the owner is: Inseparable from the business In complete control over the business, Financially and legally responsible for all debts and legal actions regarding the business Responsible for taxes which are determined at the personal income tax rate

Partnership A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each partner contributes money, property, labor or skill, and expects to share in the profits and losses of the business. A partnership contract spells out the manner in which profits are to be distributed. A partnership can be a: General Partnership: A general partnership has the following major features:

It is formed by two or more general partners The partners are all liable for any legal actions and debts It is created by agreement

General partners have: Management control Share the right to use partnership property Share the profits of the firm in predefined proportions, and Have liability for the debts of the partnership

Limited Partnership: A limited partnership is a form of partnership that has one or more general

partners, and one or more limited partners.

Limited partners are partners that may invest in, but are not directly involved in, the management of the partnership. They also have limited liability to the extent of their investments. The general partner pays the limited partners the equivalent of a dividend on their investment, the nature and extent of which is usually defined in the partnership agreement.

http://en.wikipedia.org/wiki/Joint_and_several_liability


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Limited partnerships are different from limited liability partnerships in which all partners have limited liability. (See below.)

Limited Liability Partnership: A limited liability partnership (LLP) has elements of partnerships and corporations. In a limited liability partnership, all partners have a form of limited liability similar to that of the shareholders of a corporation. However, the partners have the right to manage the business directly, and (in many areas) a different level of tax liability than in a corporation. A limited liability partnership is for businesses where all investors wish to take an active role in management.

A partnership must file an annual information return (IRS Form1065 and 1065 K-1) to report the income, deductions, gains, losses, etc., from its operations. A partnership does not pay income taxes. The profits or losses are “passed through” to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return (IRS 1040).

Partners are not employees and should not be issued a Form W-2. The partnership must furnish copies of Schedule K-1 (Form 1065) to the partners.

S Corporations Also called Subchapter S Corporation. Corporations are legal entities, and are responsible for their own debts and obligations. An individual involved in an S corporation is considered self-employed. Individuals in all other corporation types are considered employees. If the person receives a salary from the corporation, he is considered an employee of the corporation. An S corporation is a corporation with 100 shareholders or less that has the benefit of incorporation while being taxed as a partnership. This means that any profits earned by the corporation are not taxed at the corporate level, but rather at the level of the shareholders. An S Corporation must file an annual information return (IRS Form1120 and 1120 K-1) to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Profits or losses are “passed through” to its shareholders. Each shareholder includes his or her share of the partnership's income or loss on his or her tax return (IRS 1040).

Limited Liability Company (LLC)

A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute.

Often incorrectly called a "limited liability corporation" (instead of company), it is a hybrid business entity having certain characteristics of both a corporation and a partnership. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation.

http://en.wikipedia.org/wiki/Corporation

http://en.wikipedia.org/wiki/Partnership

http://en.wikipedia.org/wiki/Limited_liability

http://en.wikipedia.org/wiki/Taxation_in_the_United_States


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Owners of an LLC are called members. Members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members and “single member” LLCs, (those having only one owner) are allowed. A few types of businesses generally cannot be LLCs, such as banks and insurance companies.

Business owners form a Limited Liability Company (LLC) to reduce their personal liability. If you operate as a sole proprietor or partnership, you are personally responsible for any business debts or lawsuits against your business. Nearly everything you own can be at risk. When you set up an LLC, you separate your business and personal identities. This helps protect your personal savings, your house, your car, etc. LLCs can also provide business owners with other benefits like tax savings. If an LLC has only one owner, treat the LLC as a sole proprietor. Similarly, an LLC with multiple owners will, treated as a partnership. An LLC does need an operating agreement that will specify how and by whom the company will be managed, each owner's name, the amount of ownership interest held by each owner, etc. Similar to a corporation, normal business expenses such as an owner's salary may be deducted from the profits of an LLC before the LLC's income is allocated to its owners for tax purposes. Unlike a corporation, an LLC is not required to allocate profits and losses in proportion to ownership interest ("member interest'). This means that the owners of an LLC can agree to allocate the company's profits and losses among themselves however, they see fit and not necessarily based on the percentage of the company each owner controls


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SE 03.0 SELF-EMPLOYMENT VERIFICATION SOURCES Table of contents Always document the verification source used. IRS TAX FORMS When computing SNAP income and in the initial set up of MFIP/DWP in established businesses that file income taxes, use the most recent income tax forms, schedules and statements. These forms are good sources of information regarding self-employment income and expenses. However, income and expenses may need to be adjusted as:

MFIP and SNAP policy does not always match IRS rules The taxes are not always reflective of the current situation The taxes may not reflect a full year of business operation

Be aware of who prepared the tax forms – was the form self prepared or prepared by a tax/accounting business. If the tax forms appear to have questionable information, obtain additional sources of verification. Common IRS forms used to determine counted self-employment income: Form 1040, U. S. Individual Income Tax Return Schedule C, Non-farm Schedule C-EZ, Net Profit from Business (Sole Proprietorship) Schedule D, Capital Gains and Losses and Reconciliation of Forms 1099-B Schedule E, Supplemental Income Schedule Schedule F, Farm Income and Expenses Form 4797, Gains and Losses From Sales or Exchanges of Assets Used in a Trade or Business

and Involuntary Conversions Form 4835, Farm Rental Income and Expenses Form 8829, Expenses for Business Use for Your Home Form 1065, U. S. Partnership Return of Income Schedule K-1, Partners' Shares of Income, Credits, Deductions, etc. Form 1120, U. S. Corporation Income Tax Return Form 1120S, U. S. Income Tax Return for an S Corporation (Small Business)

Schedule K, Shareholders' Share of Income, Credits, Deductions, etc. (Summarizes the corporation's income deductions, credits, etc., reportable by the shareholders.)

Schedule K-1, Shareholder's Share of Income, Credits, Deductions, etc. (Shows each shareholder's separate share.)

Form 4506, Request for Copy of Tax Form See www.irs.gov for current copies of tax forms and instructions. For online access on information for a business entity such as legal styling, file number or Organizational ID, filing type and city go to: http://da.sos.state.mn.us .

http://www.irs.gov/

http://da.sos.state.mn.us/


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CLIENT’S LEDGERS/BOOKS For SNAP use a clients ledgers/books when computing income when the business has been in operation for less than a year, the business that does not file taxes and for verification of income at six month report. For MFIP/DWP use a clients ledgers/books at initial set up when computing income if the business has been in operation for less than a year, the business that does not file taxes and for ongoing verification of monthly income. DHS SELF-EMPLOYMENT REPORT FORM The DHS-3336-ENG - Self-employment Report Form may be used in place of client ledgers/books for self-employed MFIP/DWP and Uncle Harry cases. If there is questionable information, obtain additional sources of verification such as (not an inclusive list): Account Statements Sales Slips Canceled Checks Invoices Purchase Orders Cash Receipts Collateral Contacts Bankruptcy Trustee Verification information documentation should include:

the name and type of business the date the type and amount of income or expense, and any other pertinent information



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SE 03.1 TAX FORM USE BY OWNERSHIP TYPE Table of contents

Sole Proprietor

Form 1040 Schedule C, E or F

Use info (adjust if necessary) on Schedule C, E or F to determine self-employment income.

Partnership - Form 1040 - Form 1065: Tax Return

For Entire Partnership - Schedule K-1 (Form

1065). Each partner’s share of income & expenses is “passed through” to him/her.

- Each partner uses his/her Schedule K-1 to complete the 1040.

Use figures (adjust if necessary) on Schedule K-1 and appropriate 1040 Schedule to determine self-employment income

- Form 1040 - Form 1120 S Tax Return

For Entire S Corporation - Schedule K-1 (Form

1120S). Each shareholder’s share of income & expenses is “passed through” to him/her.

- Each shareholder uses his/her Schedule K-1 to complete the 1040.

Use figures (adjust if necessary) on Schedule K-1 and appropriate 1040 Schedule to determine self-employment income.

C Corporation

Form 1120 Corporate Tax Return

Any of the above entities can also become a limited liability company (LLC) to limit their personal liability in case they are sued. However, this has no affect on how their income and expense are budgeted. Example: An owner of a pawn shop is a sole proprietor and reports his income and expenses on Schedule C. If he becomes an LLC, he would still report his income and expenses on a Schedule C.

Client is not self-employed, use wages to determine income.

S Corporation


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SE 04.0 SELF-EMPLOYMENT CERTIFICATION STEPS Table of contents □ Determine the income type of self-employment, using one of the nine categories from MAXIS.

See 09.0 MAXIS Self-employment Income Types. □ Determine the client’s level of ownership in the business, sole proprietorship, partnership, or

corporation. See Self-employment OwnershipTypes. □ Gather the appropriate business verification, records and/or tax forms. See Self-employment

Verification Sources. □ Determine what the current business operation/situation is:

o Location of Principal Place of Business, see Self-Employment Related Terms and Definitions

o Client’s role/share of business □ Review the business records or tax forms to determine if they are reflective of the current

situation. □ Determine what time period the business verification covers. □ For SNAP, determine how you are going to anticipate the net income - average or annualize. For

MFIP use rolling average. □ Calculate countable net income (document your work):

On all income, ask: o Will the income continue?

On all deductions ask: o Is it allowable? CM 17.15.33.06 o Is it reasonable? o Is it for business only? CM17.15.33.09 o Will the expense continue?

□ Enter calculated amounts on the appropriate MAXIS STAT panels. □ Talk with your supervisor if you have any questions. □ Contact PolicyQuest with questions you are unable to resolve.

http://www.dhs.state.mn.us/main/idcplg?IdcService=GET_DYNAMIC_CONVERSION&RevisionSelectionMethod=LatestReleased&dDocName=cm_0017153306



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SE 05.0 EXCLUDED ASSETS SPECIFIC TO SELF-EMPLOYMENT Table of contents Exclude the following assets as appropriate when certifying for self-employment. The exclusion applies even if the self-employed person is not making a profit. NOTE: For SNAP all assets are excluded for categorically eligible units. The exclusions below apply to non-categorical eligible SNAP units and MFIP/DWP units. Excluded References SNAP MFIP,

DWP

Non-homestead real property annually producing income consistent with its fair market value. Yes NA CM0015.12

CFR 273.8(e)(4)

Real property that is essential to the business. Yes NA CM 0015.12 CFR 273.8(e)(5)

Non-homestead real property (that causes excess assets) with repayment agreement and executed lien against the property.

NA Yes CM 0015.12.06

Installment contracts, including contracts for deed producing income consistent with their fair market value.

Yes Yes CM 0015.09 CFR 273.8.(e)(6)

Non-liquid asset with executed lien based on a business loan. Yes CFR 273.8(e) 15

Liquid assets that have been prorated as self-employment income. Yes NA CFR 273.8(e)(9)

Business loans In Month of receipt Yes CM 0015.09 –

Escrow bank account used at least annually for operating a business Yes Yes CM 0015.42

FSP Memo #92-05 Assets essential to the Self- Employment (not including real property) Yes Yes CM 0015.09

Vehicles essential to the business operation Yes, if licensed* Yes

CM 0015.39 CFR 273.8(e)(3)(i) (A), (B) & (G)(iii)

Vehicles annually producing income consistent with its fair market value

Yes, if licensed* NA CFR 273.8(e)(3)(i)

(A), (B) & (G)(iii) Vehicle is used 50% of time to produce income. Yes Yes CM0015.39 Liquid assets that have been prorated as self-employment income Yes NA CFR 273.8(e)(9)

Sealed Grain stored less than 12 months. Yes NA Sealed Grain stored 12 months or more. No NA Ending Self-employment business Self-employment assets, up to one year, unless converted to cash NA Yes CM 0015.09

Self-employment assets converted to cash NA No CM 0015.09 Farming business assets for one year. Yes NA CM 0015.09 *On reservations that do not require vehicles to be licensed, treat unlicensed vehicles as licensed vehicles.


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SE 06.0 CALCULATING SELF-EMPLOYMENT INCOME AND EXPENSES Table of contents

When computing self-employment income for SNAP and for the initial set up of MFIP/DWP, average the income and expenses, regardless of whether the unit receives the income monthly or less often than monthly. To compute self employment income for ongoing MFIP/DWP, use a monthly rolling average.

For SNAP calculations CM 0017.15.33. 03: Business in existence for one year or more If a business has been in existence for one year or more, average the self-employment income and expenses from the past year. Use the computed average figure into account any anticipated changes which would affect the current net income. Businesses in existence for one year or less If the self-employment operation has been in existence for less than a year, average the business income and expenses over the period of time the business has been in operation. Use the computed average figure taking into account any anticipated changes which would affect the current net income. Business income covers partial year If the self-employment income is intended to support the unit for only part of the year, averaged the income over the period of time it is intended to cover taking into account any anticipated changes. Examples of anticipated changes may include increases/decreases in:

Number of rental properties

Number of day care children

Business territory

Number of employees Amount of time

available to work The type of operation

Amount of land farmed A substantial change in

market prices

For MFIP/DWP calculations CM 0017.15.33. 03: Use a 12-month rolling average to budget monthly income from self-employment. Business in existence for one year or more If a business has been in operation for one year or more, average the monthly self-employment income from the most current income tax report for the 12 months before the month of application. Use this amount to determine the income to budget for the month of application and the previous 11 months. Each processing month, determine a new monthly average to use in the corresponding payment month. Do this by adding the actual self-employment income and expenses the client reports on DHS-3337-ENG - MFIP Self-employment Income Worksheet dropping the 1st month from the averaging period, creating a new 12 month period. Business in existence for less than 12 months If a business has been in operation less than 12 months, compute the average for the number of months the operation has been in business to determine a monthly average. Use this figure for the number of months the operation has been in business on DHS-3337-ENG - MFIP Self-






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employment Income Worksheet and add each new month's figures until you have a 12-month average. Business income covers partial year For seasonal self-employment, the caregiver may choose to use the rolling average or actual income and expenses. Under the actual method, count income in the month received and expenses in the month incurred. Business has a major change, If the business has a major change, compute a new rolling average beginning with the 1st month of the major change. Treatment of Draws, Guaranteed payments to partners, Compensation of officers, Wages/salaries:

Business Owner Draws/ Guaranteed Payments/

Compensation of officers/ Wages

Unit Member Wages/Salaries

Paid by business Sole Proprietorship

SNAP Do not count, do not allow as an expense. Enter SE income on STAT/BUSI.

Do not count, do not allow as an expense. Enter SE income on STAT/BUSI.

MFIP/DWP Do not count, do not allow as an expense. Enter SE income on STAT/BUSI.


Partnership

SNAP Count as earned income. Allow as an SE expense. Enter on STAT/JOBS

Count as earned income. Allow as an SE expense. Enter on STAT/JOB



Business Owner

Draws/ Guaranteed Payments/ Compensation of officers/ Wages

Unit Member Wages/Salaries

Paid by business S Corporation

SNAP Count as earned income. Allow as an SE expense. Enter on STAT/JOBS

Count as earned income. Allow as an SE expense. Enter on STAT/JOBS



Self-employment Loss Offset The income loss from one self-employment business can be used to offset the gain of another self-employment business. In addition, self-employed farm losses can offset gains from other income sources, in addition to self-employment businesses. See below for information on how to handle farm self-employment loss offsets.

MNDHS Self-employment Handbook Updated 3/12

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Farm Loss Offset - CM 0017.15.33.18 When the costs of producing self-employment farm income exceed the gross farm income, the loss is offset against other countable income. To qualify for the offset, the person must receive or anticipate receiving annual gross proceeds of $1,000 or more from the farming enterprise. If there is a farm loss, take the following steps:

Step 1 Determine the farm loss and apply the loss against the total amount of other net self-employment income.

Step 2 If the farm loss, is more than the net self-employment income of another self-employment business, the remainder of the farm loss is offset against the total other earned and unearned income for that month.

If there is still a net loss, the household is certified based on zero net income. The excess loss is not carried forward to subsequent months. If a unit has a monthly net self-employment income gain after a farm loss offset, the household is entitled to a 20% earned income deduction from the net self-employment amount.

If a unit has earned income that is not from self-employment, the earned income deduction from that income is computed based on the amount before a farm loss offset, if any, is made.



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SE 06.1 SPECIAL SELF-EMPLOYMENT INCOME SITUATIONS Table of contents

Capital Gains Capital gains are the proceeds from the sale of capital goods or equipment. A gain or loss is computed by comparing the sale price to the "cost or other basis." If the sale 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 following chart indicates how a capital gain or loss is treated when calculating self-employment income:

SNAP MFIP Capital Gain Count as income if the gain is

anticipated to repeat. Count as an asset, unless the business ends, then count as income.

Capital Loss Excluded from income computation. Excluded from asset and income computation.

Computation of a gain or loss: Federal Income Tax Form 1040 Schedule D - Capital Gains and Losses

“Sales price” minus “Cost or other basis” = gain or loss. Federal Income Tax Form 4797 Sales of Business Property

“Gross sales price” minus the “Cost or other basis, plus improvements and expense of sale” = gain or loss. Do not use the Gain or (loss) column on Form 4797 as it includes depreciation.

Garnishments

Garnishments have no effect on the treatment of self-employment income, as the total gross amount is counted in the income computation. The amount garnished is not considered as an exclusion from income.

Bankruptcy

The self-employment income of persons who have declared bankruptcy is computed the same as the self-employment income of any other person.

After filing bankruptcy: If the person continues to earn self-employment income, count the gross amount minus

allowable expenses. If the income goes to a trustee, and the trustee pays the bills and gives a living

allowance count the gross amount minus allowable expenses. Do not: o count the living allowance as income


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o allow the fees of a trustee or conservator for his services as a business expense

When the income goes to the self-employed individual, but they must pay a set amount to a court appointed person for back debts, do not allow the payment for old debts as a business expense.

If a business owner sells equipment/property, (title held by owner) and uses the proceeds to pay off a loan/debts and the proceeds are: o Received by the owner, count the proceeds as income. o Diverted to a bank to repay the loan, count the proceeds as income.

If a business owner voluntarily turns over collateral/ property (bank has title) to a bank, and the bank sells the collateral/property to pay off a loan/debts, the proceeds of the sale are not counted as income to the owner.

If a lender is unable to collect on a loan, the lender may write all or part of it off or "forgive" the outstanding balance. The forgiven portion is not counted as income to the household.

Special Payment Types The following types of payments ARE counted as self-employment income: Patronage Dividends paid as cash dividends Farm Service Agency (FSA) - Formerly Agricultural Stabilization and Conservation Payments

(ASCS) cash payments (except for disaster payments) are counted as earned self-employment income. These payments include, but are not limited to, Commodity Credit Corporation acreage reduction and conservation payments.

Private Crop Insurance Payments if the insurance company pays the household in installments.

The following types of payments ARE NOT counted as self-employment income: Federal Gasoline Tax Credit State Gasoline Tax Refund Patronage dividends paid in the form of stock. Count as an asset. Federal Crop Insurance Corporation (FCIC). Count as an asset. Private Crop Insurance Payment if paid as a nonrecurring lump-sum payment. Disaster Assistance Payments. These are also, not counted as an asset.


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SE 07.0 SELF-EMPLOYMENT EXPENSES Table of contents

Self-employment expenses are the costs of operating a self-employment business. Most expenses that are necessary to the business are allowable deductions from self-employment income. If you have questions on expenses not listed here, contact PolicyQuest.

Common Business Expenses ALLOWABLE

SNAP MFIP/ DWP

Advertising and postage Yes Yes Amortization No No At time of sale, purchase cost of inventory No Yes Attorney and Tax preparation fees Yes Yes Business owner’s share of FICA No No Charitable contributions. No No Clothing specific to the job Yes Yes Credit Card payments No No Depreciation No No Employee FICA Yes Yes Employee benefit programs and No No Employee workers compensation and Unemployment insurance Yes Yes Expenses from a previous period. No No Federal, State and local income taxes No No Fuel and transportation costs Yes Yes Insurance premiums on income-producing property; Yes Yes Internet expense Yes Yes Interest portion of payments on business mortgages and/or operating loans

Yes Yes

Interest portion of credit card payments No No Labor Hired paid to non-household member employees. Yes Yes Labor Hired paid to household member employees in a partnership or corporation. Yes No

Labor Hired paid to household member employee in sole proprietorship. No No

Licensing fees, franchise fees, professional fees and dues Yes Yes Livestock, costs relating to livestock, veterinary or breeding fees; Yes Yes Materials Yes Yes


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Meals outside of work area No Yes Money set aside for business owner’s retirement No No

Common Business Expenses (con.) ALLOWABLE

SNAP MFIP/ DWP

Mortgage on business property Yes Yes Net losses from previous periods No No Penalties and fines. (i.e. Late fees, bank charges) No No Pension and profit-sharing plans No No Principle payments on income-producing real estate and capital assets such as equipment, machinery and other durable goods; Yes No

Purchase of Capital assets Yes No Repayment of the principal of a bank loan. No No Repairs and maintenance of equipment that are not capital expenditures

Yes Yes

Rental payments on income-producing equipment. Yes Yes Section 179 expenses No No Seed, plants and costs related to crop production Yes Yes Storage and warehousing charges Yes Yes Taxes paid on income-producing property; Yes Yes Tools and supplies that are not capital expenditures Yes Yes Utilities on business property Yes Yes Work-related personal expenses – Meals/entertainment No No Wages paid to non-household member employees. Yes Yes Wages paid to household member employees in a partnership or corporation. Yes No

Wages paid to household member employee in sole proprietorship. No No


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SE 07.1 SELF-EMPLOYMENT TRANSPORTATION EXPENSES Table of contents Determine allowable transportation expense amounts by using the: Tax forms, amount allowable unless questionable.

Itemized list of expenses. Verification needed, use ledgers/books, or DHS-3336-ENG - Self-

employment Report Form. Flat Rate Deduction – use current IRS rate. Verification needed - odometer readings,

dates, travel destination and the purpose of each trip. For itemized list and flat rate, determine if a transportation expense is allowable by using the chart on the following page.



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Allowable

Home office

SE principle place of business - is in the home.

SE has no principle place of business

Always Allowable

SE work beyond 35 miles of home.

SE work within 35 miles of home.

Allowable

Not Allowable

Not Allowable

Allowable

Always Allowable

Never Allowable

SE - Self-employment

Client/customer

KEY

Self-employment jobs

Work site

Office

Home

Self-employment Transportation Costs Allowable or Not Allowable Chart

SE has a principal place of business - outside of the home.

Never allowable on a day off from regular or main job.

Allowable


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SE 07.2 SELF-EMPLOYMENT SNAP BUSINESS EXPENSE OR SHELTER DEDUCTION Table of contents SE HWS 1 Business Use of Home Worksheet No portion of a shelter expense may be claimed as both a shelter cost/utility and a self-employment business expense. Document the client’s choice. The following procedures apply to self-employment situations (including farming) where part of the residence or house is set aside and used in the business. For the landlord's household, if a room or a separate apartment in the house in which the client lives, is rented out, treat housing costs (excluding utilities), in one of the following ways: (Note: This section does not apply to separate households that share the costs of one apartment.) On a case-by-case basis:

1. Include all costs (such as rent, mortgage, taxes, and insurance) which the landlord is required to pay as household shelter costs: OR

2. Allow part of the costs as self-employment costs and part as shelter costs, provided that

no costs are allowed as both self-employment costs and shelter costs. If separately identified, only the portion attributed to the landlord's living space can be included in his shelter costs. No portion of the principal attributed to the self-employment enterprise under this option is allowed.

Utility Expenses and the Standard Utility Allowance (SUA)

HOME BUSINESS SITUATIONS Situation 1. Part of the residence, such as a room, is used for a self-employment enterprise, other than rental - allow the household the standard utility allowance (SUA) but no self-employment business deduction. Situation 2. A person uses part of the house in which he or she lives for a self-employment enterprise, other than rental, and the portion used is equivalent to a separate residence. a. If there is a central meter, allow the SUA, but no self-employment business deduction.

b. If utilities are measured and billed separately, the household is entitled to the SUA for the household utility costs and a SE deduction for the separately billed self-employment costs as a cost of doing business.

LANDLORD SITUATIONS Situation 1. A landlord has individually metered heating costs for his residence. The landlord is billed for and pays the utility provider. They rents out a room in their residence. A flat amount is charged for rent which includes utilities.



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For the landlord's household - allow the SUA. For the renter’s household - if the landlord indicates a portion of the rent is applied to

utilities, allow the appropriate SUA. Situation 2. A landlord has individually metered heating costs for his residence. The landlord is billed for them and pays the utility provider. They rent out a room in their residence and charge extra for utilities. When a landlord charges the renter for utilities separately from rent, either actual, a percentage, or a flat amount, allow both the renter and the landlord the SUA as shelter costs. For example, a household may rent out a room and charge a flat amount for rent plus 1/3 of the actual utility expenses each month. In this case, both the roomer and the landlord are allowed the SUA. The renter's utility payment to the landlord is counted as income to the landlord, and the landlord is entitled to a self-employment deduction in this amount for the costs of providing utilities to the renter. Situation 3. A household rents out a separate apartment in the house in which he or she lives. There is a central meter, and the landlord is billed for the utilities.

For the landlord's household - allow the SUA. For the renter’s household - allow the SUA.

Situation 4. A landlord rents out a separate apartment in the house in which he or she lives. There are separate utility meters and separate bills. Both households pay the utility provider directly.

For the landlord's household - allow the SUA. For the renter’s household - allowed the SUA.

The renter's utility payment is not counted as income to the landlord and no deduction is allowed as a self-employment cost. FARMING SITUATIONS Situation 1. A farmer's home is on property connected to property used for farming. The shelter costs and self-employment costs can be separately identified. Utility costs for a barn are metered separately from the home. The household is entitled to the SUA for its residence and to the separately billed self-employment costs as a cost of doing business.


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Situation 2. A farmer's home is on property connected to property used for farming. The shelter costs and self-employment costs can not be separately identified. The unit has the choice of either allowing the SUA or a SE business expense but not both. Document in CASE/NOTE the unit's choice. Situation 3. The farmer uses part of his house, such as a separate room or a separate apartment solely for the farm enterprise and there is a central meter - allow the SUA.


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SE 08.0 SELF-EMPLOYMENT REPORTING AND ACTING ON CHANGES Table of contents Units may report any change at any time.

Six-month Reporting (SR) SNAP units with self-employment income who are not MFIP/Uncle Harry SNAP or change reporters must report under six-month reporting requirements. Six month reporting requirements include reporting all income and circumstances relevant to the amount of the SNAP allotment and changes that could affect eligibility and/or benefit amount on a six month basis. Additionally, it requires the reporting of two changes the month by the 10th calendar day following the month the change occurred. When the gross income of the household is over the income limit (130% of poverty level)

for their household size, and When Able Bodied Adult Without Dependents (ABAWD) work or employment and training

activities fall below 20 hours per week. Monthly Reporting (MR) MFIP and Uncle Harry SNAP households are required to submit monthly reports. Monthly reporting households are required to report budget month income and other circumstances relevant to the amount of the allotment and anticipated changes that could affect eligibility. This includes self-employment income and allowable expenses. MFIP will continue to use the rolling average. Uncle Harry SNAP income will be based on an average, so substantial changes will need to be taken into account. Change Reporting (CR) SNAP self-employed units who are homeless, in the migrant work stream, seasonal farm workers or live on an Indian reservation are considered change reporters and must report changes according to change reporting requirements. In regard to income changes, they must report a change in the source of income or in the amount of total gross monthly income of more than $100 by the 10th calendar day following the month the change occurred. Changes Reported or Known to the Agency: The agency must take prompt action on all changes reported to determine if the change affects the unit’s eligibility or benefit level.

The county agency must act on ALL changes resulting in a decrease or ineligibility, allowing for proper notice.

The county agency must act on ALL changes resulting in an increase in benefits no later than 10 days from the date the change was reported. The increase in benefits must be effective no later than the month following the month the change was reported.

For SNAP the following items will be considered as “known to the agency” and may or may not require follow up: • Information received by the agency from the client or their authorized representative. • Information from other sources. Such as: IEVS matches, MEC2 integrated information, MAXIS/PRISM interface, Social Services, New Hire reports, DAIL messages. When any change is reported or becomes known to the agency, workers must act on the change.


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SE 09.0 MAXIS SELF-EMPLOYMENT DEFINITIONS Table of contents MAXIS divides self-employment income into nine types, identifying each type by a 01 - 09 code. This section defines each of these types and provides information regarding the certification process. The nine MAXIS self-employment types are:

01 02 03 04 05 06 07 08 09

FARMING REAL ESTATE

HOME PRODUCT

SALES OTHER SALES

PERSONAL SERVICES

PAPER ROUTE

IN-HOME DAYCARE RENTAL OTHER

The activity of growing/raising farm items for the purpose of producing income. The self-employed individual must have direct involvement in the farming activity.

The activities of buying, selling and/or management or develop-ment of real property.

Also called Direct Sales Industry. The activity of selling merchandise on-line, door-to-door, parties, from trucks/ wagons or from temporary locations.

The activity of selling products or goods other than real estate and items defined as home product sales items.

Also called service industry. The activities that provide services rather than goods to the customer. The service may offer an improved standard of living or convenience, professional or technical expertise, or other essential services.

Also called Newspaper delivery. The activity of delivering news-papers to people's homes.

The activity of providing day-care for other people's children in the individual’s own home.

The activity of leasing or renting personal or real property to another person for payment.

Any activity that does not fall into one of the other eight codes.

Beef Cattle

Dairy Fruit Grain Hobby

Organic Sod Tree

Vegetable

Real Estate Agent

Real Estate

Broker

Real Estate Manager

Amway Corp Avon Products Creative Memories Discovery Toys, Fuller Brush Home Interiors The Kirby Co Lia Sophia Longaberger Mary Kay Pampered Chef Princess House, Shaklee Corp Tastefully Simple, Tupperware Watkins Weekenders

Logging Gas Station

Traveling Sales person

Grocery/ General store

Clothing store

Hardware store

Convenience store

Restaurant

Acupuncture Artist

Catering Carpenter

Construction Dog Grooming

Hair Care Housekeeping

Plummer Home Repair

Interpreter Janitorial

Lawn Care Massage Musician Odd jobs Therapy

Tax Accountant Taxi Driver

Truck Driver

Paper or Newspaper

Carrier

Daycare Provider

Apartment House

Farmland Hunting Land

Business Space

Equipment Vehicles


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SE 09.01 FARMING

MAXIS Self-Employment Income Type 01 CM 0017.15.33.24

SE HWS 1 Farming Worksheet





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Table of contents SE HWS 1 Farming Worksheet Farming is the self-employment business of operating a farm. It is the cultivating of a place where items are raised, such as the earth or a tract of water, to obtain things it can produce; such as grain, fruit's, fish and other things Farming income includes the proceeds from the farming operation plus the gains from the sale of capital goods and/or equipment (capital gains). See Handbook Section 06.1 Special Income Computation Situations for more information on computing capital gains. Farm income is earned income and is entered on MAXIS BUSI See Handbook Section 06.0 Computing Self-employment Income and Expenses or Handbook Section 09.01.5 Farm Loss Offset, for information on how to apply a farm loss offset to other household income. As in any other business reported changes that affect the nature or scale of the farming business such as a change in the type of farm operation, the amount of land farmed, drought or crop failure, a substantial change in market prices, etc. which would affect the net income must be taken into account and adjustments. [CM 0017.15.33.03, 0017.15.33.24] Common Minnesota Farm Income Situations:

Grain Dairy Beef

Vegetable Poultry

Common Farming Expenses: Breeding fees Chemicals Feed Fertilizer Fuel Interest

Insurance Repairs Seed Supplies Veterinary

Verification Sources Tax forms, farm ledgers, or business records. Questions you may want to ask: What is the business situation? Do you file taxes on this income? Do the most recent tax forms reflect your current farm operation? Do you anticipate all income and expenses to continue in the next year? Did you file a Schedule D Capital Gains and Losses or Form 4797 Sales of Business Property for this tax year? If Schedule F indicates “Other expenses”, ask for clarification of what those expenses are. What are your expenses?


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SE 09.01.1 FARM LOSS OFFSET Table of contents When the costs of producing self-employment farm income exceed the gross farm income, the loss is offset against other countable income. To qualify for the offset, the person must receive or anticipate receiving annual gross proceeds of $1,000 or more from the farming enterprise. If there is a farm loss, the offset is made in two steps as follows:

Step 1. Determine the monthly farm loss and apply the monthly loss against the total amount of other net self-employment income computed for that month.

Step 2. If the farm loss, is more than the net self-employment income of another business, the remainder of the farm loss is offset against the total other earned and unearned income for that month.

If there is still a net loss, the household is certified based on zero net income. The

monthly excess loss is not carried forward to subsequent months.

If a household has a monthly net self-employment income gain after a farm loss offset, the household is entitled to a 20% earned income deduction from the net self-employment amount.

If a household has earned income that is not from self-employment, the earned income deduction from that income is computed based on the amount before a farm loss offset, if any, is made.


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SE 09.02 REAL ESTATE

The MAXIS Self-employment Income Type 02 CM 0017.15.33

SE HWS 3 Sales / Services Worksheet




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Table of contents SE HWS 3 Sales / Services Worksheet A Real Estate business could cover two business areas: Real Estate Sales and/or Real Estate Management. This would include the activities concerned with the buying or selling and the management or development of commercial or residential real property – immovable land, including all the natural resources and permanent buildings on it. Real estate income is earned income and is entered on MAXIS BUSI.

Real Estate Sales Real Estate Sales are the activities involved in buying or selling or real estate. Real Estate Agent - A licensed salesperson working for a real estate broker. In the U.S., all real estate agents have to be licensed by the state where they work. Real estate agents generally work in offices. Some agents work out of their own homes. Much of their time is spent outside the office showing houses to buyers. Real Estate Broker – A broker is a person licensed to arrange the buying and selling of real estate for a fee. Real estate brokers manage real estate offices. Commission - A fee charged by a broker or agent for his/her service in facilitating a transaction, such as the buying or selling of real estate or securities. Typical activities include: Meeting and dealing with prospective sellers and buyers Evaluation and recommendation for pricing Advertising Showing Working with banks and lending institutions Complete and file paperwork Real Estate Management - Also called Property Management or Real Estate Development Real Estate Management or property management is the operation of commercial and/or residential real estate. Property Managers - A property manager is a person or firm charged with operating a real estate property for a fee. The property manager has a primary responsibility to the landlord and a secondary responsibility to the tenant.


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Typical activities include: finding/evicting and dealing with tenants, improvement/repair, cleaning, indoor and outdoor maintenance and

upkeep

collect rents, pay necessary expenses and taxes, make periodic reports to the owner.

Income Typically, real estate agents do not get a regular paycheck. If the agent sells a house successfully, then he/she receives a portion of the sale price as a commission. A property manager on the other hand, will often receive regular pay. Common Expenses (Not inclusive) Advertising Office supplies Real Estate License Transportation

Verification Sources Self-employment report form Client’s ledger/books Tax Forms –

Sole Proprietor – IRS 1040 and Schedule C Partnership – IRS 10 40 and IRS 1065 and 1065 K1

S Corporations – IRS 1040 and IRS 1160 and 1160K1 Questions you may want to ask: Do you have an office or job site? Do you file taxes on your SE? Do the most recent tax forms reflect your current business operation? Do you anticipate all income and expenses to continue in the next year? Does your SE include travel? How are you paid – salary, commission? What are your expenses?

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SE 09.03 HOME PRODUCT SALES

MAXIS Self-employment Income Type 03 CM 0017.15.33





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Table of contents SE HWS 3 Sales / Services Worksheet Also called Direct Selling Industry Home product sales include businesses that sell merchandise door-to-door, from vehicles or from other temporary locations. Home product sales income is earned income and is entered on MAXIS BUSI. Home Product Distributor – (Also called representatives, consultants.) Includes individuals who sell products by the direct selling methods and are not employees of the sales company. Income may be earned at two levels: The person may become a product distributor and makes a commission on the sales

made by other distributors he or she signs up. The Direct Selling Distributor displays and sells the product using the party plan, where

the seller invites friends to a party where goods are displayed and sold, or through networking. The internet is becoming a viable source for direct sale.

Home Product Sales List (not inclusive): Amway Corporation Avon Products, Inc. Creative Memories Discovery Toys, Inc The Fuller Brush Company Herbalife International of America, Inc.

Home Interiors & Gifts, Inc. The Kirby Company Lia Sophia The Longaberger Company Mary Kay Inc. Norwex The Pampered Chef Princess House, Inc.

Shaklee Corporation Tastefully Simple, Inc. Tupperware Watkins Weekenders USA, Inc.

Income Distributors most likely report sales and expenses on a regular basis, and are paid based on amount of sales. Be aware of possible awards and bonus opportunities. Common Expenses Advertising Office supplies Postage

Product Samples Transportation

Verification Sources Self-employment report form Client’s ledger/books Sales Statements

Tax Forms – Sole Proprietor – IRS 1040 and Schedule C

Questions you may want to ask: Do you have an office or job site? Do you file taxes on your SE? Does your SE include travel?

How are you paid – salary, commission? What are your expenses?



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SE 09.04 OTHER SALES

MAXIS Self-Employment Income Type 04 CM 0017.15.33





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Table of contents

SE HWS 3 Sales / Services Worksheet Other Sales is a self-employment business which includes the sale of goods other than real estate and direct sales. Common “other” sales would be: Logging

Gas Station owner Traveling Sales person Grocery/general store owner

Clothing storeowner Hardware store owner Convenience store Restaurant owner

Other sales income is earned income and is entered on MAXIS BUSI. Income Income may be received on commission, as a draw or from business profits. Persons receiving a salary would most often be an employee of the business and not self-employed. See SE 06.0 Calculating Self-employment Income and expenses for information on how to treat “draws”. - Common Expenses (Not inclusive) Cost of goods Maintenance/Repair Mortgage/Rent Supplies Taxes/ Insurance Transportation Wages

Verification Sources Self-employment report form Client’s ledger/books Tax Forms – Sole Proprietor – IRS 1040 and Schedule C Partnership – IRS 10 40 and IRS 1065 and 1065 K1 S Corporations – IRS 1040 and IRS 1160 and 1160K1 Questions you may want to ask: Do you have an office or job site? Do you file taxes on your SE? Are most recent taxes reflective of current business operation? Do you anticipate all income and expenses to continue? Does your SE include travel? What good or product do you sell? How are you paid – salary, commission? What are your expenses?



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SE 09.05 PERSONAL SERVICES

MAXIS Self-Employment Income Type 05 CM 0017.15.33





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Table of contents SE HWS 3 Sales / Services Worksheet Personal Service self-employment jobs include activities from cutting the grass to providing health care to delivering packages. Service industries play an integral part in the daily activities of people and businesses. These services may offer convenience, an improved standard of living, professional and technical expertise, or other essential services. The providers of such services involve all sectors of the economy including for-profit private businesses, non-profit organizations and various levels of government.

Generally, these services involve the performance of actions on behalf of the customer and have little, if any, tangible substance. In some instances, however, the services provided may involve the receipt of a tangible product by the customer.

Personal services income is earned income and is entered on MAXIS BUSI.

Income Income from personal service self-employment is typically received on a regular basis. Be aware of possible tip and bonus opportunities. Common Expenses Advertising Business Supplies Licenses Office supplies

Permits/fees Tools Transportation

Verification Source Self-employment report form Client’s ledger/books Tax Forms –


S Corporations – IRS 1040 and IRS 1160 and 1160K1 Questions you may want to ask: Do you have an office or job site? Do you own or lease your equipment? Do you file taxes on your SE? Are the most recent taxes reflective of your current business operation? Do you anticipate all income and expenses to continue? Does your SE include travel? How are you paid? Do you receive tips? What are your expenses?


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SE 09.05.1 PERSONAL SERVICES – TAXI DRIVERS Table of contents Taxi drivers may be self-employed or employed and earn a salary. Drivers usually report to a Taxi company where they are assigned a vehicle. Lease Drivers Under a lease arrangement, a driver pays the taxi owner a flat amount for each shift or week. Owners are guaranteed the lease fee for each shift the cab is leased, regardless of how much time the driver actually works or how much money the driver takes in. Drivers earnings are the difference between their total revenues (fares and tips) and the expenses (lease fees and gasoline). Owner drivers Some drivers own their taxis. These drivers would have expenses that lease drivers do not, such as car expenses and additional permits. They may also pay a fee to use a company’s dispatch system. Income At the end of each trip, drivers collect the fare and generally a tip. Information regarding the trip, including the place and time of pickup and drop-off and fare are entered into the trip sheet. Most often taxi drivers are required to keep a daily trip sheet. Earnings of taxi drivers vary greatly, depending on factors such as the number of hours worked, customers’ tips and geographic location. Common Expenses Gas Leases Vehicle Maintenance/Repair Verification Sources Self-employment report form Client’s ledger/books/trip logs Tax Forms –


S Corporations – IRS 1040 and IRS 1160 and 1160K1 Questions you may want to ask: Do you have an office or job site? Do you own or lease your equipment? Do you file taxes on your SE? Are your most recent taxes reflective of your current business operation? Do you anticipate all income and expenses to continue? How are you paid? Do you receive tips? What are your expenses?


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SE 09.06 PAPER ROUTE

MAXIS Self-employment Income Type 06

CM 0017.15.33





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Table of contents SE HWS 3 Sales / Services Worksheet Also called Newspaper Delivery, Paper or newspaper carrier. A paper route or newspaper delivery job is the delivering of newspapers to people's homes. Delivery carriers are typically independent contractors that pick up their papers from our distribution centers and then deliver them on a set route to individual homes. The carrier is probably not responsible for collections. Paper route income is earned income and is entered on MAXIS BUSI. Income Pay varies depending on the length and number of papers on the route. Carriers may be eligible for tips or bonuses. Common Expenses Transportation (if the route is a driving route). Gloves Shoes Warm clothing/boots Supplies Verification Sources Self-employment report form Client’s ledger/books Tax Forms –

Sole Proprietor – IRS 1040 and Schedule C

Questions you may want to ask: Driving or walking route? Where do you pick up the papers? What is included on your pay stub? Are you paid bonuses or tips? Do you file taxes? Are most recent taxes reflective of your current business operation? Do you anticipate all income and expenses to continue? What expenses do you have?



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SE 09.07 IN-HOME DAYCARE

MAXIS Self-Employment Income Type 07

CM 0017.33.15.21

SE HWS 4 In-Home Day Care Worksheet




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Table of contents SE HWS 4 In-Home Day Care Worksheet "In-home daycare" income is income received for providing care for other people’s children by a caregiver in their own home. Some, but not all in-home daycare providers are licensed. Income In-home daycare income is earned income and is entered on MAXIS BUSI.

Daycare Income SNAP MFIP/DWP Daycare Income Use gross amount. Use gross amount. MN Child and Adult Care Food Program

Use gross amount minus reimbursement amount for providers own children.

Do not use in income determination.

Expenses

Daycare Expenses Itemize or Flat Rate

SNAP MFIP/DWP Must itemize and verify. For food expense, may use actual or the reimbursement figures used by the Child and Adult Care Food Program.

May itemize and verify, or use the flat rate of 60% of the gross receipts.

Common In-Home Day Care expenses:

Food Supplies

Toys License/professional fees

Advertising Transportation

Use the In-Home Business ratio for daycare expenses related to home shelter costs such as: mortgage/rent, taxes/insurance, and utilities. The areas used for in-home child care are considered exclusive business use if the client's home is licensed for child care or is exempt from licensing. Using the Business Use of Home Worksheet, base the business ratio on square footage and the proportion of time the unit uses the area for child care. Determine what is most beneficial to the unit - business expense or shelter standard, document decision. Verification Sources Self-employment report form Client’s ledger/books Tax Forms –

Sole Proprietor – IRS 1040 and Schedule C

Questions you may want to ask: Are you a licensed provider? Do you file taxes on your SE? Are the most recent taxes reflective of the current business operation?

Do you expect all income and expenses to continue? How are you paid? What are your expenses?



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SE 09.08 RENTAL

MAXIS Self-Employment Income Type 08 CM 0017.15.33.30

SE HWS 5 Rental Worksheet

SE HWS 6 Roomer / Boarder Worksheet

Table of contents





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SE HWS 5 Rental Worksheet (See section 09.08.01 for Roomer Boarder) Rental income is income received based on a rental, tenancy, or lease agreement. These agreements are formal and/or informal contracts between an identified landlord and renter/tenant/lessor, giving rights to both parties, e.g. The renter has the right to occupy the accommodation for an agreed term and the landlord’s right is to receive the agreed upon rent amount. Income Rental income may be earned or unearned, enter both on MAXIS BUSI. MAXIS determines earned or unearned based on number of hours entered in Reported Hrs field. Earned rental income is allowed the earned income deduction, unearned is not. Common Rental Income Situations:

House Duplex Apartment

Land Business Property Storage

Rental Income

Earned or Unearned MFIP/DWP SNAP

Use a rolling average to determine number of hours worked per month. 43 per month

indicates earned income

Use client reported number of hours worked per month. An average of 20 hours per

week indicates earned income. Expenses Common Rental Business expenses: Advertising Mortgage (SNAP Only) Interest Taxes/Insurance Postage

Registration & Inspection Fee Repair Supplies Upkeep Utilities

Business Expense Deductions Actual or Flat Rate

MFIP/DWP SNAP Use actual. OR

Use 2% of property estimated market value for Upkeep and Repairs and actual for the other

expenses.

Use actual.



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Separate Living Quarters - Rental Utility Costs Business Expense Deduction or Shelter Deduction

MFIP DWP SNAP Utilities billed to Client (landlord)

Prorate the actual utility costs using the business to home ratio. Use the amount attributed to the business as a business expense. Shelter deduction is NA

Prorate the actual utility costs using the business to home ratio. Allow the business expense portion as a business deduction and the home portion as a shelter utility deduction.

Allow the SUA.

Utilities Billed to Renter

NA Allow actual utility costs with flat rate of $35 for phone.

Allow SUA.


Sole Proprietor – IRS 1040 and Schedule E Partnership – IRS 10 40 and IRS 1065 and 1065 K1

S Corporations – IRS 1040 and IRS 1160 and 1160K1 Questions you may want to ask: Do you have an office or job site? Do you file taxes on your SE? Are the most recent taxes reflective of the current business operation? Do you anticipate all income and expenses to continue? Does your SE include travel? How are you paid? What are your expenses?


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SE 09.08.1 ROOMER/BOARDER RENTAL INCOME See section 09.08. for Rental Self-employment. Table of contents SE HWS 6 Roomer / Boarder Worksheet A roomer is someone who rents a room in someone else’s home. A boarder is someone who pays for food and bed: somebody who pays to sleep and eat in a private home or boarding house.

Income Roomer/boarder income is earned self-employment income and is enter on MAXIS RBIC. Expenses Common Roomer/Boarder Business expenses: Food Mortgage SNAP Only) Interest Taxes/Insurance

Repair Supplies Upkeep Utilities

The business property ratio is: rented number of rooms/square footage divided by the total number of rooms/square footage in the building. The allowable business expense portion is the expense multiplied the business property ratio.

Business Expense Deductions Actual or Flat Rate

MFIP/DWP SNAP Roomer Flat rate of $71. Actual expenses, using business property

ratio. Boarder(s) Thrifty Food Plan amount

based on number of boarders.

Actual food expense or the Thrifty food plan amount based on number of boarders.

Roomer(s)/ Boarder(s)

Thrifty Food Plan amount based on number of boarders plus roomer rate.

Actual food expense or the Thrifty food plan amount based on number of boarders plus other actual expenses, using business property ratio.



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Roomer Boarder Rental Utility Costs Business Expense Deduction or Shelter Deduction

MFIP DWP SNAP Utilities billed to Client (landlord)

Prorate the actual utility costs using the business to home ratio. Use the amount attributed to the business as a business expense. Shelter deduction is NA

Prorate the actual utility costs using the business to home ratio. Allow the business expense portion as a business deduction and the home portion as a shelter utility deduction.

Allow SUA.

Utilities Billed to Renter

NA Allow actual utility costs with flat rate of $35 for phone.

Allow SUA.


Sole Proprietor – IRS 1040 and Schedule C or E Questions you may want to ask: Is this a roomer only? Boarder only? If a boarder only or room/board situation, how many meals are provided per day? Do you file taxes on this income? Are the most recent taxes reflective of the current business operation? Do you anticipate that all income and expenses will continue? How are you paid? What are your expenses?


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SE 09.09 OTHER

MAXIS Self-Employment Income Type 09

CM 0017.15.33



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Table of contents If the client's self-employment business does not fit into one of the previous eight codes, code as income type 09 – Other. Use the CM and earlier sections of this hand book to determine how the income and expenses are to be handled. Contact PolicyQuest with any questions. There is no worksheet for Other - use any worksheet that best meets the needs of the business.


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SE 10.00 SELF-EMPLOYMENT RELATED TERMS and DEFINITIONS Table of contents AGENCY:

The agency is defined as DHS and the county human service agency(s) in Minnesota and includes any agency(s) that contracts with the human service agency for delivery of financial, health care, child care programs, and employment services.

AMORTIZATION: (IRS definition from 4562 Form Instructions) Amortization is similar to the straight line method of

depreciation in that an annual deduction is allowed to recover certain costs over a fixed time period. You can amortize such items as the costs of starting a business, goodwill, and certain other intangibles.

ANNUALIZATION:

Annualization is making calculations for a period of less than a year as if the period were a whole year. For example, if figures existed for only one quarter, it could be annualized by multiplying by four.

AVERAGE:

The amount arrived at by adding a group of numbers, and dividing the total by the number in the group. For example, add four figures together, and then divide the total by four.

BANKRUPTCY:

Bankruptcy is a legally declared inability of an individual, business or organization to pay their creditors. In the majority of cases, the debtor initiates the bankruptcy legal proceedings. There are different types of bankruptcies. Some allow continuation of the same kind of business and others do not.

BUSINESS EXPENSE:

Operating costs of a firm which must be both (1) ordinary, common and accepted in the trade, and (2) necessary, appropriate and useful in operating the business.

BUSINESS NATURE and SCOPE:

Nature - The essential characteristics and qualities of a business. Scope – The sum of all the parts and pieces that makes up a business. Changes to the nature and scope of a business are not included in the averaged income and expenses. These types of changes mean the averaged income will need to be adjusted. See Normal Business Fluctuation.

CAPITAL ASSET: An asset with a useful life of more than 1 year. (CM) A long-term asset, such as land or a building. (The American Heritage College Dictionary, 3rd edition) EXAMPLES of capitals assets that may have more than one year of use before it is traded or sold: Painter - spray painting equipment

Contractor - forklift, bulldozer, large trucks, etc.

Farmers - tractors, livestock (dairy herds), land, etc

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CAPITAL EXPENDITURE: The purchase or improvement of real property or personal property having a useful life of more than 1 year. (CM)

CAPITAL GAIN:

Profit received from the sale of a capital asset. (CM) Countable under any self- employment business, but most often seen with farming. See farming section for more information on capital gains.

CHARTER:

A document outlining the principles, functions, and organization of a corporate body; a constitution. (The American Heritage College Dictionary, 3rd edition.)

COMMISSION:

A fee charged by a broker or agent for his/her service in facilitating a transaction, such as the buying or selling of real estate or securities.

COMPENSATION TO OFFICER:

To receive money regularly from a S Corporation self-employment business. May also be called a draw, guaranteed payment to partner or wages/salary.

CONTRACTOR:

A contractor is a person or company with a formal contract to do a specific job, supplying labor and materials and providing and overseeing staff if needed. General/Prime Contractor - A general contractor is a group or individual that contracts with

another organization or individual (the owner) for the construction or renovation of a building, road or other structure. A general contractor is defined as such if it is the signatory as the builder of the prime construction contract for the project. A general contractor usually is responsible for the supplying of all material, labor, equipment, (engineering vehicles and tools) and services necessary for the construction of the project.

Independent Contractor- An independent contractor is a self-employed person who provides

certain services to a client or owner, (or a third-party) on behalf of the client. An independent contractor is not under the control, guidance, or influence of the client and, unlike an employee, does not owe a fiduciary duty. The client neither deducts the payroll or withholding taxes from payments to the independent contractor, nor contributes the employer's share. To be legally designated as an independent contractor, an individual must (1) be free from the control of the client, (2) be able to exercise his or her judgment as to the manner and methods to accomplish the end-result, and (3) be responsible for the end-result only under the terms of the contract.

Subcontractor - An individual or company hired by a general or prime contractor to perform a

specific task as part of the overall project.

http://en.wikipedia.org/wiki/Contract

http://en.wikipedia.org/wiki/Construction

http://en.wikipedia.org/wiki/Renovation

http://en.wikipedia.org/wiki/Building

http://en.wikipedia.org/wiki/Road


http://en.wikipedia.org/wiki/Material

http://en.wikipedia.org/wiki/Engineering_vehicle

http://en.wikipedia.org/wiki/Tool

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CORPORATION: A body that is granted a charter legally recognizing it as a separate legal entity having its own rights and privileges, and liabilities distinct from those of its members. (The American Heritage College Dictionary, 3rd edition.)

S-CORPORATION: An S-Corporation begins its existence as a general, for Profit Corporation

upon filing the Articles of Incorporation at the state level. A general for-profit corporation (also known as a C-Corporation) is required to pay income tax on taxable income generated by the corporation.

After the corporation has been formed, it may elect “S-Corporation Status” by submitting IRS form 2553 to the Internal Revenue Service (in some cases a state filing is required as well). Once this filing is complete, the corporation is taxed like a partnership or sole proprietorship rather than as a separate entity. Thus, the income is “passed-through” to the shareholders for purposes of computing tax liability. Therefore, a shareholder’s individual tax return will report the income or loss generated by an S-Corporation. An S-Corporation can have a maximum of 75 shareholders, and the income and expenses would still be passed through to each individual and taxed on that level.

S-Corporations are considered self-employment businesses.

C-CORPORATION: An artificial ‘legal being’ (legal concept only) endowed by law with the powers, rights, liabilities and duties of a natural person. A corporation’s assets are controlled by the business entity itself, not by the owners (stockholders) directly.

C-Corporations are not considered self-employment businesses. Persons are considered employed by a corporation and you would count their wages accordingly.

DCP: The Direct and Counter-Cyclical Payment Program (DCP) provides payments to eligible producers on farms enrolled for the 2008 - 2012 crop years. There are two types of DCP payments - direct payments and counter-cyclical payments. Both are computed using the base acres and payment yields established for the farm. DCP was authorized by the Farm Security and Rural Investments Act of 2002 (2002 Farm Bill) and is administered by the U.S. Department of Agriculture's Farm Service Agency (FSA).

DEPRECIATION:

(IRS definition from 4562 Form Instructions) Depreciation is the annual deduction that allows you to recover the cost or other or other basis of your business or investment property over a certain number of years. Depreciation starts when you first use the property in your business or for the production of income. It ends when you either take the property out of service or deduct all your depreciable cost or basis, or no longer use the property in your business or for the production of income.

DIVIDEND:

The amount of the profit distribution a shareholder receives, or the amount of the surplus distribution a policyholder of a participating insurance policy receives.

DRAW:

To receive money regularly from the self-employment business. May also be called guaranteed payment to partner, compensation to officer or wages/salary.


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FARMING: MAXIS SE Income Type 01: The activity of growing/raising farm items for the purpose of producing income. The self-employed individual must have direct involvement in the farming activity.

FARM LOSS OFFSET:

The amount a SNAP client’s countable income is reduced because of a net loss in farm income. See §0017.15.33.18 (Self-Employment Loss Offset).

FARM SERVICE AGENCY (FSA):

Formerly Agricultural Stabilization and Conservation Payments (ASCS) FEDERAL CROP INSURANCE CORPORATION (FCIC):

The Federal Crop Insurance Corporation (FCIC) promotes the economic stability of agriculture through a sound system of crop insurance and providing the means for the research and experience helpful in devising and establishing such insurance.

GUARANTEED PAYMENT TO PARTNER:

To receive money regularly from a partnership self-employment business. May also be called draw, compensation to officer or wages/salary.

GENERAL/PRIME CONTRACTOR:

A general contractor is a group or individual that contracts with another organization or individual (the owner) for the construction or renovation of a building, road or other structure. A general contractor is defined as such if it is the signatory as the builder of the prime construction contract for the project. A general contractor usually is responsible for the supplying of all material, labor, equipment, (engineering vehicles and tools) and services necessary for the construction of the project.

HOME OFFICE – PRINCIPLE PLACE OF BUSINESS:

When the home office is the principle place of business, it must be an area of exclusive AND regular use. "Exclusive" means it cannot be an office and a sewing room; it must be an office ONLY. See definition of Principle Place of Business.

HOME PRODUCT SALES – MAXIS SE Income Type 03:

Also called Direct Sales Industry. The activity of selling merchandise on-line, door-to-door, at parties, from trucks/ wagons or from temporary locations.

INDEPENDENT CONTRACTOR:

An independent contractor is a self-employed person who provides certain services to a client or owner, (or a third-party) on behalf of the client. An independent contractor is not under the control, guidance, or influence of the client and, unlike an employee, does not owe a fiduciary duty. The client neither deducts the payroll or withholding taxes from payments to the independent contractor, nor contributes the employer's share. To be legally designated as an independent contractor, an individual must (1) be free from the control of the client, (2) be able to exercise his or her judgment as to the manner and methods to accomplish the end-result, and (3) be responsible for the end-result only under the terms of the contract.

If the client states he or she is a self-employed independent contractor and the agency finds this questionable, check with the parent company. If the parent company says that it considers the


http://en.wikipedia.org/wiki/Construction

http://en.wikipedia.org/wiki/Renovation

http://en.wikipedia.org/wiki/Building

http://en.wikipedia.org/wiki/Road


http://en.wikipedia.org/wiki/Material

http://en.wikipedia.org/wiki/Engineering_vehicle

http://en.wikipedia.org/wiki/Tool

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http://www.businessdictionary.com/definition/person.html

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client to be an independent contractor, then the client is self-employed, barring any other evidence to the contrary.

IN-HOME DAYCARE: MAXIS SE Income Type 07

The activity of providing day-care for other people's children in the individual’s own home. ITEMIZE:

List individually all things that make up a set or whole. LDP: Loan deficiency payment – as of 6/2/08, no LDP for crops in MN. LIMITED LIABILITY COMPANY (LLC):

A Limited Liability Company (LLC) is a relatively new business structure. It is a hybrid business entity having certain characteristics of both a corporation and a partnership. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. An LLC is often incorrectly called a "limited liability corporation" (instead of company).

LLC: See Limited Liability Company. NET OPERATING LOSS: Net operating loss occurs when a company's allowable tax deductions are greater than its

taxable income, resulting in a negative taxable income. The company can apply the net operating loss to their past tax payments and receive a tax credit. It could also apply the net operating loss to future income tax payments, reducing payments they need to make in future periods.

NOL: See Net Operating Loss NORMAL BUSINESS FLUCTUATION:

Normal business fluctuations are simply the ups and downs in a business operation. When income is averaged, changes due to normal business fluctuations are included in the calculations. The activities may be related to economic conditions such as supply and demand and can cause periods of business growth, stagnation or decline. If a business operation’s nature and scope changes, the resulting changes are not considered “normal business fluctuations” and are not included when income and expenses are averaged. When changes that are not normal business fluctuations occur, averaged income needs to be adjusted based on the change.

OTHER SALES: MAXIS SE Income Type 04 The activity of selling products or goods other than real estate and items defined as home product sales items.

OTHER SELF EM0PLOYMENT: MAXIS SE income Type 09

The activity of selling products or goods other than real estate and items defined as home product sales items.

http://en.wikipedia.org/wiki/Corporation

http://en.wikipedia.org/wiki/Partnership

http://en.wikipedia.org/wiki/Limited_liability

http://en.wikipedia.org/wiki/Taxation_in_the_United_States


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PAPER ROUTE: MAXIS SE Income Type 06 Also called Newspaper delivery. The activity of delivering news-papers to people's homes.

PARTNERSHIP:

An unincorporated business owned by 2 or more people. (CM) A legal contract entered into by 2 or more persons in which each agrees to furnish a part of the capital and labor for a business enterprise, and by which each shares a fixed proportion of profits and losses. (The American Heritage College Dictionary, 3rd edition.) Consider partnerships as self-employment businesses.

PERSONAL SERVICES: MAXIS SE Income Type 05

Also called service industry. Personal services are the activities that provide services rather than goods to the customer. The service may offer an improved standard of living or convenience, professional or technical expertise, or other essential services.

PERSONAL BUSINESS AND/ OR ENTERTAINMENT EXPENSE:

Money spent while on official business, and but not reclaimable as business expenses. PRINCIPAL PLACE OF BUSINESS:

A place of business is your principle place of business if it is where: (See Home Office principle place of business for additional information): Most of your of business or work is done, or You meet customers, clients, patients, investors, associates, etc., in the normal course of

doing business, or You store inventory for resale at retail or wholesale, or You provide day care services for fees, or Any combination of the above four

REAL ESTATE: MAXIS SE Income Type 02

The activities of buying, selling and/or management or development of real property. REAL ESTATE AGENT:

A real estate agent is a licensed salesperson working for a real estate broker. In the United States, all real estate agents must be licensed by the state they work in.

REAL ESTATE BROKER:

A real estate broker is a person licensed to arrange the buying and selling of real estate for a fee. Real estate brokers manage real estate offices.

RENTAL: MAXIS SE Income Type 08

The activity of leasing or renting personal or real property to another person for payment. ROLLING AVERAGE:

A rolling average is where the average is updated on a monthly basis by subtracting the oldest month of figures and adding the newest month and calculating a new average with the updated figures. The rolling average is used in determining income for the MFIP/DWP programs.

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SELF-EMPLOYED FARMER: To be a self-employed farmer, the person must be engaged in farming activity for the purpose of producing income. The person must also have direct involvement in the farming activity.

SEPARATE LIVING QUARTERS:

Separate living quarters are classified as a place where the occupants do not live and eat with any other person in the building and which have direct access from the outside of the building or through a common hall. The space normally would include kitchen, bedroom and living space areas. Examples could include a basement apartment or duplex housing.

SOLE PROPRIETOR:

A person who is the sole owner of an unincorporated self-employment business. SOLE PROPRIETORSHIP:

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.

SUBCONTRACTOR:

An individual or company hired by a general or prime contractor to perform a specific task as part of the overall project

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SE 11.0 FREQUENTLY ASKED QUESTIONS Table of contents Definition of Self-employed Individual FAQ: A client works for one person i.e. lawn mowing for the neighbor. This individual does not have

FICA taken out, but in some cases, the “employer” has set the work hours/schedule. Should this income be entered STAT/BUSI or STAT/JOBS?

A: Evaluate each situation to determine if there is an employer/employee relationship. In this

situation, based on the information provided it would appear the client doing the lawn mowing meets the IRS definition of a household employee and would not be considered self-employed. It is assumed the neighbor provides all the equipment and tells the client how and when to mow the lawn. It is also assumed that the client does not offer his services to the general public. Income would be entered on STAT/JOBS.

Anticipating Self-employment Income FAQ: For SNAP, must we average monthly income & expenses for “all types” of self-employment

(less than 12 months) or are there exceptions to this rule? A: Yes. Average self-employment income whether or not the unit receives income and incurs

expenses on a monthly basis, count the self-employment income earned each month. Count roomer/boarder income monthly. [CM 0017.15.33.03]

Verification Sources: FAQ: Can the Self- Employment Report Form - DHS-3336 be used as verification of income and

expenses? A: Yes, if the form has been completed as required.

Additional verification would only be required if the information on the DHS-3336 is inconsistent with other information obtained by the agency or provided by the client. If the client cannot explain why the inconsistency in the information, ask the client to provide further verification. [CM 0010.15, 0010.18.09]

FAQ: Are business records required for proof of income and expenses? What if they just write out the income and expenses on a piece of paper?

A: Clients may provide you self-employment income and expenses in several formats. For

businesses in operation over a year, ask for tax returns. If in operation under a year, or the taxes do not reflect the current business situation business records would be used. The records should be in an easy to decipher format. If any of the information is inconsistent with other information the agency has or that the client has provided, ask the client to provide further proof. [CM 0010.18.09]

FAQ: What tax form shows that an individual is actually an employee of a corporation and receives a

salary rather than being self-employed?


https://edocs.dhs.state.mn.us/lfserver/Legacy/DHS-3336-ENG





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A: C Corporation - IRS forms 1120, 1120S, and the 1120 Schedule K-1 would be an indication that

the individual is an employee of a C-corporation. FAQ: For SNAP, must we use the tax forms for “all types” of self-employment if there is a 12 month

history of employment? A: No. Do not use the forms when they are not reflective of the current business situation or if the

client has not filed (use business records or the DHS 3336 Self-Employment Report Form). However, if they are reflective of the situation, they are an excellent source of data on which to base the self-employment income calculation. [CM 0010.18.9, 0017.15.33.03]

Self-employment Expenses FAQ: We are to use the estimated market value of the home and buildings divided by the estimated

market value of the entire property to get the percentage to use for business. Which buildings are included where?

A: For businesses located on the same property as the home, determine the business portion by

dividing the estimated market value of the business property by the estimated market value of the entire property. The estimated market value of the entire property would include all land, the home and any other buildings on the property. Include as business property any land or buildings used for the self-employment business. FAQ: Are we allowed to use the percentages used on IRS tax forms to determine self-

employment business/home ratio in determining eligibility for SNAPand/or MFIP?

A: Yes, if the percentages used on the tax forms appear reasonable. Other sources of information would be the client’s records, the mortgage lender, the tax assessor and for farmers, the Farmer’s Home Administration. [CM 0017.15.33.09, 0017.15.33.24]

Farming FAQ: Are crop droughts and bumper crops changes for which you can adjust the farm income and approve new SNAP/MFIP benefits? A: Yes. Reported changes that affect the nature or scale of the business such as a change in

the type of farm operation, the amount of land farmed, drought or crop failure, a substantial change in market prices, etc. which would affect the net income must be taken into account. [CM 0017.15.33.03, 0017.15.33.24]







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