OKDHS - OAC 340:10-3-32. Determination of earned income

340:10-3-32. Determination of earned income

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Revised 8-1-10

Earned income results from self-employment or other employment sources.

(1) Earned income from self-employment. If the income results from the person's activities primarily as a result of the person's own labor from the operation of a business enterprise, the countable earned income is determined by deducting 50% of the gross income as business expenses or by using the net business profit for the most recent tax year as reported on the person's income tax return. • 1 Self-employment income that represents a household's annual support is prorated over a 12-month period, even if the income is received in a shorter period of time. • 2
- (A) Room or board. Earned income from a room rented in the home is determined by considering 25% of the gross amount received as business expenses. Earned income from room and board paid by a person in the home is determined by considering 50% of the gross income received as a business expense. • 3
- (B) Rental property. Income from rental property is considered income from self-employment if none of the activities associated with renting the property is conducted by an outside person or agency. • 4
- (C) Profit sharing. Households who operate S corporations, general or limited partnerships, or limited liability companies may receive profit sharing that is reported on the household's personal income tax return. When a household member:
  - (i) actively participates in the operations, the income from profit sharing is considered part of the household's self-employed earned income; or
  - (ii) does not actively participate in the operations, the income from profit sharing is considered part of the household's unearned income.
(2) Earned income from sources other than self-employment.
- (A) Earned income from wages, salary, or commission. If the income is from wages, salary, or commission, the earned income is the gross income or true wage prior to payroll deductions and withholdings. • 5 This includes earned income from contract employment. • 6 Money from the sale of whole blood or blood plasma is considered as earned income.
- B) Earned income from work and training programs.
  - (i) Workforce Investment Act (WIA). WIA earned income is exempt. • 7
  - (ii) On-the-job training (OJT). Earned income from regular employment for OJT is considered as any other earned income.

INSTRUCTIONS TO STAFF 340:10-3-32

Revised 8-1-11

1. (a) Refer to OAC 340:10-3-33 Instructions to staff (ITS) # 1 for self employed definition.

(b) When the person filed a federal income tax return form for the most recent year, the worker uses the net self-employment income shown on the person's federal income tax return and divides the income by 12 or the number of months the business has been in existence, if less than 12 months, to determine monthly income unless it is not representative of the person's current situation.

(c) The worker uses (1) through (3) to determine the net monthly self-employment income, when the person did not file an income tax return on his or her self-employment income for the most recent year.

(1) The gross self-employment income is computed using the person's self-employment business records for the past 12 months, or the number of months the person has been in business.

(2) If the person declares he or she incurred business expenses, the worker then subtracts 50% of the gross self-employment income as business expenses. If the household did not incur business expenses, a business expense deduction is not given.

(3) If the person's self-employment enterprise has been in existence for at least one year, the worker divides the net self-employment income by 12. If the person's self-employment enterprise has been in existence for less than a year, the worker divides the net self-employment income by the number of months the person has been in business.

(d) Self-employment income tax return forms include, but are not limited to:

(1) Form 1040 with Schedule C for sole proprietors and some limited liability companies;

(2) Form 1065 with Schedule 8865 K-1 for partnerships;

(3) Form 1120-S with Schedule K-1 for S corporations; or

(4) Form 1040 with Schedule F for farmers.

(e) Refer to OAC 340:10-3-33 for earned income deductions.

2. For example, self-employment income received by a crop farmer is averaged over a 12-month period if the income represents the farmer's annual support.

3. If the roomer or boarder is a non-relative of the opposite sex, refer to OAC 340:10-3-57(e)(3).

4. When the client does not manage the rental property, it is considered as unearned self-employment. The client is then entitled to have 50% of his or her business expenses subtracted from the income but is not eligible for a work related expense deduction.

5. When a person receives a benefit allowance from his or her employer, the worker counts the regular gross earnings plus any excess money left after deducting the insurance cost from the benefit allowance. For example, a person:

(1) is given a $300 benefit allowance to purchase insurance and uses the entire amount to purchase the insurance. None of the benefit allowance is counted as income;

(2) is given a $300 benefit allowance but only purchases $280 in insurance. The remaining $20 that is given to the client as an excess benefit allowance is counted as income; or

(3) has an option of purchasing insurance and would receive a $300 benefit allowance if insurance was purchased but the person elects not to purchase the insurance. In this situation, the employer makes $150 of the $300 benefit allowance available as cash. The $150 is an excess benefit allowance and is counted as income.

6. (a) Refer to OAC 340:10-3-31 ITS # 1 to determine when contract income is considered self employment income. Refer to (1) of this Section when self employment rules apply.

(b) Income from contract employment received by persons, such as school employees, is annualized over a 12-month period even if the income is received over a period of time shorter than 12 months.

7. Refer to OAC 340:10-3-40(35).

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