Tenn. Comp. R. & Regs. 1240-01-04-.24 - TREATMENT OF INCOME FROM SELF-EMPLOYMENT

When the HH/AG includes a person(s) who receives income from self-employment, instructions in the following sections should be used to arrive at the monthly amount of gross profit which is used to calculate countable income. These sections shall also deal with the determination of gross profit from self-employment, i.e., the deductions and exclusions that are applicable only to income from self-employment.

(1) Determining Self-Employment Income.

(a) Situations for Averaging Income - Food Stamps.

1. When Income Is For A Year. Self-employment income which represents an annual support shall be annualized over a 12-month period, even if the income is received in only a short period of time. If self-employment income is intended to support the person on an annual basis, this self-employment income shall be annualized even if the HH receives income from other sources in addition to self-employment. If self-employment income is received once annually, the income would be averaged over a 12-month period beginning with the month the income is received. If self-employment income is received more often than once a year, the 12-month period should begin in the month the latest income was received. If a person is under contract, the 12-month period should begin the first month the person receives payment under the contract. If the averaged amount does not accurately reflect the household's actual circumstances because of a substantial increases or decreases in business, the income determination will be based on anticipated earnings.

2. When Self-Employment Income Is Received Monthly. Self-employment income which is received on a monthly basis but which represents a HH's annual support shall normally be averaged over a 12-month period. If the averaged amount does not accurately reflect the household's actual circumstances because the HH has experienced a substantial increase or decrease in business, self-employment income shall be calculated based on anticipated earnings.

3. When Self-Employment Income Is Only Part of Total Income. Self-employment income which is intended to meet the HH's needs for only part of the year shall be averaged over the period of time the income is intended to cover.

4. Cases of New Businesses. If a household's self-employment enterprise has been in existence for less than a year, the income from that self-employment enterprise shall be averaged over the period of time the business has been in operation and the monthly amount projected for the coming year. If the business has been in operation for such a short time that there is insufficient information to make a reasonable projection, the household may be certified for food stamps for less than a year until the business has been in operation long enough to base a longer projection.

(b) Determining Self-Employment Income - AFDC.

1. Annual Income. Income which is received annually, and/or which is an integral part of annual income, will be totaled and prorated over 12 months, even if the income is received only once or over a period of time shorter than 12 months. Such income is usually derived from farming but may also apply to other self-employment enterprises. Annual income will be prorated over 12 months even if a person has income from sources other than self-employment. Income received once annually will be prorated over 12 months beginning with the month the income is received. Income which represents annual income but which is received periodically during a year will be totaled and averaged over 12 months. This average figure will be used to project future income (if all other factors remain relatively constant). If a self-employed person is under contract, the 12-month period begins the first month the person receives payment under the contract.

2. Income From Migrant Labor, Seasonal Work. An estimated average monthly income from migrant labor, seasonal farm work and other seasonal employment will be considered during the months it is received.

3. Monthly Self-Employment Income. When self-employment income is received monthly, the average monthly income will be estimated based on past income and substantial changes in circumstances which have occurred, such as an increase or decrease in business.

4. Self-Employment As Part of Total Income. Self-employment income which is obtained only for a specific period of time will be averaged over the months it is received.

5. Income From A New Business. When a self-employment enterprise has been in operation less than a year, the AFDC grant payment will be based on current income and a change will be made at the time a client reports income on which a more reasonable projection can be made, or when a pattern of average income is discovered.

(2) Special Income Consideration.

(a) Rental Property.

1. Food Stamps Only. Income derived from rental property is considered earned income for the 18% earned income deduction/work expense allowance. Income from rental property always has the cost of doing business deducted.

2. AFDC Only. Income derived from rental property is considered as earned income if the individual(s) is actively engaged in producing such income. The amount of time the individual spends in producing such income is not a criterion for determining whether or not the income is earned or unearned. To be considered earned income the individual must bear some responsibility in earning the income. This responsibility may include managerial activities. However, if the individual carries no specific responsibility in earning the income, such as where rental properties are in the hands of rental agencies and the check is forwarded to the individual or where an individual rents farm land to others and receives a money payment, the income would not be classified as earned income. The costs of doing business is an allowable deduction regardless of whether the income is earned or unearned.

(b) Capital Gains Are Income. The proceeds from the sale of capital goods or equipment are calculated in the same manner as a capital gain for federal income tax purposes. Even if only 50% of the proceeds from the sale of capital goods or equipment is taxed for federal income tax purposes, the worker shall count the full amount of the capital gain as income.

(c) Reserved for future use.

(3) Costs of Producing Self-Employment Income.

(a) When a member of the HH receives income from self-employment, he/she shall be required to keep a record of expenses incurred in the production of this income.

(b) Expenses.

1. Allowable costs of producing self-employment income include, but are not limited to:

(i) Identifiable costs of labor (salaries, employers share of SS, insurance, etc.)

(ii) Stock, raw materials, seed and fertilizer, feed for livestock

(iii) Rent and cost of building maintenance

(iv) Business telephone costs

(v) Costs of operating a motor vehicle when required in connection with the operation of the business.

(vi) Interest paid to purchase income producing property.

(vii) Insurance premiums and taxes paid on income producing property.

(viii) Costs of feed for work stock.

(ix) Costs of meals and equipment for children for whom day care is provided in the A/R's home.

2. Unallowable Deductions. The following are not considered as costs of producing self-employment income, and shall not be deducted from the household's self-employment income:

(i) Payments on the principal of the purchase price of income producing real estate and capital assets, equipment, machinery and other durable goods;

(ii) Net losses from previous periods;

(iii) Federal, state, and local income taxes, money set aside for retirement purposes, and other work-related personal expenses (such as transportation to and from work). These expenses are accounted for by the 18% earned income deduction in food stamps and the flat work expense allowance in AFDC;

(iv) Costs of producing home produce intended for family consumption;

(v) Family living expenses;

(vi) Depreciation.

(4) Determining Monthly Income When Averaged - Food Stamps/AFDC. For the period of time over which self-employment is determined, add all gross self-employment income (including capital gains), exclude the costs of producing the self-employment income, and divide the self-employment income by the number of months over when the income will be averaged. If the cost of producing self-employment income exceeds the income derived from self-employment as a farmer, such losses shall be offset against any other countable income in the household. For purposes of this provision, to be considered a self-employed farmer, the farmer must receive or anticipate receiving annual gross proceeds of $1,000 or more from the farming enterprise.

(5) Determining Monthly Income When Anticipated - Food Stamps/AFDC. For those HH/AG's whose self-employment income is not averaged but is instead calculated on an anticipated basis, add any capital gains the household anticipates it will receive in the next 12 months, starting with the date the application is filed, and divide this amount by 12. This amount shall be used in successive certification periods/months during the next 12 months except that a new average monthly amount shall be calculated over this 12-month period if the anticipated amount of capital gains changes. The anticipated monthly amount of capital gains shall be added to the anticipated monthly self-employment income, and the cost of producing the self-employment income will be subtracted. Except for depreciation, the cost of producing the self-employment income shall be calculated by anticipating the monthly allowable costs of producing the self-employment income. If the cost of producing self-employment income exceeds the income derived from self-employment as a farmer, such losses shall be offset against any other countable income in the household. For purposes of this provision, to be considered a self-employed farmer, the farmer must receive or anticipate receiving annual gross proceeds of $1,000 or more from the farming enterprises.

(6) Household/Aid Groups with Boarders - Food Stamps/AFDC.

(a) HH/AG's that take in boarders or that operate commercial boarding houses are considered self-employed. Identifiable expenses are allowed as a cost of doing business as in any self-employment enterprise.

(b) Determining Income for Household.

1. Reserved for future use.

2. Reserved for future use.

3. Deductible Expense - Food Stamp Only. The net income from self-employment is added to other earned income and the 18% earned income deduction is applied to the total.

4. Food Stamps Only. Shelter costs the household actually incurs, even if the boarder contributed to the household for part of the household's shelter expenses, is computed to determine if the household will receive a shelter deduction. However, the shelter costs shall not include any shelter expenses directly paid by the boarder to a third party, such as the landlord or utility company.

Notes

Tenn. Comp. R. & Regs. 1240-01-04-.24

Original rule filed August 15, 1980; effective September 29, 1980. Repeal and new rule filed December 10, 1981; effective January 25, 1982. Amendment filed August 17, 1982; effective September 16, 1982. Amendment filed August 3, 1984; effective November 13, 1984. Amendment filed April 15, 1986; effective July 14, 1986. Amendment filed September 29, 1986; effective December 29, 1986.

Authority: T.C.A. §§ 14-8-106, 14-27-104; 7 CFR 273.1 and 273.11; 45 CFR 233.50, 45 CFR 233.20; PL 97-35 and PL 99-198.