Revision 16-4; Effective December 1, 2016

For earned income to be considered self-employment, either the person individual or the individual's spouse must be actively involved or materially participating in producing the income. See Section E-3100, Types of Earned Income.

Materially participating. An individual business owner is determined to be materially participating if the individual meets any one of the following criteria:

• the individual engages in periodic advice and consultation with the tenant, inspection of the production activities, and furnishing of machinery, equipment, livestock and production expenses;
• the individual makes management decisions that affect the success of the enterprise;
• the individual performs a specified amount of physical labor to produce the commodities raised; or

• the individual does not meet the full requirements above, but the individual's involvement in crop production is nevertheless significant.

Consider income from the sale of timber "farm" income if:

• the timber was grown on the farm;
• the income is not treated as capital gains; and
• the timber operations are incidental to or tied in with the operation of the farm to constitute one business.

Revision 09-4; Effective December 1, 2009

Net earnings (gross income less allowable deductions) are used in budgeting. Net earnings from self-employment also include any profit or loss incurred in partnership agreements (within a self-employment related context). Verified net losses from self-employment can be deducted from other earned income received in the same year the loss was incurred.

In a couple case, the loss can be deducted from either spouse's earned income, regardless of which spouse incurred the loss.

Losses cannot be deducted from unearned income or carried over from a previous period.

E-6210 Self-Employment Expenses

Revision 25-3; Effective Sept. 1, 2025

The chart below lists common types of self-employment expenses. This chart is not all-inclusive. Submit Form H0005, Policy Clarification Request, for questionable deductions or to determine how to budget self-employment expenses not in the chart.

Self-Employment Expenses

Allowable self-employment expenses are based on costs that can be deducted from federal income taxes per the IRS Schedule C, Form 1040 - Profit or Loss from Business.

*Interest includes mortgage, interest paid to banks and other interest.

**Rent or lease may include rental of vehicles, machinery, equipment or other business property.

When calculating transportation costs, the person may choose to use the standard mileage reimbursement rate of 70 cents per mile instead of keeping track of actual expenses.

The IRS Schedule F, Form 1040 - Profit or Loss from Farming, lists the deductible expenses for farm income.

Revision 09-4; Effective December 1, 2009

The procedure for calculating the eligibility budget may differ, and will depend on which method is more advantageous to the person.

E-6310 Annual Projection

Revision 16-4; Effective December 1, 2016

Divide the individual's entire taxable year's income (as shown on the previous year's income tax,  IRS Schedule C, Form 1040 - Profit or Loss from Business, or IRS Schedule F, Form- 1040 - Profit or Loss from Farming, Schedule F) equally among 12 months. This procedure should be followed even if the business is seasonal, starts late in the year, or ceases operation before the end of the taxable year.

Note: If the payments were received no more than once per calendar quarter, the income is considered as infrequent or irregular. If the total earnings for each calendar quarter are $30 or less, the income is not counted in the eligibility budget and is considered in the co-payment budget. If the total earnings for each calendar quarter exceed $30, allow the $30 deduction and count the excess income in the eligibility budget. Consider the income for the co-payment budget.

If the person's tax statement is used to predict variable income, there is no need to set a six-month special review to redetermine eligibility unless a change has been reported.

E-6320 Six Months Projection

Revision 16-4; Effective December 1, 2016

When the previous year's tax statement is unavailable, or if using the IRS Schedule F, Form 1040 - Profit or Loss from Farming, or the IRS Schedule C, Form -1040 - Profit or Loss from Business, makes the person individual ineligible, request verification of earnings and allowable deductions for the previous six months. In this situation, a six-month special review is required.

Revision 09-4; Effective December 1, 2009

Follow established variable income procedures when calculating the co-payment budget. Pay attention to anticipated rate of receipt in projecting co-payment, as there is often a high degree of variability in the receipt of self-employment income. Schedule a special review when lump sum payments are anticipated to occur, so that restitution can be requested. Monitor the case and adjust the budget (if applicable) when projected variable income is expected to cease.

Because most self-employment income involves deductible expenses, inform the person to keep accurate records of all incurred expenses and receipts.

Revision 25-4; Effective Dec. 1, 2025

1. A person who lives in a nursing facility owns a 160-acre farm where the person’s spouse continues to live. One hundred acres of land are set aside in a Conservation Reserve Program (CRP). The couple’s son farms the other 60 acres and pays all expenses. In return for use of the land, the son pays the person one-quarter of the net profit he produces. For several years, the person has received $6,000 from the CRP during the month of September. The son's most recent IRS Schedule C form shows net farming income of $7,000 for the year.
   
   Action: Consider the income from the land set aside for CRP as lease or rental income. As neither the person nor the person’s spouse participates in the production of farm income, also consider this farm income as rental income. Do not give any deductions for expenses. If the person or the person’s spouse incurs expenses, consider these expenses as deductions in netting the income. Other common examples of lease income include hunting or fishing leases, subsidy payments, surface exploration or bonuses.
    

2. A person supplements their Social Security income by making quilts. The person sells the quilts through a consignment shop, which keeps 10% of the sales price. Each month, the person makes and sells two quilts, which retail for $450 each. The material for each quilt costs $75. The person also pays their niece $150 per quilt to do the actual quilting stitch. The person runs their business out of a rented apartment, which includes a living area, kitchen, bathroom and two bedrooms. The person uses one of the bedrooms as the workshop. The person pays $400 per month in rent. Utilities for the apartment are $150 per month. The person is also repaying their son $50 per month for money he loaned the person for the purchase of a new sewing machine, which is used to produce the quilts.
   
   Action:

   Amount	Action
   $900.00	gross monthly income (two quilts at $450 each)
   – 90.00	consignment fee (10% of $900)
   – 150.00	cost of materials ($75 X 2)
   – 300.00	payment to niece ($150 X 2)
   – 100.00	rental expense for workspace ($400 for four rooms)
   – 37.50	utility expense for workspace ($150 for four rooms)
   $222.50	net monthly income from sale of two quilts

   Note: The $50 payment on the principal of the loan to the son is not an allowable expense. Similarly, if the person bought the sewing machine outright, it would be the purchase of a capital asset and would also not be an allowable deduction. However, the rental of a sewing machine would be allowable. Refer to the chart in the E-6210 Self-Employment Expenses.

3. An eligible couple produces a yearly cotton crop. The couple belongs to a co-op that stores the cotton while waiting for a better price. The co-op members receive coupons, which are a loan against the eventual sale price of the crop.

   Action: Proceeds from the sale of the crop are income in the month the person actually receives the profit. Any coupons cashed against the eventual sale price of the crop are considered income at the time they are cashed.