WAG 13-02-03-a: Budgeting Self-employment Income

PM 13-02-03-a

Budgeting Self-employment Income

Use the federal income tax return from the previous year to figure annual self-employment income.
1. Enter self-employment income on the appropriate AIS screen or Determination of Monthly Income From Self-Employment (Form 683C) if the federal income tax return is not available or does not provide enough information about business expenses.
2. Figure monthly income by dividing annual self-employment income by 12.
  NOTE: This calculation is automatically completed by AIS.
Use actual verified income and business expenses from the budget month when self-employment income is received monthly.
NOTE: Allow the client the option of choosing when an expense is claimed. The expense may not be claimed more than once.

Example: Mr. G is a self-employed painter. He had no earnings in February, but purchased a $75 supply of paint brushes. In March, he earned $500 and did not have any expenses for the month. Mr. G chooses to the claim the expense of $75 in March.
1. Use the client's records as proof of income and expenses, unless questionable. If the information provided by the client is questionable, request additional documentation.
  Example: Mr. P sends in his self-employment record with his Redetermination Application (Form 4765). Mr. P has recorded a monthly insurance payment of $700. The HSC contacts Mr. P about the $700 monthly payment. Mr. P explains that he is a cab driver and must carry additional insurance to cover his passengers. He provides verification of his insurance coverage. Mr. P is allowed the $700 monthly insurance expense.
  
  NOTE: A client is not required to use Self-Employment Record (Form 2790).
When the only source of self-employment is received weekly or every other week, convert to a monthly amount to budget, see PM 13-02-04. Convert an expense to a monthly amount when the expense is paid weekly or every other week, PM 13-02-04.
Example 1: Ms. J is self-employed in her home providing child care services. She reports receiving income of $200 each Friday and expenses of $25 per week. The total self-employment earnings budgeted is $860 ($200 x 4.3 = $860 see PM 13-02-04). Allow $107 as a deduction for expenses ($25 x 4.3 = $107).

Example 2: Mr. T has a lawn service business. He earns $155 per week mowing lawns. His self-employment records show a business expense of $15 per week for gas for his lawn mower and $25 for gas to travel in his vehicle to each work site. The total self-employment amount budgeted is $494 ($155 x 4.3 = $666 see PM 13-02-04) minus deductions ($40 x 4.3 = $172).
If income is received from more than one source and the frequency of pay is different from each source, add the actual income from all sources. Enter the income from all sources as one gross monthly amount.
Example: Mr. B delivers newspapers and receives income from three different sources. Mr. B is paid weekly from X. On 08/04, he received $50, 08/11 $50, 08/18 $50, and 08/25 $50. Y pays Mr. B every other week. He received $100 on 08/01, $100 08/15, and $100 08/29. Mr. B receives pay monthly from Z and on 08/29 he was paid $200. His expenses are $50 per month. The total self-employment amount budgeted is $650 ($700 - $50 = $650). Set a control to remove the extra periodic check.
When a person is self-employed and the payment frequency of the expenses varies, use actual expenses as a deduction.
Example: The FS unit consist of 7 people. Mr. R records his earnings as a cab driver at the end of each week as follows: 08/02 $400, 08/09 $450, 08/16 $525, 08/23 $575, and 08/30 $675. Mr. R has a monthly insurance payment of $610. He pays a tax lease and licensing fee on 08/07 $100 and 08/14 $100. He reports his weekly fuel cost as 08/02 $85, 08/07 $105, 08/14 $115, 08/21 $90, and 08/28 $125. The total self-employment earnings budgeted is $927 ($2,625 ÷ 5 x 4.3 see PM 13-02-04) minus actual expenses of $1,330.