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State of Wisconsin |
Release 24-02 |
7 CFR 273.11(a) and (b)
Self-employment income is earned directly from one's own business rather than as an employee with a specified salary from an employer. Self-employment income is reported to the IRS as farm, self-employment, rental, or royalty income. If it is not reported to the IRS, the IM worker must determine if it is self-employment income. All self-employment income is earned income, except royalty income and some rental income.
A business is operating if it is ready for business, even if there are no sales and no work is being performed. A seasonal business operates in the off season, unless there has been a significant change in circumstances (see Section 4.3.3.6 Part Year Income). A business isn't operating when it can't function in its specific purpose.
| Example 1 | A mechanic cannot work for four months because of an illness. They may claim the business was not operating for those months. |
Identify a self-employment business by the following criteria:
By Organization
It is organized in one of three ways:
A sole proprietorship is an unincorporated business owned by one person.
A partnership exists when two or more persons conduct business. Each contributes money, property, labor, or skills, and expects to share in the profits and losses. Partnerships are unincorporated.
An S corporation is a business that elects to pass corporate income, losses, and deductions through its shareholders. Shareholders report income and losses on their personal tax returns and are taxed at individual income tax rates.
By IRS Tax Forms
A self-employed person earning more than $400 annual net income must file an end-of-year federal tax return. Anyone who owes more than $400 in taxes at the end of the year must file quarterly estimates.
By Employee Status
A self-employed person earns income directly from their own business, and:
Does not have federal income tax and FICA payments withheld from a paycheck.
Does not complete a W-4 for an employer.
Is not covered by employer liability insurance or worker's compensation.
Is responsible for their own work schedule.
Examples of self-employment are:
| Example 2 | Pam baby sits for her cousin in her cousin’s home. This is considered regular employment. Pam’s cousin is her employer. |
| Example 3 | Linda provides childcare services in her own home for three neighborhood children. This is considered self-employment because Linda is her own employer. |
The IRS uses different tax rates for capital and ordinary gains from selling assets. However, include the entire gain or loss from IRS form 4797 as earned income for food units who have an ongoing self-employment business. When self-employment is terminated and the business is sold, the sale of property essential to self-employment is considered an asset and therefore excluded.
7 CFR 273.9(b)(1)(ii)
Rental income is earned if the owner actively manages the property an average of 20 or more hours per week. See Section 4.3.4.1 Unearned Income if the person manages the property less than 20 hours per week.
If the owner manages multiple properties that are considered part of a single business (single annual business tax form that covers all properties), they will need to spend a total of 80 or more hours per month across all their properties for the income to be counted as earned income.
If the owner’s properties are each considered separate businesses(separate annual business tax forms for each property), the owner would need to spend at least 80 hours per month at each property for the income received from that property to be counted as earned income.
| Example 5 | Baraka owns a own rental property business called Karibu Properties. Baraka also co-owns a business with a friend, Juma, called Sunview Estates. These are separate businesses that file their own, separate tax forms. Baraka spends 100 hours a month working at each business. The income Baraka receives from each business will be counted as earned income because Baraka is spending more than 80 hours per month managing each business. |
If someone receives rental income but does not actively manage the property 80 or more hours a month, the income is unearned. See SECTION 4.3.3.4 RENTAL INCOME if they manage the property for at least 80 hours per month.
If the owner has multiple properties, any income received from those properties will count as unearned income so long as the owner spends less than 80 hours per month in total managing the properties.
Average self-employment income represents a food unit’s yearly income over a 12-month period, even if the income is received within only a short period of time during those 12 months.
| Example 6 | A hot dog vendor works from April through October and uses the income for living expenses for the entire year. Average the income over a 12-month period. |
Average self-employment income that is intended to meet the food unit’s needs for only part of the year, over the period of time the income is intended to cover.
| Example 7 | A landscaper works from May through the end of August and supplements this income with other sources during the rest of the year. Average his self-employment income over a four-month period rather than a 12-month period. |
Calculate self-employment income based on anticipated earnings when:
Examples of a significant change in circumstances include, but are not limited to:
Changes are effective according to the normal prospective budgeting cycle. The date of an income change is the date the IM worker agrees a significant change occurred. The IM worker must judge whether the person's report was timely to decide any over or underpayment.
Self-employment income, by its very nature is somewhat uncertain. Use of SEIRFs and/or IRS forms to determine monthly average income takes this into consideration.
When a new self-employment business is reported or when a significant change in circumstance occurs and the past circumstances no longer represent the present, recalculate self-employment income:
Use the average until the person's next renewal or if a significant change in circumstances is reported between renewals.
| Example 8 |
Bonnie applies for FoodShare on April 5, 2016. She reports that she started self-employment in January 2016. The agency uses a SEIRF for January, February, and March to determine the prospective self-employment income estimate for Bonnie’s FoodShare certification period (April 2016 through March 2017). On Bonnie’s September SMRF, no change in self-employment income is reported and the IM worker continues to use the average determined at the time of application. |
| Example 9 | Ricardo is applying for FoodShare and Medicaid eligibility on February 5, 2016. He started his self-employment on December 15, 2015. To calculate his prospective self-employment income, he completes a SEIRF for December, January, and February including his actual and expected income and expenses for three months. The IM worker divides this total by three to determine an anticipated monthly average income amount. This amount is used until a change in self-employment is reported, or until Ricardo completes a new application or a renewal. |
| Example 10 |
Jenny is a FoodShare member who has been self-employed as a hairdresser since 2012. Jenny’s FoodShare certification period is December 2015 to November 2016. The IM worker previously used Jenny’s 2014 tax return to establish a monthly income amount. In April 2016, Jenny reports that she has been unable to work since breaking her arm on March 17. She is not sure when she’ll be able to return to work, but it will not be until at least June. This qualifies as a significant change in circumstances. The worker has Jenny complete a SEIRF for March 17 through March 31 (actual income since the change in circumstance occurred) and for April and May using the best estimate of income to establish her prospective self-employment income. The worker will use these three months to determine a prospective self-employment income estimate for the remainder of the certification period. Jenny does not need to submit any additional SEIRFs. |
Expenses Exceeding Income
When a food unit has more than one self-employment operation, the losses of one can offset the profits of another. Do not use losses from self-employment to offset other earned or unearned income.
Exception: Offset farm income losses with any other countable income only if the farmer received or anticipates receiving annual gross proceeds of $1,000 or more from the farm operation.
Shelter Expense
When a self-employed food unit claims the total shelter costs as a business expense, do not allow any shelter deduction. If the food unit claims a percentage of the shelter costs as a business expense, the remaining percentage is a shelter deduction.
If the percentage used for the business expense was not self-declared, use IRS form 8829 or the “Expenses for business use of your home” line from IRS form 1040 Schedule C to determine the amount of the home that was claimed as a business expense. Any remaining amount that was not counted as a business expense should be allowed as a shelter expense.
| Example 11 | Fred, a self-employed farmer, uses 50% of his property taxes as a business deduction. His yearly property taxes are $1,200. Allow $600 as a business expense. Use the remaining $600 as a household shelter deduction. Prorate the $600 over 12 months. |
Farm and Self-Employment Expenses - Utilities
A self-employed food unit is allowed the standard utility allowance (SUA), if eligible for it, regardless of the percentage of utility expense claimed on the taxes for business use of the home.
Self-employed Child Care Provider
A child care provider can deduct the cost of meals provided to the enrolled children from the income earned by the child care business. They may report the actual cost of the meals, or they may use the federal standard deductions. Tier 1 applies to food units with income at or below 185% of the FPL income guidelines. Tier 2 applies to all other households.
Rates effective from July 1, 2023 - June 30, 2024:
| Federal Standard Deductions | ||
| Meals |
Tier 1 |
Tier 2 |
| Breakfast |
$1.65 |
$.59 |
| Lunch or Supper |
$3.12 |
$1.88 |
| Supplement (snacks) |
$0.93 |
$0.25 |
Some specific expenses that are not allowed in the calculation of Self Employment Income for FoodShare are:
Use IRS tax forms to average income only if:
If all three conditions are met, and the tax forms are not complete, ask the applicant or member to either complete the appropriate tax form(s) or have the applicant or member complete one self-employment income report form (SEIRF) for the previous year’s circumstances. Completing the form(s) is solely the applicant or member's responsibility.
Use self-employment income worksheets to calculate self-employment income for Partnerships and S corporations. Following the worksheet instructions will ensure that income, expenses, and other disallowed expenses, gained from IRS tax forms, will be correctly budgeted for FoodShare. Worksheets contain built in formulas and should be completed electronically. This practice will ensure accurate information is entered into CARES Worker Web. Completed worksheets must be scanned into the electronic case file (ECF).
The worksheets are:
Personal capital gains are not counted income for FoodShare (see Section 4.3.4.3 Disregarded Unearned Income). When personal capital gains are reported, and a Schedule D is submitted, follow the instructions on Self-Employment Income Worksheet Personal Capital Gains or Losses (Schedule D) (F-01985). This will ensure that any unearned income that is budgeted on the case is excluded from the FoodShare budget.
The SEIRF simplifies reporting income and expenses when earnings must be anticipated. The applicant or member must enter previous and/or expected income information on the SEIRF to determine an average. Budget this average prospectively. Use it to report income for any type of business. If the SEIRF is not completed, ask the applicant or member to complete it. The IM worker should not fill out the SEIRF.
| Note | IM workers should request a SEIRF if the applicant or member does not file taxes or does not have the most recent tax forms available. |
Tip: Farm operators may find it easier to complete the IRS tax form when income and expenses are more complex.
This page last updated in Release Number: 23-03
Release Date: 12/18/2023
Effective Date: 12/18/2023
Notice: The content within this manual is the sole responsibility of the State of Wisconsin's Department of Health Services (DHS). This site will link to sites outside of DHS where appropriate. DHS is in no way responsible for the content of sites outside of DHS.
Publication Number: P-16001