441-1 EARNED INCOME
Earned income includes the following types of payments:
Wages are what an individual receives (before any deductions) for working as someone else's employee. Wages include salaries, commissions, bonuses, severance pay, and other special payments received because of employment. Wages are counted in the month of receipt.
Sick pay is a payment made in place of wages to or for an employee by an employer or a private third party because of sickness or an accident. Sick pay is earned income if the individual receives it within six months after work stopped because of sickness or disability.
Sick payments received more than six months after work stopped are considered to be unearned income.
441-1 C. GARNISHMENTS AGAINST EARNED INCOME
Wages withheld from earned income to satisfy a debt or legal obligation count as earned income. Refer to section 443-1 for the treatment of garnishments against unearned income.
441-1 D. NET EARNINGS FROM SELF-EMPLOYMENT
1. Definition of net self-employment income
Net self-employment income is the gross income from a trade or business less allowable deductions for that trade or business. Allowable deductions are any deductions that are allowed by the Internal Revenue Service, including depreciation. Net self-employment income also includes any profit or loss in a partnership. Self-employment income also includes income received by crewmembers who are involved in a commercial fishing venture and are paid a share of the profits instead of wages.
2. Determining monthly net self-employment income
Net self-employment income, whether received monthly or less often than monthly, is counted on a taxable year basis. A taxable year is the fiscal year used by the trade or business for IRS Internal Revenue Service purposes. The total of these earnings is divided equally among the months in the taxable year to get earnings for each month.
Net self-employment income is calculated by using the previous tax year's gross self-employment income less allowable deductions to calculate the current tax year's monthly net self-employment income, except as specified below.
In situations where the individual is engaged in a new business, or where there are valid reasons to expect that the amount of income from a trade or business will be different from the previous year, the case worker must use prudent judgement to determine the net self-employment income for the current tax year. This is accomplished by using any business records in the client's possession, the client's own estimate of his or her expected income and expenses for that year, and any other available information (for example, the closure of a fishery).
If, based on subsequent evidence, the case worker decides that the estimate of net self-employment income is inappropriate, he or she will redetermine the net self-employment income for the current tax year.
If there are net losses from self-employment, these losses are used to offset other earned income only. Net losses from self-employment may not be deducted from unearned income.
Net losses from self-employment are calculated the same way as net self-employment income. The net loss is averaged over the taxable year to get the net loss for each month.
Each month's net loss is then deducted only from other earned income in that month.
The preferred method of verifying net self-employment income for the previous year is by viewing the individual's tax return. For this reason, cases which involve self-employment income should be scheduled for their yearly review soon after the individual's tax return is filed. If the individual did not file a tax return, the individual's business records may be used. If neither a tax return nor business records are available, the individual's allegation of net self-employment income is acceptable if, in the case worker's judgment, it accurately reflects the known circumstances in the case.
The method by which an individual's net self-employment income was determined should be fully documented in the case file so that anyone reviewing the information will be able to determine how the amount was calculated.
441-1 E. EARNINGS FROM SHELTERED WORKSHOP OR WORK ACTIVITIES CENTER
Payments for services performed in a sheltered workshop or work activities center are what an individual receives for participating in a program designed to help him or her become self-supporting. Payments for such services are earned income.
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