.Purpose

Policy

Background

Release Date:

February 10, 2021

Definitions

Requirements

Verification Docs

Example:

An applicant who claims to be a self-employed newspaper carrier and provides a 1099 or Schedule C and filed his/her taxes as self-employed is considered as self-employed for CalFresh Program.

Self-Employment

Not Self-Employment

Individuals who take care of children (non-CalFresh HH members) or the elderly (non-CalFresh HH members), working in their own homes or someone else’s home and receive payment directly from the individuals who they provide care for.

A care provider who works in a facility owned and operated by another individual or business;

Home care providers for whom FICA taxes are paid by the individuals providing the care (e.g., In-Home Supportive Service or IHSS providers).

Housekeepers who solicit their services and typically work for a variety of private individuals or businesses.

A housekeeper who is employed by:

·         Hotels;

·         Motels;

·         Maid services; or

·         Institutions.

Salespersons who purchase products for resale (e.g., Mary Kay, Avon, Amway, etc.) or materials for the manufacturing of products for sale, such as a crafter.

Salespersons employed by businesses, such as department stores or automobile dealerships.

Individuals such as day laborers, who do odd jobs on an irregular basis, and incur costs, such as purchasing tools or materials to produce self-employment income.

Individuals employed by temporary agencies or another party regularly and are paid “under the table.”

Day laborers who do odd jobs on an irregular basis and receive a check with a deduction to perform the labor, but do not incur any costs to produce this income.

Individuals who use his/her tools or materials for recycling (such as using their own plastic bags to collect cans and a pick-up truck to transport).

Individuals who earn money by recycling but do not claim as self-employed on their income tax return.

Individuals who earn money by panhandling (if the amount could be reasonably anticipated with certainty for the certification period).

N/A

Gig contractors such as Uber, Lyft, PostMates, DoorDash, drivers, etc.

N/A

Option #1 (Standard Deduction)

Option #2 (Actual Deduction)

Deduct 40% from the HH’s gross self-employment income.  The remaining balance will be used as earned income for budgeting purposes (40% deduction may be allowed even when the participant has claimed no self-employment expenses but is determined or claims to be self-employed and files taxes as self-employed).  The standard deduction is intended to cover the costs of producing self-employment income.  Verification is not required to allow the 40% deduction.

Gross self-employment income minus the allowable expenses.  The remaining balance will be used as earned income in the CalFresh budget.  Verification is required when the HH chooses the actual business expenses as a deduction.

Term

Description

Net Gross Self-Employment Income

It is the total profit earned from self-employment by offsetting the business expenses against the gross income from self-employment business.

Roomer

Roomers are individuals to whom a HH provides lodging only for compensation.

Boarder

Boarders are individuals or groups residing with a CalFresh HH and paying reasonable compensation to the HH for lodging and meals.

Rental Property

Rental property is property owned by the CalFresh HH in which the HH member(s) does not reside in.

Capital Gain

The proceeds obtained from the sale of capital goods or equipment.

Corporation

A privately held company that has a limited number of shareholders.  The corporation is responsible for its debts and obligations.

Gig Contractor

An individual who earns income working as an independent contractor whose work is coordinated by a third-party.

Gigs

Short-term jobs coordinated in conjunction with an online or application-based tool provided by a third-party.

Allowable Expenses

1)    Costs of labor;

2)    Stocks/Inventory/Raw Materials;

3)    Tools and equipment;

4)    Work-related clothing;

5)    Seed and fertilizer for farming;

6)    The actual cost of mileage for business usage of selling, delivering orders, attending meetings, etc. (verifiable by receipts or the HH’s reasonable determination of a cost per mile);

7)    Business-related vehicle and transportation costs (such as maintenance, mileage spent- except transportations to and from work- tokens, tolls, gasoline, etc.);

8)    Business interest, insurance, taxes;

9)    Payments on the principal and interest of the purchase price of income-producing real estate and capital assets, equipment, machinery, and other durable goods;

10) Insurance premiums on the income-producing property;

11) Advertising expenses;

12) Special permits, licenses, fees;

13) Postage;

14) Telephone expenses;

15) Utility fee for the job site;

16) Bookkeeping and payroll expenses;

17) Employee wages and taxes;

18) Taxes on income-producing property, business profit taxes, and other mandatory business-related taxes;

19) Space/booth rentals, including the percentage of costs for portions of HH residence used for self-employment; and

20) In the gig-economy, the actual allowable cost may include but is not limited to, commissions, application fees, gasoline, car washes, toll fees, uniforms, and cell phone costs.

Non-Allowable Expenses

1)    Depreciation;

2)    Federal, State, and local income taxes;

3)    Transportation expense related to commuting to and from work site;

4)    Money set aside for retirement purpose;

5)    Personal business and entertainment purposes;

6)    Personal transportation;

7)    Net loss from previous periods;

8)    Home-based self-employment expenses where living, and business expenses are shared but undefined (for example, a HH has an electric bill used for both personal and business uses); and

Note:  If part of the expense is for personal use, the HH must identify the percentage used for the self-employment business.  Only the portion used for the business is allowed as a deduction.

9)    Any amount that exceeds the payment a HH receives from a boarder for lodging and meals.

Requirement

Limit/Condition

Capital Gain

Capital gain is calculated by subtracting the purchase price from the sale price and added to any amounts depreciated.

For self-employment, the capital gain amounts that the HH anticipates in receiving during the months the income is being averaged is counted.

If the capital gain amounts are obtained from the federal income tax forms, the entire proceeds of the sale must be counted, even if only 50% of the proceeds are taxed for federal income tax purposes.  The total amount of the capital gain is counted in full as income for CalFresh purpose.

Corporation

The income and resources of a corporation belong to the corporation, and therefore, an owner who works and receives a salary from the corporation is not a self-employed person.  He/she is an employee of the corporation.

For CalFresh, salary received by a shareholder of a corporation is counted as earned income, and stock dividends as unearned income.  The value of the stock is excluded when the stock is essential to employment but is counted as a resource if the stock is not essential to employment.

Averaging Self-Employment Income

Self-employment income is averaged over the period the income it is intended to cover (except for migrant or seasonal farmworker HHs). 

To calculate the annual self-employment income, the HH’s most current federal or state income tax return is used.  If a tax return is not available, then the HH must provide records with an accurate and reliable summary of their income and expenses. 

Two factors are used in calculating self-employment income for CalFresh:

1.    Income received in the past year; and

2.    Income that can be anticipated for the certification period.

The HH must provide verification of the income change if it has experienced a substantial increase or decrease in self-employment business income that was previously averaged for the current certification period.

Self-Employment Income Received Less Often Than Monthly

At the time of application, the income and expenses from self-employment must be verified for either the last year or the last period during which income was earned and was intended to cover either a year or part of a year.

HHs by contract or self-employment who earn their annual income in a period shorter than one year will have that income averaged over the certification period (prorated over the period the income is intended to cover), provided the income is not received on an hourly or piecework basis.  The annualized monthly income figure is used as the monthly income in the CalFresh budget.

HHs with this type of income may include (but not limited to):

·         School employees;

·         Sharecroppers;

·         Farmers (excluding migrant or seasonal farmworkers); and

·         Other self-employed HHs.

Business in Existence for Less Than a Year

If a HH’s self-employment business has been in existence for less than a year, the income is to be averaged over the period the business has been in active operation.  The annualized monthly income amount is used as the monthly gross income in the CalFresh budget.

Rental Property Income

Rental property is a property owned by the CalFresh HH, in which the HH does not reside in.  Ownership of rental property is considered a self-employment enterprise.  Net rental income is income the HH receives from renting the property and it is:

a)   Located on the same parcel of land (separate dwelling duplex, triplex, etc.); or

b)   Other real property located on a separate parcel of land.

            Note:  Renting a room in one's home or owning a duplex             and living in one of the two units and renting the             other does not constitute as a "rental" property.

If the HH is actively engaged in the management of the property for at least an average of 20 hours per week, the net income, after self-employment deductions, is considered earned income (and eligible for the 20% earned income deduction).  If the HH works less than 20 hours per week managing the property, the income is considered unearned income (and is not eligible for the 20% earned income deduction).

The table below shows the treatment of income based on the time of active management of the property:

The HH has the option of choosing the actual cost of producing self-employment income, or a standard deduction of 40% of the gross earned income.  The HH must also be informed that they may change their deduction method at Re-Evaluation or every six months, whichever occurs first.

When Rental Property Income is Verified

When there is a roomer, boarder, or net rental income situation, all income and self-employment related expenses are verified at:

a)   Initial Application;

b)   SAR 7, when changes occur; and

c)   Re-Evaluation.

Note:  The CalFresh HH is not required to provide verification again unless the income and/or business expense amounts change.

Roomer Income

Roomers are individuals to whom a HH furnishes lodging, but not meals, for compensation.  Roomer income is income received by a CalFresh HH for renting a room in their home to another individual or HH. 

This is self-employment income, and the HH has the option of choosing either the actual deduction or standard deduction of 40% of gross earned income as an expense.

Roomer income has the following conditions:

a)   Applicable when the HH is the owner of the property or acts as a landlord by making decisions regarding the other individual’s living arrangement, such as the amount of rent the other individual pays;

b)   Not applicable for non-owner landlord HH (This is shared housing); and

c)   Not considered as net rental income.

Note:  In a shared housing situation where a HH receives a rent payment from their roommate which is more than the actual rent, the excess income (amount above shelter cost) is treated as unearned income and the HH’s rent deduction is not allowed.

Boarder Income

Boarders are individuals or groups of individuals residing with a HH (non-commercial) and paying reasonable compensation to the HH for lodging and meals.

Boarder income (except foster care payment) is income received for renting a room and providing meals to another individual or HH.  This is considered self-employment income.

The following conditions apply to a boarder income situation:

a.    A boarder is not eligible as a separate HH but may be included as a member of the HH at the HH’s request;

b.    An individual paying less than reasonable compensation must be included in the HH, regardless of the HH’s request;

c.    The CalFresh HH is not necessarily the owner of the property; or

d.    A HH cannot have boarder-arrangement expenses exceeding boarder income.

The income from boarders may also include contributions to the HH’s shelter expense. However, shelter expenses paid directly by boarders to any individual outside of the CalFresh HH (such as landlord or utility company) is not counted as income to the HH.

The following chart describes what is considered as a “reasonable compensation” for lodging and meals made by a boarder to the CalFresh HH:

1.   Cost of Doing Business

After determining the income received from the boarders, the portion of the boarder payment that is the cost of doing business must be excluded.

The cost of doing business is equal to any of the following procedures, provided that the amount allowed as the cost of doing business does not exceed the payment the HH receives from the boarder for lodging and meals:

a.    An amount which equals the maximum CalFresh benefit allotment for the appropriate number of boarders; or

b.    The actual verifiable cost of providing lodging and meals, if the actual cost exceeds the maximum CalFresh allotment for the appropriate number of boarders.

If the actual costs are used, then only the separate and identifiable costs of providing lodging and meals to boarders are excluded.

Note:   Payment for meals only is to be treated as income to the extent the payment exceeds the actual cost.

2.   Deductible Expenses

The income from self-employment minus the business expense is to be added to other earned income and the earned income deduction must be applied to the total.

Shelter expenses the CalFresh HH incurs, even if the boarder contributes part of the expense to the HH, is to be calculated to determine if the HH may receive a shelter deduction.

However, the shelter expenses will not include any shelter

expenses paid directly by the boarder to a third-party.

3.   Foster Care Payments

Foster children placed in the home of relatives or other individuals or families are to be considered as boarders.  The payments received by a foster care boarder must not be considered income to the CalFresh HH.

However, if HH boarder chooses to have the foster care boarders participate in the CalFresh Program, then the foster care payments received by the HH are to be considered as unearned income.

Gig Income

Gig income participants must provide verification of the gross amount of their self-employment earnings.  These earnings are subject to the self-employment deduction.  For the purposes of eligibility evaluation, all Gig Income is to be considered, evaluated, and processed as self-employment income.

Participants can verify their income in several ways, as long as the gross income is verified.  Individuals working in the gig-economy often receive payment via direct deposit.  The total payment amount may not reflect the gross income amount earned before deductions, including various fees charged by the gig contractor.  If the individual is working for more than one gig contractor, income verification must be provided for each gig contractor.

Reporting Self-Employment Income on SAR 7

SAR HHs who receive self-employment income monthly must report the actual gross amount for the Data Month on the SAR 7.

A CalFresh HH whose self-employment income was determined based on the prior full year’s basis will be budgeted with the same amount without verification unless the HH reports substantial changes in business income on the SAR 7.

Verification is required for any report of a substantial change in business income increase or decreases, such as bankruptcy or crop failure.  In this situation, the tax return may not provide a good projection of income. Therefore, the county agency must work with the CalFresh HH to obtain the best estimate of future anticipated income.