A contract laborer is self-employed when there is an employer/employee relationship and the employer does not withhold income taxes or Federal Insurance Contributions Act (FICA).
Once a client files a federal tax return, obtain a copy of the tax return. If the income on the tax return is not representative or the client has been employed less than an a year, use the appropriate verification of the person’s most recent 12 months of gross pay amounts.
Self-employment income calculation begins with the gross income calculation.
- When the client has been working for the employer for 12 months, then use the gross income on the client’s tax return or, when the tax return is unavailable or unrepresentative, the last 12 months of income verification. Divide this total by 12 to get the monthly average.
- When the client has been with an employer more than one month but less than 12 months, use the employer’s pay records or the client’s self-employment ledger. Add the gross income amounts, and divide the total by the number of months the client has been employed.
- When the client has worked less than one month and the employer pays on a regular schedule, you may average the gross pay amounts the client has received or use the hours the employer anticipates the client working and a weekly, biweekly, or bimonthly conversion factor or to anticipate income.
For example, when the employer pays weekly and the client has not receive the first, full paycheck, multiply the number of hours worked per week by the hourly pay rate and then by 4.3.
When it has been with the employer less than one month and the pay record does not allow you to anticipate income due to the uncertainty of the client’s income, you will not include the income. The client must begin keeping a record of the income since the next worker will need it for the next review or certification.
Example 1: New Employment Contract Laborer (No Taxes Withheld)
At an interview for a 3/12/21 application, Fred informed the he had recently started working as a bricklayer for Bart’s Residential Home Construction. The employer does not withhold taxes or FICA from his pay. He receives $10 per hour and works 40 hours per week. He will receive his first paycheck on 03/20/21. This will be for a full pay period. He will receive another paycheck on 03/27/21 and one every work thereafter. Fred explains he is responsible for purchasing steel-toed boots and a work uniform and for driving his own vehicle from one job site to the next.
Fred’s March self-employment income is $400 ($400 3/20/21/+ $400 3/27/2021 = $800/2 for business expenses = $400). For April and future months, it is $860 ($400 + $400 = $800/2 = $400/week x 4.3 = $1720. Divide by 2 for business expenses = $860.
Example 2: Ongoing Employment Contract Laborer (No Taxes Withheld)
Cindy Riley works for Hanna’s Housecleaning Service as a contract laborer (no taxes or FICA withheld from pay). She has worked for Hanna’s Housecleaning Service for the past 3 years. She visits the HSC on 08-12-19 to apply for SNAP benefits. During the interview on 08-12-19, she informs the worker that her pay never varies; she earns $350 gross each week, and that she is responsible for purchasing her own cleaning supplies.
She provided the following monthly logs:
- February 2021 = $1750
- January 2021 = $1400
- December 2020 = $1400
- November 2020 = $1750
- October 2020 = $1400
- September 2020 = $1400
- August 2020 = $1750
- July 2020 = $1400
- June 2020 = $1400
- May 2020 = $1750
- April 2020 = $1400
- March 2020 = $1400
The average self-employment income monthly (March 2020 – February 2021) after rounding is $1517. Deduct 50% for business expenses. Code $758.50 in the Monthly Self-Employment block (F64).
Example 3: Contract Laborer (Earnings Vary) (No Taxes Withheld) (No Expenses Declared)
Sheila Herington applies for SNAP benefits on 03/05/21. During the interview, she reports she has worked for Ben’s Painting Service since December 2020 and the employer does not withhold taxes. She is not responsible for expenses as Ben provides the painting supplies, and Ben does not require her to purchase a uniform or other work items. Sheila provided the following pay amounts:
- December 2020 = $300
- January 2021 = $850
- February 2021 = $750
In this example, the average self-employment income monthly (December 2020 – February 2021) after rounding, is $633. Enter $633 in the Monthly Self-Employment block.
- Q1. Client works for a construction company framing houses. They do not take taxes or FICA out of his pay. Is this self-employment?
- A1. Yes. If the employer does not take taxes or FICA out of the client’s pay, the client is self-employed regardless of whether or not they work for only one individual and an employee/employer relationship exists.
- Q2. Client is a contract laborer (no taxes or FICA taken out of her pay), and she has just started working for the company and has not been paid yet. The employer explains the pay will be $400 each week. What is the appropriate way to calculate her income?
- A2. Since this is a brand new job, anticipate earnings by taking the employer’s statement of $400/week and multiplying by 4.3. When the client has business expenses, give the 50% deduction for the expenses. Advise the client to keep track of her weekly earnings because we will need to use her actual records of earnings for each month and begin annualizing when we complete the MCR.
- Q3. Client is a contract laborer (no taxes or FICA taken out of her pay). Six months ago at the initial certification, her job was brand new and we took the employer’s estimate of $400/week to anticipate her earnings. How do we calculate her earnings now for the MCR?
- A3. At the time of the initial certification (please refer to Q & A #2 above), the client hopefully was advised to begin keeping records of her earnings so OKDHS could begin to annualize her pay. We need to obtain records of her monthly earnings from her hire though when she submitted the MCR. At minimum, the verification should document her earnings from her hire date through at least the 4th month of the certification. Please remember to give a 50% deduction when the client claims to have business expenses.
- Q4. Client is a self-employed, contract painter. He works for one painting company , and the company does not withhold taxes of FICA. Client kept a weekly record, written on notebook paper, of his earnings from the past 12 months. Is it acceptable to take the client’s word for how much he makes each week, or should we get the verification from the employer since he works for one company?
- A4. SNAP prefers the earnings verification come from the employer since the client is a contract laborer and workers for one company. However, if the employer will not cooperate, it is acceptable to use the client’s record of earnings. We cannot hold the client responsible for obtaining the verification from the employer if the employer will not cooperate.
- Q5. Client is self-employed contract laborer and has been engaged in this line of work for the last 3 years. He does not file taxes as self-employed. How many months of earnings should we ask for when anticipating his self-employment earnings?
- A5. You should ask for records of earnings from the last 12 months.
- Q6. Client is a contract laborer working for one landscaping company and has filed his 2020 taxes as self-employed (declaring income on Schedule C). He states that the 2018 Schedule C is representative of his earnings. Can we use the Schedule C to anticipate earnings?
- A6. Yes, you should use Line 3 (Gross receipts or sales minus returns and allowances) from the Schedule C and allow 50% business expense to anticipate self-employment earnings.
- Q7. Client began working for a vacuum sales company two days ago and had applied for SNAP today. The manager of the company’s local office states that the client is working strictly for commission. The client will not receive a set salary, and the company will not withhold taxes or FICA. The manager states that he will have no idea of how much money the client will make each week until the client begins to sell vacuum cleaners. What is the best way to anticipate self-employment earnings for this client?
- A7. At this time, there is no reasonable way to anticipate earnings from this business. Anticipate $0 self-employment earnings, and document the situation in case notes. At the mid-certification renewal, the client will need to provide an earnings record to verify his income. This should cover from the hire date through at least the 4th month of the certification. At the MCR, the worker will also confirm whether the client claims business expenses and allow the 50% deduction if appropriate.
- Q8. Client babysits the children of only one family. They pay her in cash (no taxes or FICA taken out), and she babysits the children at their house. Is she considered self-employed?
- A8. Yes, since she is paid in cash with no deductions taken from her pay, she is considered to be self-employed.
- Q9. The client provided a statement that says, “Client normally worked 40 hours weekly for the past year and earned $8 per hour.” Is this acceptable verification?
- A9. This verification is only acceptable as the best available verification. The worker needs to make at least two documented attempts to get this verification. At minimum, there should be some documentation of why the other, usual sources of verification are unavailable. For example, the worker must document the employer’s refusal or unreachability and the client has not been keeping a record. For this example, if this verification is useable, the calculation method is 40*8 = $320*52 = $16,640/12 = $1386.67