• How self-employment income is calculated
• Deduction of business expenses

How self-employment income is calculated

Quarterly reporting (QR) households receiving self-employment income on a monthly basis will have their food stamp allotment calculated based on their reasonably anticipated self-employment and other income reported on their QR-7 reports. [MPP § 63-503.411(a)(QR).]

Quarterly reporting and change-reporting households, which receive self-employment income less often than monthly, will have their annual self-employment income averaged over a 12-month period. [MPP § 63-503.411(b)(QR).] This annualized income is used as the averaged income for the QR payment quarter. For example, a farmer who makes all of his or her money for the year selling crops after the harvest would have all of the money he or she gets added up and divided by 12. The resulting numbers would be the gross income for one month.

If the household has had its own business for less than a year, the income from that business will be averaged over the period of time that the business has been in operation, and the monthly amount will be projected over the certification period. [7 C.F.R. § 273.11(a)(1)(ii); MPP § 63-503.411(c)(QR).]  For QR households, the projected income over the certification period will be used in averaging income to calculate food stamp allotment during a QR payment quarter. [Id.]

But the food stamp office will not average self-employment income over a 12-month period if the income is not intended to support the household for the whole year. The income will only be averaged over the period of time the income is intended to cover. [7 C.F.R. § 273.11(a)(1)(i); MPP § 63-503.412(b).]  For example, if the household sells fresh apples during the summer but normally has other income during the fall, winter and spring, the food stamp office would only average the income from selling the apples over the summer months.

Usually the food stamp office will use actual self employment income and expenses to determine the averaged income and to predict how much income the household will have for the coming year or next QR payment quarter. [7 C.F.R. § 273.11(a)(1)(i); MPP § 63-503.412(a) and (c)(QR).]  But if the household has experienced a substantial increase or decrease in business income and can provide information that the averaged income will not be reflective of the household’s actual circumstances, the food stamp office will then calculate the household’s self-employment income based on anticipated earnings, rather than the prior income. [7 C.F.R. § 273.11(a)(1)(i); MPP § 63-503.412(a) and (c)(QR).]  For example, the food stamp office will not average the household’s income from farming last year to predict the income for this year if the household has lost part or all of the farm. In this case, the food stamp office will use anticipated income from farming.

Deduction of business expenses

In determining self-employment income that counts against the household’s food stamp allotment, the food stamp office will deduct the household’s business expenses. [7 C.F.R. § 273.11(a)(2)(i); MPP §§ 63-503.413, 63-503.415.]  The household can choose either the actual costs of producing self-employment income or a standard deduction of 40% of gross self-employment income. [7 C.F.R. § 273.11(b)(3); MPP § 63-503.413.]  The household can change the method of deduction at recertification or every six months, whichever occurs first. [Id.]

The actual deductible expenses include workers’ wages, goods for sales or in stock, raw materials, seed and fertilizer, insurance, interest on loans to buy the property needed for the business, taxes paid on the income-producing property, and payments on principal of the purchase price of income-producing property , capital assets, equipment, machinery and other durable goods. [7 C.F.R. § 273.11(b)(1); MPP § 63-503.413(a).]

Some actual costs cannot be deducted from the gross income. These include net losses from previous periods; federal, state, and local income taxes, money set aside for retirement, and other work-related personal expenses such as transportation to and from work, and depreciation of equipments and other business assets. [7 C.F.R. § 273.11(b)(2); MPP § 63-503.413(b).]  If the household gets at least $1,000 a year in gross income from farming or fishing, the household can also deduct farming or fishing losses from its other (non-farm or non-fishing) income. [7 C.F.R. § 273.11(a)(2)(ii); MPP § 63-503.415(d).]

The income that is left (after deducting the costs of doing business) is the household’s self-employment income. The food stamp office will treat this as earned income, like income from a job. [7 C.F.R. § 273.9(b)(1)(ii); MPP § 63-502.132.] This means that the household gets a 20 percent earned income deduction when the food stamp office calculates the household’s net monthly income and the monthly food stamp allotment. [7 C.F.R. § 273.9(d)(2); MPP § 63-502.32.] (See the sections about income limits and income deductions for related information.)