Self Employment Agreement

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					Minnesota Department of Human Services



   Self-Employment
      Handbook
                                     Income




       DAYCARE




   Expense
                         TAXI DRIVER




       CASH & FOOD SUPPORT


             MNDHS Self-employment Handbook   -1-
                    Updated - 11/10
                                 Self- Employment Handbook
                                       Table of contents
Section                                                                          Page

01.0      Introduction                                                             3

02.0      Definition of a Self-Employed Person                                     4
02.1      Self-Employment Ownership Types                                          5

03.0      Self-Employment Verification Sources                                     7
03.1      Tax Form Use by Ownership Type                                           9

04.0      Self-Employment Certification Steps                                      10

05.0      Excluded Assets Specific to Self-Employment                              11

06.0      Calculating Self-Employment Income and Expenses                          12
06.1      Special Self-Employment Income Situations                                14

07.0      Self-Employment Expenses                                                 16
07.1      Self-Employment Transportation Expenses                                  18
07.2      Self-Employment Business Expense or Shelter Deduction                    20

08.0      Self-Employment Reporting and Acting On Changes                          23

09.0   MAXIS Self-Employment Income Types                                          24
09.01 Farming                                                                      25
 09.01.1 Farm Loss Offset                                                          27
09.02 Real Estate                                                                  28
09.03 Home Product Sales                                                           31
09.04 Other Sales                                                                  33
09.05 Personal Services                                                            35
 09.05.1 Personal Services – Taxi Drivers                                          37
09.06 Paper Route                                                                  38
09.07 In-Home Day Care                                                             40
09.08 Rental                                                                       42
 09.08.1 Roomer/Boarder Rental Income                                              45
09.09 Other                                                                        47

10.00     Self-Employment Related Terms and Definitions                            49

11.0      Frequently Asked Questions                                               55



              Links to worksheets can be found under each self-employment type section.




                                       MNDHS Self-employment Handbook                     -2-
                                              Updated - 11/10
SE 01.0 INTRODUCTION
Table of contents
Self-employment (SE) cases make-up approximately one percent of Minnesota’s Food Support case
load and an even smaller percentage of MFIP and DWP cases. Self-employment cases can be highly
complex, time consuming and are potentially very error prone.

This Handbook is designed to help alleviate some of the issues and questions surrounding
certification of self-employed households. It also provides you with tools (information, procedures and
forms) that will be useful in the certification of self-employed households.

Following the self-employment definition, the Handbook is divided into sections covering the steps to
certification, computing income, self-employment expenses and self-employment types. There is also
a list of self-employment terms and their definitions for your reference and a section of frequently
asked questions.
Lastly, the Handbook includes the following worksheets:

   SE HWS 1 Business Use of Home Worksheet
   SE HWS 1 Farming Worksheet
   SE HWS 3 Sales / Services Worksheet
   SE HWS 4 In-Home Day Care Worksheet
   SE HWS 5 Rental Worksheet
   SE HWS 6 Roomer / Boarder Worksheet


Self-employment forms included on DHS eDOCs are:

   DHS-3336-ENG - Self-employment Report Form

   DHS-3337-ENG - MFIP Self-employment Income Worksheet


Use this Handbook together with, not in place of, the Combined Manual (CM). Direct questions
about the information provided in this handbook to PolicyQuest.




                                     MNDHS Self-employment Handbook                           -3-
                                            Updated - 11/10
SE 02.0 DEFINITION OF A SELF-EMPLOYED PERSON
Table of contents

Use your best judgment on a case-by-case basis to determine if a person is self-employed or an
employee.

An individual is self-employed if they operate a business or profession as a sole proprietor, partner in
a partnership, or S Corporation, independent contractor, or consultant and draw income from the
trade or business. The person must demonstrate that he or she is in business for the purpose of
making a profit.

Self-employed persons:
 Incur costs in producing income. Deduct these costs in order to equate their income with income
   from sources where there are no production costs.
 Control their work by working either independently of an employer, freelance or by running the
   business.
 Assume all the risks and responsibilities of a business enterprise and are subject to self-
   employment tax in addition to income tax on net income from self-employment activities. The self-
   employment tax is paid in lieu of the Social Security payments.


Self-Employed or Employee Determination

                                 Self-employed                            Employee
Work Rules            Set by self-employed individual           Set by employer
Work Hours            Set by self-employed individual           Set by employer
                                                                By the hour or time worked, even
Payment               By the job
                                                                if job is not completed.
Federal/State         Not withheld from pay – self-
                                                                Employer withholds from pay
Taxes, FICA           employed individual pays
Number of clients
                      Multiple                                  One Employer
/employers
Tools/Materials       Provided by self-employed individual      Provided by employer
                      Multiple or owned by self-employed
Location                                                        Set by employer
                      individual
Costs                 Paid by self-employed individual          Paid by employer
                      Assumed by self-employed
Risk                                                            Assumed by employer
                      individual


An individual's self-employed status is reinforced by:
 Obtaining an employer identification number from the IRS.
 Working under a business name
 Printing invoices, business cards, and stationery




                                      MNDHS Self-employment Handbook                           -4-
                                             Updated - 11/10
SE 02.1 SELF-EMPLOYMENT OWNERSHIP TYPES
Table of contents

Sole Proprietorship
The sole proprietorship is the oldest, most common, and simplest form of business organization. A
sole proprietorship is a business owned and managed by one person. A sole proprietorship can be
organized very informally, is not subject to much federal or state regulation, and is relatively simple to
manage and control.

In a sole proprietorship, the owner is:
 Inseparable from the business
 In complete control over the business,
 Financially and legally responsible for all debts and legal actions regarding the business
 Responsible for taxes which are determined at the personal income tax rate


Partnership
A partnership is the relationship existing between two or more persons who join to carry on a trade or
business. Each partner contributes money, property, labor or skill, and expects to share in the profits
and losses of the business. A partnership contract spells out the manner in which profits are to be
distributed.

A partnership can be a:

General Partnership: A general partnership has the following major features:
   It is formed by two or more general partners
   The partners are all liable for any legal actions and debts
   It is created by agreement
   General partners have:
      Management control
      Share the right to use partnership property
      Share the profits of the firm in predefined proportions, and
      Have liability for the debts of the partnership

Limited Partnership: A limited partnership is a form of partnership that has one or more general
   partners, and one or more limited partners.

   Limited partners are partners that may invest in, but are not directly involved in, the management
   of the partnership. They also have limited liability to the extent of their investments.

   The general partner pays the limited partners the equivalent of a dividend on their investment, the
   nature and extent of which is usually defined in the partnership agreement.

   Limited partnerships are different from limited liability partnerships in which all partners have
   limited liability. (See below.)

                                      MNDHS Self-employment Handbook                            -5-
                                             Updated - 11/10
Limited Liability Partnership: A limited liability partnership (LLP) has elements of partnerships and
   corporations. In a limited liability partnership, all partners have a form of limited liability similar to
   that of the shareholders of a corporation. However, the partners have the right to manage the
   business directly, and (in many areas) a different level of tax liability than in a corporation.

   A limited liability partnership is for businesses where all investors wish to take an active role in
   management.


A partnership must file an annual information return (IRS Form1065 and 1065 K-1) to report the
income, deductions, gains, losses, etc., from its operations. A partnership does not pay income taxes.
The profits or losses are “passed through” to its partners. Each partner includes his or her share of
the partnership's income or loss on his or her tax return (IRS 1040).

Partners are not employees and should not be issued a Form W-2. The partnership must furnish
copies of Schedule K-1 (Form 1065) to the partners.


S Corporations
Also called Subchapter S Corporation.

Corporations are legal entities, and are responsible for their own debts and obligations.

An individual involved in an S corporation is considered self-employed. Individuals in all other
corporation types are considered employees. If the person receives a salary from the corporation, he
is considered an employee of the corporation.

An S corporation is a corporation with 100 shareholders or less that has the benefit of incorporation
while being taxed as a partnership. This means that any profits earned by the corporation are not
taxed at the corporate level, but rather at the level of the shareholders.

An S Corporation must file an annual information return (IRS Form1120 and 1120 K-1) to report the
income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Profits or
losses are “passed through” to its shareholders.

Each shareholder includes his or her share of the partnership's income or loss on his or her tax return
(IRS 1040).


Limited Liability Company (LLC)

A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute.

Often incorrectly called a "limited liability corporation" (instead of company), it is a hybrid business
entity having certain characteristics of both a corporation and a partnership. The primary
characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it
shares with a partnership is the availability of pass-through income taxation.

Owners of an LLC are called members. Members may include individuals, corporations, other LLCs
and foreign entities. There is no maximum number of members and “single member” LLCs, (those
                                        MNDHS Self-employment Handbook                               -6-
                                               Updated - 11/10
having only one owner) are allowed. A few types of businesses generally cannot be LLCs, such as
banks and insurance companies.

Business owners form a Limited Liability Company (LLC) to reduce their personal liability. If you
operate as a sole proprietor or partnership, you are personally responsible for any business debts or
lawsuits against your business. Nearly everything you own can be at risk.

When you set up an LLC, you separate your business and personal identities. This helps protect your
personal savings, your house, your car, etc. LLCs can also provide business owners with other
benefits like tax savings.

If an LLC has only one owner, treat the LLC as a sole proprietor. Similarly, an LLC with multiple
owners will, treated as a partnership.

An LLC does need an operating agreement that will specify how and by whom the company will be
managed, each owner's name, the amount of ownership interest held by each owner, etc. Similar to a
corporation, normal business expenses such as an owner's salary may be deducted from the profits
of an LLC before the LLC's income is allocated to its owners for tax purposes. Unlike a corporation,
an LLC is not required to allocate profits and losses in proportion to ownership interest ("member
interest'). This means that the owners of an LLC can agree to allocate the company's profits and
losses among themselves however, they see fit and not necessarily based on the percentage of the
company each owner controls




                                     MNDHS Self-employment Handbook                           -7-
                                            Updated - 11/10
SE 03.0 SELF-EMPLOYMENT VERIFICATION SOURCES
Table of contents

Always document the verification source used.

IRS TAX FORMS

When computing FS income and in the initial set up of MFIP/DWP in established businesses that file
income taxes, use the most recent income tax forms, schedules and statements. These forms are
good sources of information regarding self-employment income and expenses. However, income and
expenses may need to be adjusted as:
    MFIP and Food Support policy does not always match IRS rules
    The taxes are not always reflective of the current situation
    The taxes may not reflect a full year of business operation
Be aware of who prepared the tax forms – was the form self prepared or prepared by a
tax/accounting business. If the tax forms appear to have questionable information, obtain additional
sources of verification.

Common IRS forms used to determine counted self-employment income:

 Form 1040, U. S. Individual Income Tax Return
 Schedule C, Non-farm
 Schedule C-EZ, Net Profit from Business (Sole Proprietorship)
 Schedule D, Capital Gains and Losses and Reconciliation of Forms 1099-B
 Schedule E, Supplemental Income Schedule
 Schedule F, Farm Income and Expenses
 Form 4797, Gains and Losses From Sales or Exchanges of Assets Used in a Trade or Business
    and Involuntary Conversions
 Form 4835, Farm Rental Income and Expenses
 Form 8829, Expenses for Business Use for Your Home
 Form 1065, U. S. Partnership Return of Income
 Schedule K-1, Partners' Shares of Income, Credits, Deductions, etc.
 Form 1120, U. S. Corporation Income Tax Return
 Form 1120S, U. S. Income Tax Return for an S Corporation (Small Business)
 Schedule K, Shareholders' Share of Income, Credits, Deductions, etc. (Summarizes the
    corporation's income deductions, credits, etc., reportable by the shareholders.)
 Schedule K-1, Shareholder's Share of Income, Credits, Deductions, etc. (Shows each shareholder's
    separate share.)
 Form 4506, Request for Copy of Tax Form

See www.irs.gov for current copies of tax forms and instructions.

For online access on information for a business entity such as legal styling, file number or
Organizational ID, filing type and city go to: http://da.sos.state.mn.us .




                                      MNDHS Self-employment Handbook                           -8-
                                             Updated - 11/10
CLIENT’S LEDGERS/BOOKS

For FS use a clients ledgers/books when computing income when the business has been in operation
for less than a year, the business that does not file taxes and for verification of income at six month
report.

For MFIP/DWP use a clients ledgers/books at initial set up when computing income if the business
has been in operation for less than a year, the business that does not file taxes and for ongoing
verification of monthly income.


DHS SELF-EMPLOYMENT REPORT FORM

The DHS-3336-ENG - Self-employment Report Form may be used in place of client ledgers/books for
self-employed MFIP/DWP and Uncle Harry cases.

If there is questionable information, obtain additional sources of verification such as (not an inclusive
list):

Account Statements
Sales Slips
Canceled Checks
Invoices
Purchase Orders
Cash Receipts
Collateral Contacts
Bankruptcy Trustee

Verification information documentation should include:
    the name and type of business
    the date
    the type and amount of income or expense, and
    any other pertinent information




                                      MNDHS Self-employment Handbook                            -9-
                                             Updated - 11/10
SE 03.1 TAX FORM USE BY OWNERSHIP TYPE
Table of contents



Sole
Proprietor                 Form 1040
                             Schedule C, E or F                     Use info (adjust if
                                                                      necessary) on Schedule
                                                                      C, E or F to determine
                                                                      self-employment income.


Partnership
                           - Form 1040
                             - Form 1065: Tax Return                Use figures (adjust if
                                                                      necessary) on Schedule
                               For Entire Partnership                 K-1 and appropriate
                             - Schedule K-1 (Form                     1040 Schedule to
                               1065). Each partner’s                  determine self-
                               share of income &                      employment income
                               expenses is “passed
                               through” to him/her.
                             - Each partner uses his/her
                               Schedule K-1 to complete
                              the 1040.


S
Corporation                - Form 1040
                             - Form 1120 S Tax Return               Use figures (adjust if
                                                                      necessary) on Schedule
                               For Entire S Corporation               K-1 and appropriate
                             - Schedule K-1 (Form                     1040 Schedule to
                               1120S). Each                           determine self-
                               shareholder’s share of                 employment income.
                               income & expenses is
                               “passed through” to
                               him/her.
                             - Each shareholder uses
                              his/her Schedule K-1 to
                              complete the 1040.

C
Corporation                Form 1120 Corporate Tax
                             Return                                  Client is not self-
                                                                       employed, use wages
                                                                       to determine income.


  Any of the above entities can also become a limited liability company (LLC) to limit
  their personal liability in case they are sued. However, this has no affect on how their
  income and expense are budgeted. Example: An owner of a pawn shop is a sole
  proprietor and reports his income and expenses on Schedule C. If he becomes an
  LLC, he would still report his income and expenses on a Schedule C.




                                     MNDHS Self-employment Handbook                           - 10 -
                                            Updated - 11/10
SE 04.0 SELF-EMPLOYMENT CERTIFICATION STEPS
Table of contents


□ Determine the income type of self-employment, using one of the nine categories from MAXIS.
   See 09.0 MAXIS Self-employment Income Types.

□ Determine the client’s level of ownership in the business, sole proprietorship, partnership, or
   corporation. See Self-employment OwnershipTypes.

□ Gather the appropriate business verification, records and/or tax forms. See Self-employment
   Verification Sources.

□ Determine what the current business operation/situation is:
   o Location of Principal Place of Business, see Self-Employment Related Terms and Definitions
   o Client’s role/share of business

□ Review the business records or tax forms to determine if they are reflective of the current
   situation.

□ Determine what time period the business verification covers.

□ For FS, determine how you are going to anticipate the net income - average or annualize. For
   MFIP use rolling average.

□ Calculate countable net income (document your work):
   On all income, ask:
   o Will the income continue?

   On all deductions ask:
   o Is it allowable?                                          CM 17.15.33.06
   o Is it reasonable?
   o Is it for business only?                                  CM17.15.33.09
   o Will the expense continue?

□ Enter calculated amounts on the appropriate MAXIS STAT panels.

□ Talk with your supervisor if you have any questions.

□ Contact PolicyQuest with questions you are unable to resolve.




                                     MNDHS Self-employment Handbook                             - 11 -
                                            Updated - 11/10
SE 05.0 EXCLUDED ASSETS SPECIFIC TO SELF-EMPLOYMENT
Table of contents

Exclude the following assets as appropriate when certifying for self-employment. The
exclusion applies even if the self-employed person is not making a profit. NOTE: For FS all assets
are excluded for categorically eligible units. The exclusions below apply to non-categorical eligible FS
units and MFIP/DWP units.

                                                            Excluded               References
                                                          Food     MFIP,
                                                         Support   DWP
Non-homestead real property annually producing                                    CM0015.12
                                                           Yes         NA
income consistent with its fair market value.                                   CFR 273.8(e)(4)
                                                                                 CM 0015.12
Real property that is essential to the business.           Yes         NA
                                                                                CFR 273.8(e)(5)
Non-homestead real property (that causes excess
assets) with repayment agreement and executed               NA         Yes       CM 0015.12.06
lien against the property.
Installment contracts, including contracts for deed
                                                                                  CM 0015.09
producing income consistent with their fair market         Yes         Yes
                                                                                CFR 273.8.(e)(6)
value.
Non-liquid asset with executed lien based on a
                                                           Yes                  CFR 273.8(e) 15
business loan.
Liquid assets that have been prorated as self-
                                                           Yes         NA       CFR 273.8(e)(9)
employment income.
                                                        In Month                  CM 0015.09 –
Business loans                                                         Yes
                                                        of receipt
Escrow bank account used at least annually for                                   CM 0015.42
                                                           Yes         Yes
operating a business                                                           FSP Memo #92-05
Assets essential to the Self- Employment (not
                                                           Yes         Yes         CM 0015.09
including real property)
                                                                                  CM 0015.39
                                                          Yes, if
Vehicles essential to the business operation                           Yes     CFR 273.8(e)(3)(i)
                                                        licensed*
                                                                                (A), (B) & (G)(iii)
Vehicles annually producing income consistent with        Yes, if              CFR 273.8(e)(3)(i)
                                                                       NA
its fair market value                                   licensed*               (A), (B) & (G)(iii)
Vehicle is used 50% of time to produce income.         Yes           Yes          CM0015.39
Liquid assets that have been prorated as self-
                                                           Yes         NA       CFR 273.8(e)(9)
employment income
Sealed Grain stored less than 12 months.                   Yes         NA
Sealed Grain stored 12 months or more.                      No         NA
Ending Self-employment business
Self-employment assets, up to one year, unless
                                                            NA           Yes       CM 0015.09
converted to cash
Self-employment assets converted to cash                    NA           No        CM 0015.09
Farming business assets for one year.                       Yes          NA        CM 0015.09
*On reservations that do not require vehicles to be licensed, treat unlicensed vehicles as licensed
vehicles.


                                      MNDHS Self-employment Handbook                          - 12 -
                                             Updated - 11/10
SE 06.0 CALCULATING SELF-EMPLOYMENT INCOME AND EXPENSES
Table of contents

When computing self-employment income for FS and for the initial set up of MFIP/DWP, average the
income and expenses, regardless of whether the unit receives the income monthly or less often than
monthly. To compute self employment income for ongoing MFIP/DWP, use a monthly rolling average.

For FS calculations CM 0017.15.33. 03:
Business in existence for one year or more
If a business has been in existence for one year or more, average the self-employment income and
expenses from the past year. Use the computed average figure into account any anticipated changes
which would affect the current net income.

Businesses in existence for one year or less
If the self-employment operation has been in existence for less than a year, average the business
income and expenses over the period of time the business has been in operation. Use the computed
average figure taking into account any anticipated changes which would affect the current net
income.

Business income covers partial year
If the self-employment income is intended to support the unit for only part of the year, averaged the
income over the period of time it is intended to cover taking into account any anticipated changes.

Examples of anticipated changes may include increases/decreases in:
    Number of rental              Number of employees              Amount of land farmed
     properties                    Amount of time                   A substantial change in
    Number of day care               available to work               market prices
     children                      The type of operation
    Business territory
   For MFIP/DWP calculations CM 0017.15.33. 03:
   Use a 12-month rolling average to budget monthly income from self-employment.

   Business in existence for one year or more
   If a business has been in operation for one year or more, average the monthly self-
   employment income from the most current income tax report for the 12 months before the
   month of application. Use this amount to determine the income to budget for the month of
   application and the previous 11 months. Each processing month, determine a new monthly
   average to use in the corresponding payment month. Do this by adding the actual self-
   employment income and expenses the client reports on DHS-3337-ENG - MFIP Self-
   employment Income Worksheet dropping the 1st month from the averaging period, creating a
   new 12 month period.

   Business in existence for less than 12 months
   If a business has been in operation less than 12 months, compute the average for the number
   of months the operation has been in business to determine a monthly average. Use this figure
   for the number of months the operation has been in business on DHS-3337-ENG - MFIP Self-
   employment Income Worksheet and add each new month's figures until you have a 12-month
   average.

                                     MNDHS Self-employment Handbook                           - 13 -
                                            Updated - 11/10
Business income covers partial year
For seasonal self-employment, the caregiver may choose to use the rolling average or actual
income and expenses. Under the actual method, count income in the month received and
expenses in the month incurred.

Business has a major change,
If the business has a major change, compute a new rolling average beginning with the 1st
month of the major change.


Treatment of Draws, Guaranteed payments to partners, Compensation of officers,
Wages/salaries:

                             Business Owner                              Unit Member
                        Draws/ Guaranteed Payments/                     Wages/Salaries
                       Compensation of officers/ Wages                  Paid by business
Sole Proprietorship
                FS Do not count, do not allow as an           Do not count, do not allow as an
                    expense. Enter SE income on               expense. Enter SE income on
                    STAT/BUSI.                                STAT/BUSI.
        MFIP/DWP Do not count, do not allow as an             Do not count, do not allow as an
                    expense. Enter SE income on               expense. Enter SE income on
                    STAT/BUSI.                                STAT/BUSI.
Partnership
                FS Count as earned income. Allow as an        Count as earned income. Allow as an
                    SE expense. Enter on STAT/JOBS            SE expense. Enter on STAT/JOB
        MFIP/DWP Do not count, do not allow as an             Do not count, do not allow as an
                    expense. Enter SE income on               expense. Enter SE income on
                    STAT/BUSI.                                STAT/BUSI.

                             Business Owner                              Unit Member
                        Draws/ Guaranteed Payments/                     Wages/Salaries
                       Compensation of officers/ Wages                  Paid by business
S Corporation
              FS Count as earned income. Allow as an          Count as earned income. Allow as an
                 SE expense. Enter on STAT/JOBS               SE expense. Enter on STAT/JOBS
        MFIP/DWP Do not count, do not allow as an             Do not count, do not allow as an
                 expense. Enter SE income on                  expense. Enter SE income on
                 STAT/BUSI.                                   STAT/BUSI.


Self-employment Loss Offset
The income loss from one self-employment business can be used to offset the gain of another
self-employment business. In addition, self-employed farm losses can offset gains from other
income sources, in addition to self-employment businesses. See below for information on how
to handle farm self-employment loss offsets.

   Farm Loss Offset - CM 0017.15.33.18
   When the costs of producing self-employment farm income exceed the gross farm income,
   the loss is offset against other countable income.


                                 MNDHS Self-employment Handbook                             14
                                        Updated - 11/10
To qualify for the offset, the person must receive or anticipate receiving annual gross
proceeds of $1,000 or more from the farming enterprise. If there is a farm loss, take the
following steps:

Step 1   Determine the farm loss and apply the loss against the total amount of other net
         self-employment income.

Step 2 If the farm loss, is more than the net self-employment income of another self-
       employment business, the remainder of the farm loss is offset against the total
       other earned and unearned income for that month.

If there is still a net loss, the household is certified based on zero net income. The excess
loss is not carried forward to subsequent months.

If a unit has a monthly net self-employment income gain after a farm loss offset, the
household is entitled to a 20% earned income deduction from the net self-employment
amount.

If a unit has earned income that is not from self-employment, the earned income deduction
from that income is computed based on the amount before a farm loss offset, if any, is
made.




                               MNDHS Self-employment Handbook                             - 15 -
                                      Updated 11/10
SE 06.1 SPECIAL SELF-EMPLOYMENT INCOME SITUATIONS
Table of contents

 Capital Gains
 Capital gains are the proceeds from the sale of capital goods or equipment. A gain or loss is
 computed by comparing the sale price to the "cost or other basis." If the sale price is greater,
 there is a gain. If the costs are greater, there is a loss.

 The "cost or other basis" in general is the cost of the property, purchase commissions,
 improvements and sales expenses such as broker's fees and commissions minus
 depreciation, amortization and depletion.

 The following chart indicates how a capital gain or loss is treated when calculating self-
 employment income:

                                 Food Support                                 MFIP
Capital Gain        Count as income if the gain is            Count as an asset, unless the
                    anticipated to repeat.                    business ends, then count as income.
                                                              Excluded from asset and income
Capital Loss        Excluded from income computation.
                                                              computation.

 Computation of a gain or loss:
  Federal Income Tax Form 1040 Schedule D - Capital Gains and Losses
   “Sales price” minus “Cost or other basis” = gain or loss.
  Federal Income Tax Form 4797 Sales of Business Property
   “Gross sales price” minus the “Cost or other basis, plus improvements and expense of
   sale” = gain or loss. Do not use the Gain or (loss) column on Form 4797 as it includes
   depreciation.


Garnishments
 Garnishments have no effect on the treatment of self-employment income, as the total gross
 amount is counted in the income computation. The amount garnished is not considered as an
 exclusion from income.


Bankruptcy
 The self-employment income of persons who have declared bankruptcy is computed the
 same as the self-employment income of any other person.
  After filing bankruptcy:
   If the person continues to earn self-employment income, count the gross amount minus
     allowable expenses.
   If the income goes to a trustee, and the trustee pays the bills and gives a living
     allowance count the gross amount minus allowable expenses. Do not:
     o count the living allowance as income
     o allow the fees of a trustee or conservator for his services as a business expense




                                     MNDHS Self-employment Handbook                           - 16 -
                                            Updated 11/10
    When the income goes to the self-employed individual, but they must pay a set amount
     to a court appointed person for back debts, do not allow the payment for old debts as a
     business expense.
    If a business owner sells equipment/property, (title held by owner) and uses the
     proceeds to pay off a loan/debts and the proceeds are:
     o Received by the owner, count the proceeds as income.
     o Diverted to a bank to repay the loan, count the proceeds as income.
    If a business owner voluntarily turns over collateral/ property (bank has title) to a bank,
     and the bank sells the collateral/property to pay off a loan/debts, the proceeds of the
     sale are not counted as income to the owner.
    If a lender is unable to collect on a loan, the lender may write all or part of it off or
     "forgive" the outstanding balance. The forgiven portion is not counted as income to the
     household.


Special Payment Types
 The following types of payments ARE counted as self-employment income:
   Patronage Dividends paid as cash dividends
   Farm Service Agency (FSA) - Formerly Agricultural Stabilization and Conservation Payments
      (ASCS) cash payments (except for disaster payments) are counted as earned self-
      employment income. These payments include, but are not limited to, Commodity Credit
      Corporation acreage reduction and conservation payments.
   Private Crop Insurance Payments if the insurance company pays the household in
      installments.

 The following types of payments ARE NOT counted as self-employment income:
   Federal Gasoline Tax Credit
   State Gasoline Tax Refund
   Patronage dividends paid in the form of stock. Count as an asset.
   Federal Crop Insurance Corporation (FCIC). Count as an asset.
   Private Crop Insurance Payment if paid as a nonrecurring lump-sum payment.
   Disaster Assistance Payments. These are also, not counted as an asset.




                                  MNDHS Self-employment Handbook                            - 17 -
                                         Updated 11/10
SE 07.0 SELF-EMPLOYMENT EXPENSES
Table of contents

Self-employment expenses are the costs of operating a self-employment business. Most
expenses that are necessary to the business are allowable deductions from self-employment
income. If you have questions on expenses not listed here, contact PolicyQuest.

                                                                          ALLOWABLE
                    Common Business Expenses                            Food     MFIP/
                                                                       Support   DWP
Advertising and postage                                                  Yes      Yes
Amortization                                                             No       No
At time of sale, purchase cost of inventory                              No       Yes
Attorney and Tax preparation fees                                       Yes       Yes
Business owner’s share of FICA                                           No       No
Charitable contributions.                                                No       No
Clothing specific to the job                                            Yes       Yes
Credit Card payments                                                     No       No
Depreciation                                                             No       No
Employee FICA                                                           Yes       Yes
Employee benefit programs and                                            No       No
Employee workers compensation and Unemployment insurance                Yes       Yes
Expenses from a previous period.                                         No       No
Federal, State and local income taxes                                    No       No
Fuel and transportation costs                                           Yes       Yes
Insurance premiums on income-producing property;                        Yes       Yes
Internet expense                                                        Yes       Yes
Interest portion of payments on business mortgages and/or               Yes       Yes
operating loans
Interest portion of credit card payments                                 No       No
Labor Hired paid to non-household member employees.                     Yes       Yes
Labor Hired paid to household member employees in a
                                                                        Yes       No
partnership or corporation.
Labor Hired paid to household member employee in sole
                                                                         No       No
proprietorship.
Licensing fees, franchise fees, professional fees and dues              Yes       Yes
Livestock, costs relating to livestock, veterinary or breeding fees;    Yes       Yes
Materials                                                               Yes       Yes
Meals outside of work area                                               No       Yes
Money set aside for business owner’s retirement                          No       No


                                   MNDHS Self-employment Handbook                        - 18 -
                                          Updated 11/10
                                                                       ALLOWABLE
             Common Business Expenses (con.)                         Food     MFIP/
                                                                    Support   DWP
Mortgage on business property                                        Yes       Yes
Net losses from previous periods                                      No       No
Penalties and fines. (i.e. Late fees, bank charges)                   No       No
Pension and profit-sharing plans                                      No       No
Principle payments on income-producing real estate and capital
                                                                     Yes       No
assets such as equipment, machinery and other durable goods;
Purchase of Capital assets                                           Yes       No
Repayment of the principal of a bank loan.                            No       No
Repairs and maintenance of equipment that are not capital            Yes       Yes
expenditures
Rental payments on income-producing equipment.                       Yes       Yes
Section 179 expenses                                                  No       No
Seed, plants and costs related to crop production                    Yes       Yes
Storage and warehousing charges                                      Yes       Yes
Taxes paid on income-producing property;                             Yes       Yes
Tools and supplies that are not capital expenditures                 Yes       Yes
Utilities on business property                                       Yes       Yes
Work-related personal expenses – Meals/entertainment                  No       No
Wages paid to non-household member employees.                        Yes       Yes
Wages paid to household member employees in a partnership or
                                                                     Yes       No
corporation.
Wages paid to household member employee in sole
                                                                      No       No
proprietorship.




                                   MNDHS Self-employment Handbook                     - 19 -
                                          Updated 11/10
SE 07.1 SELF-EMPLOYMENT TRANSPORTATION EXPENSES
Table of contents

Determine allowable transportation expense amounts by using the:

 Tax forms, amount allowable unless questionable.

 Itemized list of expenses. Verification needed, use ledgers/books, or DHS-3336-ENG - Self-
   employment Report Form.

 Flat Rate Deduction – use current IRS rate. Verification needed - odometer readings,
   dates, travel destination and the purpose of each trip.


For itemized list and flat rate, determine if a transportation expense is allowable by using the
chart on the following page.




                                   MNDHS Self-employment Handbook                            - 20 -
                                          Updated 11/10
                                      employmen Transpor
                                 Self-e        nt                   ts
                                                         rtation Cost
                                                         able Chart
                                   Allowable or Not Allowa


                                                                                      KEY
                           N          able
                           Never Allowa                                                 Home
                                                                                        Office

                                                                                             site
                                                                                        Work s

Never                                             Allowable
al
 llowable on                                                                    E             yment
                                                                               SE - Self-employ
a day off from
re              j
 egular or main job.
                                                                                             customer
                                                                                      Client/c



             E          ncipal plac of business -
            SE has a prin         ce
                    outsside of the home.                                                    mployment
                                                                                       Self-em
                                                                                              obs
                                                                                             jo




                                      lowable
                                    All

             me
           Hom office




                           rinciple pla of busi
                       SE pr          ace      iness -
                               is in the home.



          Not                     Not
            e
    Allowable                        owable
                                  Allo
                                                                        Always
                                                                        Allowable


                                                           ways
                                                         Alw
                                                            owable
                                                         Allo
    Allowable                        wable
                                 Allow


             k
       SE work within 35                                                         ork
                                                                            SE wo beyond 35 5
              o
        miles of home.                                                           es
                                                                              mile of home.

                                    s                    of      ss
                               SE has no principle place o busines


                                                -employment H
                                      MNDHS Self-            Handbook                               - 21 -
                                             Up pdated 11/10
SE 07.2 SELF-EMPLOYMENT FS BUSINESS EXPENSE OR SHELTER DEDUCTION
Table of contents

SE HWS 1 Business Use of Home Worksheet

No portion of a shelter expense may be claimed as both a shelter cost/utility and a self-
employment business expense. Document the client’s choice.

The following procedures apply to self-employment situations (including farming) where part of
the residence or house is set aside and used in the business.

For the landlord's household, if a room or a separate apartment in the house in which the client
lives, is rented out, treat housing costs (excluding utilities), in one of the following ways: (Note:
This section does not apply to separate households that share the costs of one apartment.)

On a case-by-case basis:
   1. Include all costs (such as rent, mortgage, taxes, and insurance) which the landlord is
      required to pay as household shelter costs: OR

   2. Allow part of the costs as self-employment costs and part as shelter costs, provided that
      no costs are allowed as both self-employment costs and shelter costs. If separately
      identified, only the portion attributed to the landlord's living space can be included in his
      shelter costs. No portion of the principal attributed to the self-employment enterprise
      under this option is allowed.


Utility Expenses and the Standard Utility Allowance (SUA)

HOME BUSINESS SITUATIONS

Situation 1. Part of the residence, such as a room, is used for a self-employment enterprise,
other than rental - allow the household the standard utility allowance (SUA) but no self-
employment business deduction.

Situation 2. A person uses part of the house in which he or she lives for a self-employment
enterprise, other than rental, and the portion used is equivalent to a separate residence.

   a. If there is a central meter, allow the SUA, but no self-employment business deduction.

   b. If utilities are measured and billed separately, the household is entitled to the SUA for
      the household utility costs and a SE deduction for the separately billed self-employment
      costs as a cost of doing business.


LANDLORD SITUATIONS

Situation 1. A landlord has individually metered heating costs for his residence. The landlord is
billed for and pays the utility provider. They rents out a room in their residence. A flat amount is
charged for rent which includes utilities.


                                   MNDHS Self-employment Handbook                               - 21 -
                                          Updated 11/10
      For the landlord's household - allow the SUA.
      For the renter’s household - if the landlord indicates a portion of the rent is applied to
       utilities, allow the appropriate SUA.


Situation 2. A landlord has individually metered heating costs for his residence. The landlord is
billed for them and pays the utility provider. They rent out a room in their residence and charge
extra for utilities. When a landlord charges the renter for utilities separately from rent, either
actual, a percentage, or a flat amount, allow both the renter and the landlord the SUA as
shelter costs.

For example, a household may rent out a room and charge a flat amount for rent plus 1/3 of
the actual utility expenses each month. In this case, both the roomer and the landlord are
allowed the SUA.

The renter's utility payment to the landlord is counted as income to the landlord, and the
landlord is entitled to a self-employment deduction in this amount for the costs of providing
utilities to the renter.


Situation 3. A household rents out a separate apartment in the house in which he or she lives.
There is a central meter, and the landlord is billed for the utilities.

      For the landlord's household - allow the SUA.
      For the renter’s household - allow the SUA.


Situation 4. A landlord rents out a separate apartment in the house in which he or she lives.
There are separate utility meters and separate bills. Both households pay the utility provider
directly.

      For the landlord's household - allow the SUA.
      For the renter’s household - allowed the SUA.

The renter's utility payment is not counted as income to the landlord and no deduction is
allowed as a self-employment cost.


FARMING SITUATIONS

Situation 1. A farmer's home is on property connected to property used for farming. The
shelter costs and self-employment costs can be separately identified. Utility costs for a barn
are metered separately from the home.

The household is entitled to the SUA for its residence and to the separately billed self-
employment costs as a cost of doing business.




                                   MNDHS Self-employment Handbook                              - 22 -
                                          Updated 11/10
Situation 2. A farmer's home is on property connected to property used for farming. The
shelter costs and self-employment costs can not be separately identified.

The household is entitled to a SUA if it incurs heating and cooling costs for the home, excess
heating or cooling expenses, or it receives a Low Income Home Energy Assistance Act
payment.


Situation 3. The farmer uses part of his house, such as a separate room or a separate
apartment solely for the farm enterprise and there is a central meter - allow the SUA.




                                  MNDHS Self-employment Handbook                           - 23 -
                                         Updated 11/10
SE 08.0 SELF-EMPLOYMENT REPORTING AND ACTING ON CHANGES
Table of contents
Units may report any change at any time.

Six-month Reporting (SR)
Food Support units with self-employment income who are not MFIP/Uncle Harry Food Support
or change reporters must report under six-month reporting requirements.

Six month reporting requirements include reporting all income and circumstances relevant to
the amount of the food stamp allotment and changes that could affect eligibility and/or benefit
amount on a six month basis. Additionally, it requires the reporting of two changes the month
by the 10th calendar day following the month the change occurred.
  When the gross income of the household is over the income limit (130% of poverty level)
    for their household size, and
  When Able Bodied Adult Without Dependents (ABAWD) work or employment and training
    activities fall below 20 hours per week.

Monthly Reporting (MR)
MFIP and Uncle Harry Food Support households are required to submit monthly reports.
Monthly reporting households are required to report budget month income and other
circumstances relevant to the amount of the allotment and anticipated changes that could
affect eligibility. This includes self-employment income and allowable expenses. MFIP will
continue to use the rolling average. Uncle Harry Food Support income will be based on an
average, so substantial changes will need to be taken into account.

Change Reporting (CR)
Food Support self-employed units who are homeless, in the migrant work stream, seasonal
farm workers or live on an Indian reservation are considered change reporters and must report
changes according to change reporting requirements. In regard to income changes, they must
report a change in the source of income or in the amount of total gross monthly income of
more than $100 by the 10th calendar day following the month the change occurred.

Changes Reported or Known to the Agency:
The agency must take prompt action on all changes reported to determine if the change affects
the unit’s eligibility or benefit level.
    The county agency must act on ALL changes resulting in a decrease or ineligibility,
       allowing for proper notice.
    The county agency must act on ALL changes resulting in an increase in benefits no
       later than 10 days from the date the change was reported. The increase in benefits
       must be effective no later than the month following the month the change was reported.

For Food Support the following items will be considered as “known to the agency” and may or
may not require follow up:
• Information received by the agency from the client or their authorized representative.
• Information from other sources. Such as: IEVS matches, MEC2 integrated information,
MAXIS/PRISM interface, Social Services, New Hire reports, DAIL messages.

When any change is reported or becomes known to the agency, workers must act on
the change.

                                  MNDHS Self-employment Handbook                             - 24 -
                                         Updated 11/10
SE 09.0 MAXIS SELF-EMPLOYMENT DEFINITIONS
Table of contents
MAXIS divides self-employment income into nine types, identifying each type by a 01 - 09 code. This section defines each of these types and
provides information regarding the certification process. The nine MAXIS self-employment types are:
        01              02               03               04                 05               06              07               08            09
                                       HOME
                      REAL                              OTHER           PERSONAL            PAPER         IN-HOME
   FARMING                          PRODUCT                                                                                RENTAL         OTHER
                    ESTATE                              SALES           SERVICES            ROUTE         DAYCARE
                                      SALES
The activity of   The            Also called         The activity Also called service    Also called   The activity of   The activity Any
growing/raising activities of    Direct Sales        of selling   industry.              Newspaper providing day- of leasing or activity
farm items for    buying,        Industry.           products or  The activities that    delivery.     care for other    renting        that does
the purpose of selling           The activity of     goods other provide services        The activity people's           personal or    not fall
producing         and/or         selling             than real    rather than goods to   of delivering children in the   real           into one of
income. The       managemen merchandise              estate and   the customer. The      news-         individual’s      property to    the other
self-employed     t or develop- on-line, door-to- items           service may offer an   papers to     own home.         another        eight
individual must ment of real door, parties,          defined as   improved standard of people's                          person for     codes.
have direct       property.      from trucks/        home         living or convenience, homes.                          payment.
involvement in                   wagons or from product           professional or
the farming                      temporary           sales items. technical expertise,
activity.                        locations.                       or other essential
                                                                  services.

  Beef Cattle       Real Estate   Amway Corp              Logging         Acupuncture            Paper or   Daycare       Apartment
    Dairy             Agent       Avon Products         Gas Station           Artist            Newspaper   Provider        House
     Fruit                        Creative               Traveling          Catering              Carrier                 Farmland
    Grain           Real Estate   Memories             Sales person        Carpenter                                     Hunting Land
    Hobby             Broker      Discovery Toys,        Grocery/         Construction                                     Business
   Organic                        Fuller Brush         General store     Dog Grooming                                       Space
     Sod            Real Estate   Home Interiors         Clothing           Hair Care                                     Equipment
     Tree            Manager      The Kirby Co             store         Housekeeping                                      Vehicles
  Vegetable                       Lia Sophia             Hardware           Plummer
                                  Longaberger              store          Home Repair
                                  Mary Kay             Convenience         Interpreter
                                  Pampered Chef            store            Janitorial
                                  Princess House,       Restaurant         Lawn Care
                                  Shaklee Corp                              Massage
                                  Tastefully Simple,                        Musician
                                  Tupperware                                Odd jobs
                                  Watkins                                   Therapy
                                  Weekenders                             Tax Accountant
                                                                           Taxi Driver
                                                                          Truck Driver

                                                               MNDHS Self-employment Handbook                                                 - 25 -
                                                                      Updated 11/10
              1   RMING
       SE 09.01 FAR   G

    S     -Emplo
MAXIS Self-                me  e
               oyment Incom Type 01
          C
          CM 001      33.24
                17.15.3

          H             Workshe
       SE HWS 1 Farming W     eet



                     -employment H
           MNDHS Self-            Handbook   - 26 -
                  Up pdated 11/10
Table of contents

SE HWS 1 Farming Worksheet

Farming is the self-employment business of operating a farm. It is the cultivating of a place
where items are raised, such as the earth or a tract of water, to obtain things it can produce;
such as grain, fruit's, fish and other things

Farming income includes the proceeds from the farming operation plus the gains from the sale
of capital goods and/or equipment (capital gains). See Handbook Section 06.1 Special Income
Computation Situations for more information on computing capital gains.

Farm income is earned income and is entered on MAXIS BUSI

See Handbook Section 06.0 Computing Self-employment Income and Expenses or Handbook
Section 09.01.5 Farm Loss Offset, for information on how to apply a farm loss offset to other
household income.

As in any other business reported changes that affect the nature or scale of the farming
business such as a change in the type of farm operation, the amount of land farmed, drought
or crop failure, a substantial change in market prices, etc. which would affect the net income
must be taken into account and adjustments. [CM 0017.15.33.03, 0017.15.33.24]

Common Minnesota Farm Income Situations:
    Grain
    Dairy                                Vegetable
    Beef                                 Poultry

Common Farming Expenses:
     Breeding fees                                Insurance
     Chemicals                                    Repairs
     Feed                                         Seed
     Fertilizer                                   Supplies
     Fuel                                         Veterinary
     Interest

Verification Sources
Tax forms, farm ledgers, or business records.


Questions you may want to ask:
What is the business situation?
Do you file taxes on this income?
Do the most recent tax forms reflect your current farm operation?
Do you anticipate all income and expenses to continue in the next year?
Did you file a Schedule D Capital Gains and Losses or Form 4797 Sales of Business Property
for this tax year?
If Schedule F indicates “Other expenses”, ask for clarification of what those expenses are.
What are your expenses?


                                  MNDHS Self-employment Handbook                             - 27 -
                                         Updated 11/10
SE 09.01.1          FARM LOSS OFFSET
Table of contents

When the costs of producing self-employment farm income exceed the gross farm income, the
loss is offset against other countable income.

To qualify for the offset, the person must receive or anticipate receiving annual gross proceeds
of $1,000 or more from the farming enterprise. If there is a farm loss, the offset is made in two
steps as follows:

Step 1. Determine the monthly farm loss and apply the monthly loss against the total amount
        of other net self-employment income computed for that month.

Step 2. If the farm loss, is more than the net self-employment income of another business,
        the remainder of the farm loss is offset against the total other earned and unearned
        income for that month.

          If there is still a net loss, the household is certified based on zero net income. The
          monthly excess loss is not carried forward to subsequent months.

If a household has a monthly net self-employment income gain after a farm loss offset, the
household is entitled to a 20% earned income deduction from the net self-employment amount.

If a household has earned income that is not from self-employment, the earned income
deduction from that income is computed based on the amount before a farm loss offset, if any,
is made.




                                   MNDHS Self-employment Handbook                              - 28 -
                                          Updated 11/10
      SE 09.02 REAL ESTATE

The MAXIS Self-employment Income Type 02
             CM 0017.15.33
      SE HWS 3 Sales / Services Worksheet

              MNDHS Self-employment Handbook   - 29 -
                     Updated 11/10
Table of contents

SE HWS 3 Sales / Services Worksheet

A Real Estate business could cover two business areas: Real Estate Sales and/or Real Estate
Management.

This would include the activities concerned with the buying or selling and the management or
development of commercial or residential real property – immovable land, including all the
natural resources and permanent buildings on it.

Real estate income is earned income and is entered on MAXIS BUSI.


Real Estate Sales
Real Estate Sales are the activities involved in buying or selling or real estate.

Real Estate Agent - A licensed salesperson working for a real estate broker. In the U.S., all
real estate agents have to be licensed by the state where they work. Real estate agents
generally work in offices. Some agents work out of their own homes. Much of their time is
spent outside the office showing houses to buyers.

Real Estate Broker – A broker is a person licensed to arrange the buying and selling of real
estate for a fee. Real estate brokers manage real estate offices.

Commission - A fee charged by a broker or agent for his/her service in facilitating a
transaction, such as the buying or selling of real estate or securities.

Typical activities include:
 Meeting and dealing with prospective sellers and buyers
 Evaluation and recommendation for pricing
 Advertising
 Showing
 Working with banks and lending institutions
 Complete and file paperwork


Real Estate Management - Also called Property Management or Real Estate Development
Real Estate Management or property management is the operation of commercial and/or
residential real estate.

Property Managers - A property manager is a person or firm charged with operating a real
estate property for a fee. The property manager has a primary responsibility to the landlord
and a secondary responsibility to the tenant.




                                   MNDHS Self-employment Handbook                           - 30 -
                                          Updated 11/10
Typical activities include:
 finding/evicting and dealing with tenants,           collect rents,
 improvement/repair,                                  pay necessary expenses and taxes,
 cleaning,                                            make periodic reports to the owner.
 indoor and outdoor maintenance and
   upkeep

Income
Typically, real estate agents do not get a regular paycheck. If the agent sells a house
successfully, then he/she receives a portion of the sale price as a commission.

A property manager on the other hand, will often receive regular pay.


Common Expenses (Not inclusive)
Advertising
Office supplies
Real Estate License
Transportation


Verification Sources
Self-employment report form
Client’s ledger/books
Tax Forms –
    Sole Proprietor – IRS 1040 and Schedule C
    Partnership – IRS 10 40 and IRS 1065 and 1065 K1
    S Corporations – IRS 1040 and IRS 1160 and 1160K1


Questions you may want to ask:
Do you have an office or job site?
Do you file taxes on your SE?
Do the most recent tax forms reflect your current business operation?
Do you anticipate all income and expenses to continue in the next year?
Does your SE include travel?
How are you paid – salary, commission?
What are your expenses?




                                  MNDHS Self-employment Handbook                          - 31 -
                                         Updated 11/10
SE 09.03 HOME PRODUCT SALES

MAXIS Self-employment Income Type 03
            CM 0017.15.33

    SE HWS 3 Sales / Services Worksheet



            MNDHS Self-employment Handbook   - 32 -
                   Updated 11/10
Table of contents

SE HWS 3 Sales / Services Worksheet

Also called Direct Selling Industry
Home product sales include businesses that sell merchandise door-to-door, from vehicles or
from other temporary locations.

Home product sales income is earned income and is entered on MAXIS BUSI.

Home Product Distributor – (Also called representatives, consultants.) Includes individuals who
sell products by the direct selling methods and are not employees of the sales company.

Income may be earned at two levels:
 The person may become a product distributor and makes a commission on the sales
    made by other distributors he or she signs up.
 The Direct Selling Distributor displays and sells the product using the party plan, where
    the seller invites friends to a party where goods are displayed and sold, or through
    networking. The internet is becoming a viable source for direct sale.

Home Product Sales List (not inclusive):
Amway Corporation               Home Interiors & Gifts, Inc.         Shaklee Corporation
Avon Products, Inc.             The Kirby Company                    Tastefully Simple, Inc.
Creative Memories               Lia Sophia                           Tupperware
Discovery Toys, Inc             The Longaberger Company              Watkins
The Fuller Brush                Mary Kay Inc.                        Weekenders USA, Inc.
Company                         Norwex
Herbalife International of      The Pampered Chef
America, Inc.                   Princess House, Inc.

Income
Distributors most likely report sales and expenses on a regular basis, and are paid based on
amount of sales. Be aware of possible awards and bonus opportunities.

Common Expenses
Advertising                                        Product Samples
Office supplies                                    Transportation
Postage

Verification Sources
Self-employment report form                        Tax Forms –
Client’s ledger/books                                 Sole Proprietor – IRS 1040 and
Sales Statements                                      Schedule C

Questions you may want to ask:
Do you have an office or job site?                 How are you paid – salary, commission?
Do you file taxes on your SE?                      What are your expenses?
Does your SE include travel?



                                 MNDHS Self-employment Handbook                           - 33 -
                                        Updated 11/10
    S 9.04 OTHER SAL
    SE 09  O   R   LES
    S     -Emplo
MAXIS Self-               me   e
               oyment Incom Type 04
                     5.33
            CM 0017.15

    S    S       s        ces  ksheet
    SE HWS 3 Sales / Servic Work




                     -employment H
           MNDHS Self-            Handbook   - 34 -
                  Up pdated 11/10
Table of contents

SE HWS 3 Sales / Services Worksheet

Other Sales is a self-employment business which includes the sale of goods other than real
estate and direct sales. Common “other” sales would be:

       Logging                                             Clothing storeowner
       Gas Station owner                                   Hardware store owner
       Traveling Sales person                              Convenience store
        Grocery/general store owner                        Restaurant owner


Other sales income is earned income and is entered on MAXIS BUSI.

Income
Income may be received on commission, as a draw or from business profits. Persons receiving
a salary would most often be an employee of the business and not self-employed. See SE
06.0 Calculating Self-employment Income and expenses for information on how to treat
“draws”.
-
Common Expenses (Not inclusive)
Cost of goods
Maintenance/Repair
Mortgage/Rent
Supplies
Taxes/ Insurance
Transportation
Wages

Verification Sources
Self-employment report form
Client’s ledger/books
Tax Forms –
Sole Proprietor – IRS 1040 and Schedule C
Partnership – IRS 10 40 and IRS 1065 and 1065 K1
    S Corporations – IRS 1040 and IRS 1160 and 1160K1


Questions you may want to ask:
Do you have an office or job site?
Do you file taxes on your SE?
Are most recent taxes reflective of current business operation?
Do you anticipate all income and expenses to continue?
Does your SE include travel?
What good or product do you sell?
How are you paid – salary, commission?
What are your expenses?


                                 MNDHS Self-employment Handbook                         - 35 -
                                        Updated 11/10
     0        SONA SERVICES
  SE 09.05 PERS  AL

 AXIS Self-E
MA    S Employ  yment Income Ty 05
                     t        ype
            C   017.15
            CM 00    5.33
      S    S       s        ces  ksheet
      SE HWS 3 Sales / Servic Work



                       -employment H
             MNDHS Self-            Handbook   - 36 -
                    Up pdated 11/10
Table of contents

SE HWS 3 Sales / Services Worksheet

Personal Service self-employment jobs include activities from cutting the grass to providing
health care to delivering packages. Service industries play an integral part in the daily activities
of people and businesses. These services may offer convenience, an improved standard of
living, professional and technical expertise, or other essential services. The providers of such
services involve all sectors of the economy including for-profit private businesses, non-profit
organizations and various levels of government.

Generally, these services involve the performance of actions on behalf of the customer and
have little, if any, tangible substance. In some instances, however, the services provided may
involve the receipt of a tangible product by the customer.

Personal services income is earned income and is entered on MAXIS BUSI.


Income
Income from personal service self-employment is typically received on a regular basis. Be
aware of possible tip and bonus opportunities.


Common Expenses
Advertising                                          Permits/fees
Business Supplies                                    Tools
Licenses                                             Transportation
Office supplies


Verification Source
Self-employment report form
Client’s ledger/books
Tax Forms –
    Sole Proprietor – IRS 1040 and Schedule C
    Partnership – IRS 10 40 and IRS 1065 and 1065 K1
    S Corporations – IRS 1040 and IRS 1160 and 1160K1

Questions you may want to ask:
Do you have an office or job site?
Do you own or lease your equipment?
Do you file taxes on your SE?
Are the most recent taxes reflective of your current business operation?
Do you anticipate all income and expenses to continue?
Does your SE include travel?
How are you paid?
Do you receive tips?
What are your expenses?


                                   MNDHS Self-employment Handbook                              - 37 -
                                          Updated 11/10
SE 09.05.1    PERSONAL SERVICES – TAXI DRIVERS
Table of contents

Taxi drivers may be self-employed or employed and earn a salary. Drivers usually report to a
Taxi company where they are assigned a vehicle.

Lease Drivers
Under a lease arrangement, a driver pays the taxi owner a flat amount for each shift or week.
Owners are guaranteed the lease fee for each shift the cab is leased, regardless of how much
time the driver actually works or how much money the driver takes in. Drivers earnings are the
difference between their total revenues (fares and tips) and the expenses (lease fees and
gasoline).

Owner drivers
Some drivers own their taxis. These drivers would have expenses that lease drivers do not,
such as car expenses and additional permits. They may also pay a fee to use a company’s
dispatch system.

Income
At the end of each trip, drivers collect the fare and generally a tip. Information regarding the
trip, including the place and time of pickup and drop-off and fare are entered into the trip sheet.
Most often taxi drivers are required to keep a daily trip sheet.

Earnings of taxi drivers vary greatly, depending on factors such as the number of hours
worked, customers’ tips and geographic location.

Common Expenses
Gas
Leases
Vehicle Maintenance/Repair

Verification Sources
Self-employment report form
Client’s ledger/books/trip logs
Tax Forms –
    Sole Proprietor – IRS 1040 and Schedule C
    Partnership – IRS 10 40 and IRS 1065 and 1065 K1
    S Corporations – IRS 1040 and IRS 1160 and 1160K1

Questions you may want to ask:
Do you have an office or job site?
Do you own or lease your equipment?
Do you file taxes on your SE?
Are your most recent taxes reflective of your current business operation?
Do you anticipate all income and expenses to continue?
How are you paid?
Do you receive tips?
What are your expenses?



                                   MNDHS Self-employment Handbook                             - 38 -
                                          Updated 11/10
    SE 09.06 PAPER ROUTE

MAXIS Self-employment Income Type 06
            CM 0017.15.33

    SE HWS 3 Sales / Services Worksheet



            MNDHS Self-employment Handbook   - 39 -
                   Updated 11/10
Table of contents

SE HWS 3 Sales / Services Worksheet

Also called Newspaper Delivery, Paper or newspaper carrier.

A paper route or newspaper delivery job is the delivering of newspapers to people's homes. Delivery
carriers are typically independent contractors that pick up their papers from our distribution
centers and then deliver them on a set route to individual homes. The carrier is probably not
responsible for collections.

Paper route income is earned income and is entered on MAXIS BUSI.

Income
Pay varies depending on the length and number of papers on the route. Carriers may be
eligible for tips or bonuses.

Common Expenses
Transportation (if the route is a driving route).
Gloves
Shoes
Warm clothing/boots
Supplies

Verification Sources
Self-employment report form
Client’s ledger/books
Tax Forms –
    Sole Proprietor – IRS 1040 and Schedule C


Questions you may want to ask:
Driving or walking route?
Where do you pick up the papers?
What is included on your pay stub?
Are you paid bonuses or tips?
Do you file taxes?
Are most recent taxes reflective of your current business operation?
Do you anticipate all income and expenses to continue?
What expenses do you have?




                                    MNDHS Self-employment Handbook                             - 40 -
                                           Updated 11/10
 SE 09.07 IN-HOME DAYCARE

MAXIS Self-Employment Income Type 07
          CM 0017.33.15.21

   SE HWS 4 In-Home Day Care Worksheet




           MNDHS Self-employment Handbook   - 41 -
                  Updated 11/10
Table of contents

SE HWS 4 In-Home Day Care Worksheet

"In-home daycare" income is income received for providing care for other people’s children by
a caregiver in their own home. Some, but not all in-home daycare providers are licensed.

Income
In-home daycare income is earned income and is entered on MAXIS BUSI.

                                      Daycare Income
                                                 FS                       MFIP/DWP
Daycare Income                       Use gross amount.              Use gross amount.
MN Child and Adult Care Food         Use gross amount minus         Do not use in income
Program                              reimbursement amount for       determination.
                                     providers own children.

Expenses
                                     Daycare Expenses
                                    Itemize or Flat Rate
                       FS                                          MFIP/DWP
Must itemize and verify. For food expense, may     May itemize and verify, or use the flat
use actual or the reimbursement figures used       rate of 60% of the gross receipts.
by the Child and Adult Care Food Program.

Common In-Home Day Care expenses:
    Food                  Toys                                     Advertising
    Supplies              License/professional fees                Transportation

Use the In-Home Business ratio for daycare expenses related to home shelter costs such as:
mortgage/rent, taxes/insurance, and utilities. The areas used for in-home child care are
considered exclusive business use if the client's home is licensed for child care or is exempt
from licensing. Using the Business Use of Home Worksheet, base the business ratio on
square footage and the proportion of time the unit uses the area for child care. Determine if
what is most beneficial to the unit - business expense or shelter standards, prorate
accordingly, document decision.

Verification Sources
Self-employment report form                             Sole Proprietor – IRS 1040 and
Client’s ledger/books                                   Schedule C
Tax Forms –

Questions you may want to ask:
Are you a licensed provider?                        Do you expect all income and expenses to
Do you file taxes on your SE?                       continue?
Are the most recent taxes reflective of the         How are you paid?
current business operation?                         What are your expenses?



                                  MNDHS Self-employment Handbook                             - 42 -
                                         Updated 11/10
        SE 09.08 RENTAL

MAXIS Self-Employment Income Type 08
          CM 0017.15.33.30

       SE HWS 5 Rental Worksheet
   SE HWS 6 Roomer / Boarder Worksheet


           MNDHS Self-employment Handbook   - 43 -
                  Updated 11/10
Table of contents

SE HWS 5 Rental Worksheet

(See section 09.08.01 for Roomer Boarder)

Rental income is income received based on a rental, tenancy, or lease agreement. These
agreements are formal and/or informal contracts between an identified landlord and
renter/tenant/lessor, giving rights to both parties, e.g. The renter has the right to occupy the
accommodation for an agreed term and the landlord’s right is to receive the agreed upon rent
amount.

Income
Rental income may be earned or unearned, enter both on MAXIS BUSI. MAXIS determines
earned or unearned based on number of hours entered in Reported Hrs field. Earned rental
income is allowed the earned income deduction, unearned is not.

Common Rental Income Situations:
    House                                           Land
    Duplex                                          Business Property
    Apartment                                       Storage

                                      Rental Income
                                    Earned or Unearned
                  MFIP/DWP                                            FS
  Use a rolling average to determine number      Use client reported number of hours worked
  of hours worked per month. 43 per month          per month. An average of 20 hours per
           indicates earned income                     week indicates earned income.


Expenses
Common Rental Business expenses:
Advertising                                         Registration & Inspection Fee
Mortgage (FS Only)                                  Repair
Interest                                            Supplies
Taxes/Insurance                                     Upkeep
Postage                                             Utilities


                           Business Expense Deductions
                                 Actual or Flat Rate
                   MFIP/DWP                                            FS
                 Use actual. OR                                     Use actual.
   Use 2% of property estimated market value for
   Upkeep and Repairs and actual for the other
                    expenses.



                                  MNDHS Self-employment Handbook                            - 44 -
                                         Updated 11/10
                       Separate Living Quarters - Rental Utility Costs
                     Business Expense Deduction or Shelter Deduction
                           MFIP                       DWP                         FS
Utilities billed Prorate the actual utility Prorate the actual utility Allow the SUA.
to Client        costs using the            costs using the
(landlord)       business to home ratio. business to home ratio.
                 Use the amount             Allow the business
                 attributed to the          expense portion as a
                 business as a business business deduction and
                 expense. Shelter           the home portion as a
                 deduction is NA            shelter utility deduction.

Utilities        NA                        Allow actual utility costs   Allow SUA.
Billed to                                  with flat rate of $35 for
Renter                                     phone.


    Verification Sources
    Self-employment report form
    Client’s ledger/books
    Tax Forms –
        Sole Proprietor – IRS 1040 and Schedule E
        Partnership – IRS 10 40 and IRS 1065 and 1065 K1
        S Corporations – IRS 1040 and IRS 1160 and 1160K1

    Questions you may want to ask:
    Do you have an office or job site?
    Do you file taxes on your SE?
    Are the most recent taxes reflective of the current business operation?
    Do you anticipate all income and expenses to continue?
    Does your SE include travel?
    How are you paid?
    What are your expenses?




                                      MNDHS Self-employment Handbook                    - 45 -
                                             Updated 11/10
   SE 09.08.1 ROOMER/BOARDER RENTAL INCOME
   See section 09.08. for Rental Self-employment.

   Table of contents

   SE HWS 6 Roomer / Boarder Worksheet

   A roomer is someone who rents a room in someone else’s home.

   A boarder is someone who pays for food and bed: somebody who pays to sleep and eat in a
   private home or boarding house.


   Income
   Roomer/boarder income is earned self-employment income and is enter on MAXIS RBIC.


   Expenses
   Common Roomer/Boarder Business expenses:
   Food                                                Repair
   Mortgage (FS Only)                                  Supplies
   Interest                                            Upkeep
   Taxes/Insurance                                     Utilities

The business property ratio is: rented number of rooms/square footage divided by the total
number of rooms/square footage in the building. The allowable business expense portion is
the expense multiplied the business property ratio.

                                Business Expense Deductions
                                      Actual or Flat Rate
                        MFIP/DWP                                   FS
 Roomer               Flat rate of $71.       Actual expenses, using business property
                                              ratio.
Boarder(s)    Thrifty Food Plan amount        Actual food expense or the Thrifty food plan
              based on number of              amount based on number of boarders.
              boarders.
Roomer(s)/    Thrifty Food Plan amount        Actual food expense or the Thrifty food plan
Boarder(s)    based on number of              amount based on number of boarders plus
              boarders plus roomer rate.      other actual expenses, using business
                                              property ratio.




                                     MNDHS Self-employment Handbook                          - 46 -
                                            Updated 11/10
                           Roomer Boarder Rental Utility Costs
                   Business Expense Deduction or Shelter Deduction
                        MFIP                   DWP                         FS
Utilities    Prorate the actual      Prorate the actual utility Allow SUA.
billed to    utility costs using the costs using the
Client       business to home ratio. business to home ratio.
(landlord)   Use the amount          Allow the business
             attributed to the       expense portion as a
             business as a business business deduction and
             expense. Shelter        the home portion as a
             deduction is NA         shelter utility deduction.

Utilities    NA                       Allow actual utility costs     Allow SUA.
Billed to                             with flat rate of $35 for
Renter                                phone.

Verification Sources
Self-employment report form
Client’s ledger/books
Tax Forms –
    Sole Proprietor – IRS 1040 and Schedule C or E

Questions you may want to ask:
Is this a roomer only? Boarder only?
If a boarder only or room/board situation, how many meals are provided per day?
Do you file taxes on this income?
Are the most recent taxes reflective of the current business operation?
Do you anticipate that all income and expenses will continue?
How are you paid?
What are your expenses?




                                    MNDHS Self-employment Handbook                - 47 -
                                           Updated 11/10
         SE 09.09 OTHER

MAXIS Self-Employment Income Type 09
            CM 0017.15.33




           MNDHS Self-employment Handbook   - 48 -
                  Updated 11/10
Table of contents

If the client's self-employment business does not fit into one of the previous eight codes, code as
income type 09 – Other. Use the CM and earlier sections of this hand book to determine how the
income and expenses are to be handled.


Contact PolicyQuest with any questions.


There is no worksheet for Other - use any worksheet that best meets the needs of the business.




                                     MNDHS Self-employment Handbook                               - 49 -
                                            Updated 11/10
SE 10.00    SELF-EMPLOYMENT RELATED TERMS and DEFINITIONS
Table of contents

AGENCY:
   The agency is defined as DHS and the county human service agency(s) in Minnesota and
   includes any agency(s) that contracts with the human service agency for delivery of financial,
   health care, child care programs, and employment services.

AMORTIZATION:
   (IRS definition from 4562 Form Instructions) Amortization is similar to the straight line method of
   depreciation in that an annual deduction is allowed to recover certain costs over a fixed time
   period. You can amortize such items as the costs of starting a business, goodwill, and certain
   other intangibles.

ANNUALIZATION:
   Annualization is making calculations for a period of less than a year as if the period were a
   whole year. For example, if figures existed for only one quarter, it could be annualized by
   multiplying by four.

AVERAGE:
   The amount arrived at by adding a group of numbers, and dividing the total by the number in the
   group. For example, add four figures together, and then divide the total by four.

BANKRUPTCY:
   Bankruptcy is a legally declared inability of an individual, business or organization to pay their
   creditors. In the majority of cases, the debtor initiates the bankruptcy legal proceedings. There
   are different types of bankruptcies. Some allow continuation of the same kind of business and
   others do not.

BUSINESS EXPENSE:
    Operating costs of a firm which must be both (1) ordinary, common and accepted in the trade,
    and (2) necessary, appropriate and useful in operating the business.

BUSINESS NATURE and SCOPE:
    Nature - The essential characteristics and qualities of a business. Scope – The sum of all the
    parts and pieces that makes up a business. Changes to the nature and scope of a business are
    not included in the averaged income and expenses. These types of changes mean the averaged
    income will need to be adjusted. See Normal Business Fluctuation.

CAPITAL ASSET:
    An asset with a useful life of more than 1 year. (CM)

     A long-term asset, such as land or a building. (The American Heritage College Dictionary, 3rd
     edition)

     EXAMPLES of capitals assets that may have more than one year of use before it is traded or
     sold:
      Painter - spray painting equipment
      Contractor - forklift, bulldozer, large trucks, etc.
      Farmers - tractors, livestock (dairy herds), land, etc

                                     MNDHS Self-employment Handbook                                - 50 -
                                            Updated 11/10
CAPITAL EXPENDITURE:
    The purchase or improvement of real property or personal property having a useful life of more
    than 1 year. (CM)

CAPITAL GAIN:
    Profit received from the sale of a capital asset. (CM) Countable under any self- employment
    business, but most often seen with farming. See farming section for more information on capital
    gains.

CHARTER:
   A document outlining the principles, functions, and organization of a corporate body; a
   constitution. (The American Heritage College Dictionary, 3rd edition.)

COMMISSION:
    A fee charged by a broker or agent for his/her service in facilitating a transaction, such as the
   buying or selling of real estate or securities.

COMPENSATION TO OFFICER:
     To receive money regularly from a S Corporation self-employment business. May also be
     called a draw, guaranteed payment to partner or wages/salary.

CONTRACTOR:
   A contractor is a person or company with a formal contract to do a specific job, supplying labor
   and materials and providing and overseeing staff if needed.

     General/Prime Contractor - A general contractor is a group or individual that contracts with
       another organization or individual (the owner) for the construction or renovation of a building,
       road or other structure. A general contractor is defined as such if it is the signatory as the
       builder of the prime construction contract for the project. A general contractor usually is
       responsible for the supplying of all material, labor, equipment, (engineering vehicles and
       tools) and services necessary for the construction of the project.

     Independent Contractor- An independent contractor is a self-employed person who provides
        certain services to a client or owner, (or a third-party) on behalf of the client. An independent
        contractor is not under the control, guidance, or influence of the client and, unlike an
        employee, does not owe a fiduciary duty. The client neither deducts the payroll or withholding
        taxes from payments to the independent contractor, nor contributes the employer's share. To
        be legally designated as an independent contractor, an individual must (1) be free from the
        control of the client, (2) be able to exercise his or her judgment as to the manner and
        methods to accomplish the end-result, and (3) be responsible for the end-result only under
        the terms of the contract.

     Subcontractor - An individual or company hired by a general or prime contractor to perform a
        specific task as part of the overall project.




                                      MNDHS Self-employment Handbook                                - 51 -
                                             Updated 11/10
CORPORATION:
   A body that is granted a charter legally recognizing it as a separate legal entity having its own
   rights and privileges, and liabilities distinct from those of its members. (The American Heritage
   College Dictionary, 3rd edition.)

     S-CORPORATION: An S-Corporation begins its existence as a general, for Profit Corporation
        upon filing the Articles of Incorporation at the state level. A general for-profit corporation (also
        known as a C-Corporation) is required to pay income tax on taxable income generated by the
        corporation.

        After the corporation has been formed, it may elect “S-Corporation Status” by submitting IRS
        form 2553 to the Internal Revenue Service (in some cases a state filing is required as well).
        Once this filing is complete, the corporation is taxed like a partnership or sole proprietorship
        rather than as a separate entity. Thus, the income is “passed-through” to the shareholders for
        purposes of computing tax liability. Therefore, a shareholder’s individual tax return will report
        the income or loss generated by an S-Corporation. An S-Corporation can have a maximum
        of 75 shareholders, and the income and expenses would still be passed through to each
        individual and taxed on that level.

        S-Corporations are considered self-employment businesses.

     C-CORPORATION: An artificial ‘legal being’ (legal concept only) endowed by law with the
        powers, rights, liabilities and duties of a natural person. A corporation’s assets are controlled
        by the business entity itself, not by the owners (stockholders) directly.

        C-Corporations are not considered self-employment businesses. Persons are considered
        employed by a corporation and you would count their wages accordingly.

DCP:
    The Direct and Counter-Cyclical Payment Program (DCP) provides payments to eligible
    producers on farms enrolled for the 2008 - 2012 crop years. There are two types of DCP
    payments - direct payments and counter-cyclical payments. Both are computed using the base
    acres and payment yields established for the farm. DCP was authorized by the Farm Security
    and Rural Investments Act of 2002 (2002 Farm Bill) and is administered by the U.S. Department
    of Agriculture's Farm Service Agency (FSA).

DEPRECIATION:
   (IRS definition from 4562 Form Instructions) Depreciation is the annual deduction that allows you
   to recover the cost or other or other basis of your business or investment property over a certain
   number of years. Depreciation starts when you first use the property in your business or for the
   production of income. It ends when you either take the property out of service or deduct all your
   depreciable cost or basis, or no longer use the property in your business or for the production of
   income.

DIVIDEND:
    The amount of the profit distribution a shareholder receives, or the amount of the
    surplus distribution a policyholder of a participating insurance policy receives.

DRAW:
     To receive money regularly from the self-employment business. May also be called
     guaranteed payment to partner, compensation to officer or wages/salary.
                                       MNDHS Self-employment Handbook                                 - 52 -
                                              Updated 11/10
FARMING: MAXIS SE Income Type 01:
   The activity of growing/raising farm items for the purpose of producing income. The self-
   employed individual must have direct involvement in the farming activity.

FARM LOSS OFFSET:
   The amount a Food Support client’s countable income is reduced because of a net loss in farm
   income. See §0017.15.33.18 (Self-Employment Loss Offset).

FARM SERVICE AGENCY (FSA):
    Formerly Agricultural Stabilization and Conservation Payments (ASCS)

FEDERAL CROP INSURANCE CORPORATION (FCIC):
   The Federal Crop Insurance Corporation (FCIC) promotes the economic stability of agriculture
   through a sound system of crop insurance and providing the means for the research and
   experience helpful in devising and establishing such insurance.

GUARANTEED PAYMENT TO PARTNER:
     To receive money regularly from a partnership self-employment business. May also be
     called draw, compensation to officer or wages/salary.

GENERAL/PRIME CONTRACTOR:
   A general contractor is a group or individual that contracts with another organization or individual
   (the owner) for the construction or renovation of a building, road or other structure. A general
   contractor is defined as such if it is the signatory as the builder of the prime construction contract
   for the project. A general contractor usually is responsible for the supplying of all material, labor,
   equipment, (engineering vehicles and tools) and services necessary for the construction of the
   project.

HOME OFFICE – PRINCIPLE PLACE OF BUSINESS:
   When the home office is the principle place of business, it must be an area of exclusive AND
   regular use. "Exclusive" means it cannot be an office and a sewing room; it must be an office
   ONLY. See definition of Principle Place of Business.

HOME PRODUCT SALES – MAXIS SE Income Type 03:
   Also called Direct Sales Industry.
   The activity of selling merchandise on-line, door-to-door, at parties, from trucks/ wagons or from
   temporary locations.

INDEPENDENT CONTRACTOR:
    An independent contractor is a self-employed person who provides certain services to a client or
    owner, (or a third-party) on behalf of the client. An independent contractor is not under the
    control, guidance, or influence of the client and, unlike an employee, does not owe a fiduciary
    duty. The client neither deducts the payroll or withholding taxes from payments to the
    independent contractor, nor contributes the employer's share. To be legally designated as an
    independent contractor, an individual must (1) be free from the control of the client, (2) be able to
    exercise his or her judgment as to the manner and methods to accomplish the end-result, and
    (3) be responsible for the end-result only under the terms of the contract.

     If the client states he or she is a self-employed independent contractor and the agency finds this
     questionable, check with the parent company. If the parent company says that it considers the

                                      MNDHS Self-employment Handbook                                - 53 -
                                             Updated 11/10
       client to be an independent contractor, then the client is self-employed, barring any other
       evidence to the contrary.

IN-HOME DAYCARE: MAXIS SE Income Type 07
    The activity of providing day-care for other people's children in the individual’s own home.

ITEMIZE:
    List individually all things that make up a set or whole.

LDP:
        Loan deficiency payment – as of 6/2/08, no LDP for crops in MN.

LIMITED LIABILITY COMPANY (LLC):

        A Limited Liability Company (LLC) is a relatively new business structure. It is a hybrid business
        entity having certain characteristics of both a corporation and a partnership. The primary
        characteristic an LLC shares with a corporation is limited liability, and the primary characteristic
        it shares with a partnership is the availability of pass-through income taxation. An LLC is often
        incorrectly called a "limited liability corporation" (instead of company).

LLC:
        See Limited Liability Company.

NET OPERATING LOSS:
     Net operating loss occurs when a company's allowable tax deductions are greater than its
     taxable income, resulting in a negative taxable income. The company can apply the net
     operating loss to their past tax payments and receive a tax credit. It could also apply the net
     operating loss to future income tax payments, reducing payments they need to make in future
     periods.

NOL:
        See Net Operating Loss

NORMAL BUSINESS FLUCTUATION:
   Normal business fluctuations are simply the ups and downs in a business operation. When
   income is averaged, changes due to normal business fluctuations are included in the
   calculations. The activities may be related to economic conditions such as supply and demand
   and can cause periods of business growth, stagnation or decline. If a business operation’s
   nature and scope changes, the resulting changes are not considered “normal business
   fluctuations” and are not included when income and expenses are averaged. When changes
   that are not normal business fluctuations occur, averaged income needs to be adjusted based
   on the change.

OTHER SALES: MAXIS SE Income Type 04
   The activity of selling products or goods other than real estate and items defined as home
   product sales items.

OTHER SELF EM0PLOYMENT: MAXIS SE income Type 09
   The activity of selling products or goods other than real estate and items defined as home
   product sales items.

                                       MNDHS Self-employment Handbook                                 - 54 -
                                              Updated 11/10
PAPER ROUTE: MAXIS SE Income Type 06
   Also called Newspaper delivery.
   The activity of delivering news-papers to people's homes.

PARTNERSHIP:
   An unincorporated business owned by 2 or more people. (CM)

     A legal contract entered into by 2 or more persons in which each agrees to furnish a part of the
     capital and labor for a business enterprise, and by which each shares a fixed proportion of
     profits and losses. (The American Heritage College Dictionary, 3rd edition.)

     Consider partnerships as self-employment businesses.

PERSONAL SERVICES: MAXIS SE Income Type 05
   Also called service industry.
   Personal services are the activities that provide services rather than goods to the customer. The
   service may offer an improved standard of living or convenience, professional or technical
   expertise, or other essential services.

PERSONAL BUSINESS AND/ OR ENTERTAINMENT EXPENSE:
   Money spent while on official business, and but not reclaimable as business expenses.

PRINCIPAL PLACE OF BUSINESS:
    A place of business is your principle place of business if it is where: (See Home Office principle
    place of business for additional information):
     Most of your of business or work is done, or
     You meet customers, clients, patients, investors, associates, etc., in the normal course of
        doing business, or
     You store inventory for resale at retail or wholesale, or
     You provide day care services for fees, or
     Any combination of the above four
REAL ESTATE: MAXIS SE Income Type 02
   The activities of buying, selling and/or management or development of real property.

REAL ESTATE AGENT:
   A real estate agent is a licensed salesperson working for a real estate broker. In the United
   States, all real estate agents must be licensed by the state they work in.

REAL ESTATE BROKER:
   A real estate broker is a person licensed to arrange the buying and selling of real estate for a
   fee. Real estate brokers manage real estate offices.

RENTAL: MAXIS SE Income Type 08
   The activity of leasing or renting personal or real property to another person for payment.

ROLLING AVERAGE:
   A rolling average is where the average is updated on a monthly basis by subtracting the oldest
   month of figures and adding the newest month and calculating a new average with the updated
   figures. The rolling average is used in determining income for the MFIP/DWP programs.
                                    MNDHS Self-employment Handbook                            - 55 -
                                              Updated 11/10
SELF-EMPLOYED FARMER:
    To be a self-employed farmer, the person must be engaged in farming activity for the purpose of
    producing income. The person must also have direct involvement in the farming activity.

SEPARATE LIVING QUARTERS:
   Separate living quarters are classified as a place where the occupants do not live and eat with
   any other person in the building and which have direct access from the outside of the building or
   through a common hall. The space normally would include kitchen, bedroom and living space
   areas. Examples could include a basement apartment or duplex housing.

SOLE PROPRIETOR:
   A person who is the sole owner of an unincorporated self-employment business.

SOLE PROPRIETORSHIP:
   A sole proprietorship is an unincorporated business that has no existence apart from the owner.
   The business liabilities are the personal liabilities of the single owner.

SUBCONTRACTOR:
  An individual or company hired by a general or prime contractor to perform a specific task as part
  of the overall project




                                    MNDHS Self-employment Handbook                              - 56 -
                                           Updated 11/10
SE 11.0       FREQUENTLY ASKED QUESTIONS
Table of contents

Definition of Self-employed Individual

FAQ: A client works for one person i.e. lawn mowing for the neighbor. This individual does not have
     FICA taken out, but in some cases, the “employer” has set the work hours/schedule. Should
     this income be entered STAT/BUSI or STAT/JOBS?

A: Evaluate each situation to determine if there is an employer/employee relationship. In this
   situation, based on the information provided it would appear the client doing the lawn mowing
   meets the IRS definition of a household employee and would not be considered self-employed. It
   is assumed the neighbor provides all the equipment and tells the client how and when to mow the
   lawn. It is also assumed that the client does not offer his services to the general public. Income
   would be entered on STAT/JOBS.


Anticipating Self-employment Income

FAQ: For Food Support, must we average monthly income & expenses for “all types” of self-
     employment (less than 12 months) or are there exceptions to this rule?

A: Yes. Average self-employment income whether or not the unit receives income and incurs
   expenses on a monthly basis, count the self-employment income earned each month. Count
   roomer/boarder income monthly. [CM 0017.15.33.03]


Verification Sources:

FAQ: Can the Self- Employment Report Form - DHS-3336 be used as verification of income and
     expenses?

A: Yes, if the form has been completed as required.
   Additional verification would only be required if the information on the DHS-3336 is inconsistent
   with other information obtained by the agency or provided by the client. If the client cannot explain
   why the inconsistency in the information, ask the client to provide further verification. [CM
   0010.15, 0010.18.09]


FAQ: Are business records required for proof of income and expenses? What if they just write out
     the income and expenses on a piece of paper?

A: Clients may provide you self-employment income and expenses in several formats. For
   businesses in operation over a year, ask for tax returns. If in operation under a year, or the taxes
   do not reflect the current business situation business records would be used. The records should
   be in an easy to decipher format. If any of the information is inconsistent with other information the
   agency has or that the client has provided, ask the client to provide further proof. [CM 0010.18.09]


FAQ: What tax form shows that an individual is actually an employee of a corporation and receives a
     salary rather than being self-employed?
                                      MNDHS Self-employment Handbook                                - 57 -
                                             Updated 11/10
A: C Corporation - IRS forms 1120, 1120S, and the 1120 Schedule K-1 would be an indication that
   the individual is an employee of a C-corporation.


FAQ: For Food Support, must we use the tax forms for “all types” of self-employment if there is a 12
     month history of employment?

A: No. Do not use the forms when they are not reflective of the current business situation or if the
   client has not filed (use business records or the DHS 3336 Self-Employment Report Form).
   However, if they are reflective of the situation, they are an excellent source of data on which to
   base the self-employment income calculation. [CM 0010.18.9, 0017.15.33.03]


Self-employment Expenses

FAQ: We are to use the estimated market value of the home and buildings divided by the estimated
     market value of the entire property to get the percentage to use for business. Which buildings
     are included where?

A: For businesses located on the same property as the home, determine the business portion by
   dividing the estimated market value of the business property by the estimated market value of the
   entire property. The estimated market value of the entire property would include all land, the home
   and any other buildings on the property. Include as business property any land or buildings used
   for the self-employment business.

   FAQ: Are we allowed to use the percentages used on IRS tax forms to determine self-
        employment business/home ratio in determining eligibility for FS and/or MFIP?

   A: Yes, if the percentages used on the tax forms appear reasonable. Other sources of
      information would be the client’s records, the mortgage lender, the tax assessor and for
      farmers, the Farmer’s Home Administration. [CM 0017.15.33.09, 0017.15.33.24]


   Farming

   FAQ: Are crop droughts and bumper crops changes for which you can adjust the farm income
   and approve new FS/MFIP benefits?

   A: Yes. Reported changes that affect the nature or scale of the business such as a change in
      the type of farm operation, the amount of land farmed, drought or crop failure, a substantial
      change in market prices, etc. which would affect the net income must be taken into
      account. [CM 0017.15.33.03, 0017.15.33.24]




                                      MNDHS Self-employment Handbook                               - 58 -
                                             Updated 11/10

				
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Description: Self Employment Agreement document sample