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Counting Client Assets

Identifying and Budgeting Self-Employment Income

Effective 3/9/15

The purpose of this worker guide is to help caseload-carrying staff identify self-employment, determine allowable costs and budget income correctly.

1. Overview

Self-employment is a category of earned income. Because most programs treat self-employment differently than wages, all earned income must be identified either as self-employment or as earnings.

2. Identifying Self-Employment

Except as provided in 461-145-0250(1), an individual is self-employed for the purposes of this policy if he or she:

  • Is considered an independent contractor by the business that employs him or her; or
  • Meets at least four of the following criteria:
 
    • Is engaged in an enterprise for the purpose of producing income. For example, the person operates under their own business name, advertises or otherwise solicits for business.
    • Is responsible for obtaining or providing a service or product by retaining control over the work or services offered. For example, establishes their own hours, territory and methods of work; determines what services they will offer.
 
    • Has principal responsibility for the success or failure of the business operation by assuming the necessary business expenses and profit or loss risks connected with the operation of the business. This could mean providing the equipment, supplies and materials needed to do a job or to produce the income; risk of loss. This is principal responsibility for their own business.  If, for example, the client is a freelance tattoo artist, DHS would consider their own potential for gain or loss, not that of the tattoo parlors they work in.
 
    • Is not required to complete an IRS W-4 form for an employer or does not have federal income tax or FICA payments withheld from a pay check.
    • Is not covered under an employer’s liability insurance or workers’ compensation. Many definitions of self-employment hold this as an absolute test.
  • Note: For SNAP, incorporated businesses are not self-employment. Refer to CCA policy on Corporations.
 

Home care providers paid by APD are not self-employed.

Child care providers paid by DPU, adult foster care providers paid by APD, realty agents and clients who sell plasma, redeem beverage containers, pick mushrooms for sale or similar enterprises, are considered to be self-employed.

If a financial group member has income producing property and actively manages the property 20 hours or more per week, the income is treated in the same manner as self-employment income. If a financial group member does not actively manage the property 20 hours or more per week, the income is counted as unearned income with exclusions allowed only in accordance with 461-145-0920.

In most cases, determining whether an individual earns money from an employer or through their own business is relatively simple. For example, sales associates working the cash registers at Target are undoubtedly employees of the corporation. Conversely, a person who works as a gardener, advertises his work, sets his own schedule and prices, and is solely responsible for all business decisions is clearly self-employed.

However, many working individuals have a balance of responsibilities and freedoms that fall between these two extremes. The next section of this worker guide will walk through several case situations, using the six tests tied to the rule above to answer the question: is this person self-employed?

3. Examples of Client Work Situations

(1) A married couple has incorporated their tile installation business. They select the stock, set the process, hire their own employees, and determine their own business methods. They take a salary from their business.

(2) A glassblower makes beads, ornaments and other decorative items on demand for a local shop owner. The owner sets the prices and puts in orders according to current need. The glassblower purchases his own supplies. He does business only with one shop. He does not have tax withholding through the business and is not covered by their employee worker comp/liability policy because they consider him an independent contractor.

(3) A woman works for a tax accounting business every January through April. She travels among three of the business's offices as scheduled, and has a desk and computer set up at each location for her use. She takes as many clients as she can each day, and is paid commission of 50% of what her clients are charged. The business has her fill out a W-4 and covers her under their liability policy. She tells us she is self-employed because she is not contractually obligated to work only for them.

(4) An exotic dancer pays weekly rental for her "station" in the club. She is paid no salary, but keeps all her tips. The club provides a DJ and expects her to work a minimum of 20 hours per week. She is responsible for providing her own outfits.

 

Tile Co.

Glassblower

Accountant

Dancer

Work=occupation

Yes

 

Yes

Yes

Control over services

Yes

 

No

Yes

Resp. success/failure

Yes

 

No

Yes

No W-4 form

Yes

 

No

No

No Workers Comp

Yes

 

No

No

Self-employed?

Yes*

Yes

No

Yes

Reasons for these decisions:

Tile company. The couple owns the company and have total control. *They cannot be considered self-employed for FS because the company is incorporated.

Glassblower. The glassblower is considered an independent contractor, so there is no need to go through the 5-criteria test.

Accountant. She is covered by the business liability policy, files a W-4, and is directed by the company. She is not self-employed.

Exotic dancer. The dancer is paid nothing by the club she works in; she merely pays a fee to be allowed to work there. The club is not her employer; they provide no income, no Workers Comp, no UC, no benefits. She is free to perform in multiple clubs. Although she has to work a minimum number of hours, she sets her own schedule.

4. Determining If An Occupation Is Self-Employment

Below are some examples of occupations that are usually challenging. For each of these, an example of a self-employed client vs. an employee is given, again using the test of meeting at least four out of the five criteria.

Ministers/Religious Leaders

(1) Minister A is selected by the local Methodist church to fill their vacancy. The church provides housing, a living stipend and insurance for the minister and his family, but no salary. The church reports his compensation and covers him with the liability policy. The church reports his compensation and covers him with the liability policy. The minister takes his other living expenses out of the love offerings (membership donations/pledges) made at the end of each service and for officiating at other ceremonies (e.g., weddings and funerals) as required.

Decision: He is not self-employed. He meets none of the tests.

(2) Minister B has started his own small church. It is not affiliated with or authorized by any existing religious organization. He has total control over how he presents his theology and over the content of his communication with parishioners. He is supported by donations, plus income from yard sales, bake sales, etc.

Decision: He is self-employed. The church and the person are one. He meets all five tests for self-employment.

Hairstylists

(3) Hairstylist A rents out a station in a local salon. Her station rental pays for the chair, her share of electricity, use of the salon towels, sinks, etc. She purchases all her own hair products, sets her own hours and prices, decides which services she will offer. She is not on the salon's payroll.

Decision: Because of the costs incurred, the lack of employee status through taxes and her freedom to make decisions, she is self-employed.

(4) Hairstylist B works at a chain salon. She is hired for a hourly rate, plus tips. Her hours, services offered and the cost of those services are set by the company. She files a W-4 and is covered by liability.

Decision: She is not self-employed.

Taxicab Drivers

(5) Cab driver A uses a car that the cab company provides. The company pays the insurance on the vehicle and he pays for gas and maintenance. His gross income is a percentage of his fares and is based on a sliding scale. He also receives tips, but they are separate from the fare percentage. He has chosen to work nights, he determines which fares he will accept and the geographic area he will serve. He uses a Schedule C for his taxes.

Decision: He is self-employed.

(6) Cab driver B works for a medi-cab company. She rents her cab and pays gas and maintenance. Her pay is a percentage of the fares, plus tips. She can only pick up fares given to her by dispatch. She does not control her territory or hours.

Decision: She is not self-employed.

Newspaper Carriers

(7) Newspaper carrier A picks up copies of the Oregonian each morning at 3:00. He puts each copy into a plastic bag before he delivers them to the subscribers. When the subscriber's monthly fee is due, the carrier encloses the bill with the newspaper. The subscribers will mail him the payments which average about $2,400 a month. He sends them to the Oregonian. He pays for gas, insurance and maintenance of his vehicle, cost of the papers, plastic bags and rubber bands. The Oregonian considers him an independent contractor but will reimburse him for gas. He uses a Schedule C for his taxes.

Decision: He is self-employed. His gross income is $2400.00.

(8) Newspaper carrier B works for the Healthy Food Weekly (HFW). He drives a car that the company provides. The company pays the insurance on the vehicle and reimburses him for gas. He delivers the weekly paper to a paper stand every Monday so that they can be available to readers each Tuesday morning. He is paid on a weekly basis on the number of deliveries he makes each week. HFW pays him $.75 for each delivery to the paper stand and his average weekly pay is $100. Federal and state income taxes are being deducted from his pay check. HFW also offers a health insurance policy for him at a reduced rate since he is not a full-time employee.

Decision: He is not self-employed. His income will be counted as EML.

5. Examples of Self-Employment Situations

6. Examples of Non-Self-Employed Jobs

7. Verification

Independent contractor status must be verified. Acceptable verification includes:

Income, including money from self-employment, must be verified for all programs. Acceptable proof of self-employment income includes:

The DHS 859B (Self-Employment Income) may be used to help collect information about costs related to producing self-employment income. The form cannot be accepted as verification of either income or costs for self-employed clients.

For SNAP, self-employed clients can be certified once without income verification. At the time of certification, explain to the client - in writing - that they must begin keeping income records. Use a Notice of Proof Needed for Self-Employment Income (DHS 858). If they reapply without income verification, they will be denied. Narrate the conversation and notice given.

Clients with marginal employment – such as homeless people – sometimes report very limited earnings from collecting and redeeming beverage containers, selling plasma, returning airport luggage carts for the deposit money, etc. In many cases, requiring them to provide written verification of self-employment earnings would be an unreasonable barrier to eligibility. To get an acceptable estimate of their income, ask the client to write and sign a statement about their typical monthly earnings. If the person is not sure about how much money they earn, ask:

Verify self-employment costs as follows:

 

8. Treatment of Self-Employment Income

For all programs:

The differences are in how allowable costs are treated.

SNAP. Self-employed clients who have no costs have their gross self-employment income coded as SEN. That income is given the same 20% deduction as all other earned income. Most self-employed clients do have allowable costs. Their income is coded as SEC and is given a 50% deduction before the 20% earned income deduction is applied.

GA(M), OSIP(M) and QMB. All allowable costs are deducted from self-employment income, earned income deductions are taken, then the adjusted income is compared to the adjusted income limit.

For OSIP(M)-EPD, allowable costs are taken from the client’s gross receipts, and the remainder is the client’s countable income. The countable income is coded on Oregon ACCESS/CMS under the ECE Need/Resource Code. The ECE amount will be combined by CMS with any unearned income (such as SSDI) to determine the client’s Participant Fee. To determine adjusted income for EPD eligibility, exclude allowable costs from the client’s gross receipts. The remainder is the client’s countable income. Then from earned income, deduct $20, $65 (if disabled) or $85 (if blind), and half the remainder.  Then deduct any applicable Employment and Independence Expenses (EIEs), Impairment-Related Work Expenses (IRWEs), or Blind Work Expenses (BWEs).  The remainder is adjusted income, and is coded on Oregon ACCESS/CMS under the EEI Need/Resource code. For more information about EPD financial eligibility, see OSIP WG-11.

  • Note: for information about self-employment costs, see CCA C.2.
 

 

9. Case Scenario

Amy Jefferson applies for medical and food benefits for herself. Amy is a hairstylist. She pays $460 per month for a space at The Hair Biz. Her rental pays for her share of utilities, exclusive use of her chair, access to a sink, a supply of towels, her share of the receptionist’s salary and use of the laundry facilities. Amy sets her own hours, usually putting in 30-35 hours per week. She determines which services to offer, sets her own prices and is solely responsible for collecting the income from her work. Amy is determined to be self-employed.

She provides a copy of the bookkeeping log that she is keeping for tax purposes. Amy’s budget month income of $1,750 closely matches her ongoing average of $1,800 per month. Her allowable costs for space rental and supplies total $670.

SNAP. Amy has allowable costs, so she is given the 50% self-employment income deduction. Because Amy was not self-employed last year, the worker anticipates her income at $1,800 per month, codes it as SEC and the computer deducts 50%.

OSIP(M) and QMB. Deduct all allowable costs from self-employment income before the countable income test. Amy’s budget month income of $1,750 minus her allowable costs of $670 leaves a total of $1,080 in countable income, which is over the countable income limit. Subtract $20 from this as she has no unearned income, leaving $1,060. Since she is disabled, subtract $65 and ½ from the rest of her earned income, leaving $497.50 in adjusted income. She is financially eligible for OSIPM and QMB.

 

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