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69. How is self-employment income counted?

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SNAP Advocacy Guide

By

Massachusetts Law Reform Institute

Reviewed

January 2024

Text

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 have your own business or you provide services as a contractor or sub-contractor (such as childcare, carpentry, IT, plumbing, taxi services, or snow plowing). Most “gig economy” workers – including Uber, Lyft, TaskRabbit and Uber Eats -- are also self-employed as “independent contractors.”

Self-employed workers often underreport their costs of doing business. Identifying all your business expenses can make a big difference in both qualifying you for SNAP if your pre-tax net income is below 200% FPL, as well as lowering your countable net income to boost your SNAP benefits.

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Examples of self-employment business expenses

use of your own car, or leasing a car (for example as a driver for Uber or Lyft) and all the costs associated with running that car and giving rides (insurance, excise taxes, gas, repairs, your cell phone, etc.)
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, repair and replacement of equipment (such as a taxi, tractor, boat, or 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 who work for you
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
legal and accounting fees, licenses (such as a day care license) and permits to operate the business
telephone and internet expenses, advertisement costs, computers, postage, paper and other business supplies.

See 106 C.M.R. § 365.940. If you verify these expenses, DTA should allow them as part of the costs of doing business in calculating your countable gross income before the 20% earned income deduction.

Example

Jason is an Uber driver. He pays $500/month to lease the car plus insurance, gas and cell phone service to get customers and report rides. These are pre-tax deductible expenses.

Example

Karla sells cosmetics from her home, buying the product directly from the manufacturer. She can deduct from her gross income the cost of the cosmetics as well as costs involved in reaching customers (phone, mailing costs, website, advertising).

Example

Sarah provides day care in her apartment. 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 for 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 benefits¹. However, you cannot claim net losses on your business. And you cannot claim the money you set aside for income tax or retirement funds (these expenses are considered part of the 20% earnings disregard)².

Rental income is treated as unearned income unless you spend least 20 hours a week managing the property³^,⁴. See treating rental income.

Averaging self-employment income

Self-employment is usually averaged over a 12-month period unless the income is intended for a shorter period (for example, summer income). Tell DTA if you wish to have the income cover a shorter period of time because of anticipated changes⁵^,⁶.

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 employment⁷.

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). She does not expect her pre- tax net income to change this year. DTA should average this $10,000 over 12 months to get a monthly figure of $833/month. DTA then subtracts the 20% disregard from the $833/month, which reduces her countable earned income to $667 per month

Verifying 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, you can verify your income based on the best information available. That may include as a self-declaration of your income⁸.

For example, DTA should accept a statement explaining profits and losses (business expenses) if you do not have a recent Schedule C or the Schedule C reflects out of date income. You can sign and date this statement and are not required to submit additional proofs unless DTA has questions about the information provided.

Expand All

Examples of self-employment business expenses

use of your own car, or leasing a car (for example as a driver for Uber or Lyft) and all the costs associated with running that car and giving rides (insurance, excise taxes, gas, repairs, your cell phone, etc.)
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, repair and replacement of equipment (such as a taxi, tractor, boat, or 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 who work for you
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
legal and accounting fees, licenses (such as a day care license) and permits to operate the business
telephone and internet expenses, advertisement costs, computers, postage, paper and other business supplies.

See 106 C.M.R. § 365.940. If you verify these expenses, DTA should allow them as part of the costs of doing business in calculating your countable gross income before the 20% earned income deduction.

Example

Jason is an Uber driver. He pays $500/month to lease the car plus insurance, gas and cell phone service to get customers and report rides. These are pre-tax deductible expenses.

Example

Karla sells cosmetics from her home, buying the product directly from the manufacturer. She can deduct from her gross income the cost of the cosmetics as well as costs involved in reaching customers (phone, mailing costs, website, advertising).

Example

Sarah provides day care in her apartment. 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 for 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 benefits¹. However, you cannot claim net losses on your business. And you cannot claim the money you set aside for income tax or retirement funds (these expenses are considered part of the 20% earnings disregard)².

Rental income is treated as unearned income unless you spend least 20 hours a week managing the property³^,⁴. See treating rental income.

Averaging self-employment income

Self-employment is usually averaged over a 12-month period unless the income is intended for a shorter period (for example, summer income). Tell DTA if you wish to have the income cover a shorter period of time because of anticipated changes⁵^,⁶.

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 employment⁷.

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). She does not expect her pre- tax net income to change this year. DTA should average this $10,000 over 12 months to get a monthly figure of $833/month. DTA then subtracts the 20% disregard from the $833/month, which reduces her countable earned income to $667 per month

Verifying 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, you can verify your income based on the best information available. That may include as a self-declaration of your income⁸.

For example, DTA should accept a statement explaining profits and losses (business expenses) if you do not have a recent Schedule C or the Schedule C reflects out of date income. You can sign and date this statement and are not required to submit additional proofs unless DTA has questions about the information provided.

DTA Online Guide

Endnotes

1:

106 C.M.R. §365.030(B)

2:

106 C.M.R. §365.950

3:

106 C.M.R. §§363.220(B)(6)

4:

365.930(A)

5:

106 C.M.R. §§364.340(B)