Self-employment income is calculated by subtracting the cost of doing business from the gross income or “profit” from the business, but before subtracting FICA or income taxes.
You may be self-employed if you started your own business, or you provide services as contractor or sub-contractor such as child care, carpentry, IT, plumbing, taxi services, snow plowing. Self-employed persons often underreport the costs of doing business. Identifying all your business expenses can make a big difference in lowering your countable income and boosting your SNAP benefits.
What are examples of self-employment business expenses?
- rent and utilities you pay for your business space (including a portion of the costs of your home if you have an at-home business);
- rental of equipment (such as a taxi, tractor, boat, beauty salon equipment);
- costs of supplies, such as food, diapers or toys provided in a day care setting, housekeeping equipment, products for a beauty salon, etc.;
- wages you pay to other employees;
- stock or inventory;
- raw materials used to make a product, including seed, fertilizer, supplies for crafts or furniture building;
- mortgage (including the principal and interest) and taxes paid on income-producing property;
- advertisement costs;
- repairs and replacement of equipment;
- legal and accounting fees, licenses (such as a day care license) and permits to operate the business;
- telephone and internet expenses, computers, postage, paper and other business supplies.
See 106 C.M.R. § 365.940. If these expenses are verified, DTA will allow them as part of the costs of doing business in calculating your countable gross income before the 20% earned income deduction.
Example: June sells cosmetics from her apartment. She buys the product from the manufacturer and then sells it to her customers. She can deduct the amount that she paid for the cosmetics and her costs of reaching customers (phone, mailing costs, website) from any income that she earns from selling the cosmetics.
Example: Sarah provides day care in her own home. Because she has young children inside most of the day, she pays more for oil and electricity to heat her home than she would otherwise use. Sarah also buys food for snacks and diapers, and pays a day care license. A portion of her heat/utility costs can be claimed as a business expense, as well as the cost of snacks, license and other supplies for her business.
You can also claim business expenses incurred setting up your business before you applied for SNAP benefits. 106 C.M.R. § 365.030(B). However, you cannot claim net losses on your business. An you cannot claim the money you set aside for income tax or retirement funds (these expenses are considered part of the 20% earnings disregard). 106 C.M.R. § 365.950.
Rental income is treated as unearned income unless you spend least 20 hours a week managing the property. 106 C.M.R. §§ 363.220(B)(5), and 365.930(A). See How is rental income counted? on how to calculate net rental income.
How does DTA averaging self-employment income?
Self-employment is usually averaged over a 12-month period unless the income is intended for a shorter period (e.g., summer income). Tell your SNAP worker you wish to have it cover a shorter period of time because of anticipated changes. 106 C.M.R. §§ 364.340(B), 365.960.
After DTA determines your pre-tax “gross” monthly self-employment income after pre-tax business expenses, DTA deducts 20% of that gross income as an earnings disregard—just like if you had regular wages or employment. 106 C.M.R.§ 364.400(B).
Example: Millie netted $10,000 last year from her taxi service after her business expenses (insurance, gas, taxi medallion, maintenance, monthly loan repayment on vehicle). Millie does not expect this pre-tax net income to change this year. DTA will average this $10,000 over 12 months to get a monthly figure of $833 per month “gross” income. DTA then subtracts 20% earnings disregard from this gross figure, which reduces her earned income to $667 per month (and then other deductions apply).
How do I verify and report self-employment income?
DTA may ask for a copy of your “Schedule C” tax record or a statement from an accountant. If you have not made enough to file taxes or done a recent quarterly tax filing, or do not have an accountant, there are other options. If the usual verifications are not available, you can verify your income “based on the best information available.” That includes as a self-declaration of your income. 106 C.M.R. § 363.210(G).
If your current self-employment income is (less or more) than what you made during the most recent period you filed taxes, you have the right to submit more recent information on your business income and expenses.
Self-employed households should be put on simplified reporting when approved for SNAP and need to report income changes that boost them above the gross income limit for the household size.
DTA Policy Guidance
- If the most recent tax return is not available, or does not reflect current or accurate picture of anticipated income, other proof of business income and expenses is acceptable. Transitions Hotline Q&A (Nov. 2010).