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Issue Alert - 04-10-02

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Date:

Oct 07, 2004

Issue Summary:

Clarification on self-employment

Persons Affected:

Individuals that have earned income that may be classified as income from self-employment for budgeting purposes.

For More Information:

Center for Civil Justice320 S. Washington, 2nd Floor Saginaw, MI 48607 (989) 755-3120, (800)724-7441 Fax: (989) 755-3558E-mail: info@ccj-mi.org


Background

All Programs<BR>PEM 500

What's Happening?

In order to avoid confusion as to what is and what is not income from self-employment, the Family Independence Agency (FIA) has made some clarifications. Income from employment is budgeted differently than income from self-employment, as the those who are self-employed can take deductions for work-related expenses.

Countable income from self-employment equals the total proceedsminus allowable expenses of producing the income. If allowableexpenses exceed the total proceeds, the amount of the loss cannot offsetany other income except for Farm Loss amounts.
Allowable expenses are the higher of:
  • 25% of the total proceeds, or
  • actual expenses if the customer chooses to claim and verify theexpenses.

A person who runs his own business is self-employed. This includesselling goods, farming, direct services (e.g., child care or personal careservices), and operating a facility that provides services (e.g., adult fostercare home, room and board).
A person who provides child care in his/her home is self-employed.Note: A person who provides child care in the child’s home (e.g., daycare aide) is an employee of the child’s parent/substitute parent. He/sheis not self-employed.

Rental income is also considered self-employment for income budgetingpurposes.

Self-Employed oran Employee?The guidelines below are provided to helpdecide if someone is self-employed or an employee. These are usually indicators that someone is self-employed:
  • The person sets his/her own hours.
  • The person provides his/her own tools used on the job.
  • The person is responsible for the service being provided and forthe methods used to provide the service.
  • The person collects payment for the services provided from theperson paying for it.
The Family Independence Agency (FIA) has created a form to help client's document income and expenses from self-employment. Use of the form is optional but will be of great assistance in documenting and budgeting income.

What Should Advocates Do?

There may be times when a client appears to be overincome for a certain program. It is important to evaluate whether the client is in fact self-employed and may be able to deduct work expenses in order to become eligible for benefits. Allowable expenses include:
  • Identifiable expenses of labor, stock, raw material, seed, fertilizer,etc.
  • Interest and principal on loans for equipment, real estate orincome-producing property
  • Insurance premiums on loans for equipment, real estate and otherincome-producing property,taxes paid on income-producing property
  • Transportation costs while on the job (example: fuel), but NOT routinetransportation to and from work
  • Purchase of capital equipment
  • A child care provider’s cost of meals for children. Do NOT allowcosts for the provider’s own children.
  • Any other identifiable expense of producing self-employmentincome except those listed below

Do NOT deduct the following from self-employment income:
  • Depreciation on equipment, real estate or other capital investments
  • A net loss from a previous period
  • Federal, state and local income taxes
  • Personal entertainment or other personal business expenses
  • Money set aside for retirement

Finding Help

Most legal aid and legal services offices handle these types of cases, and they do not charge a fee. You can locate the "free" legal services or legal aid office that serves your county on the Michigan LawHelp web site (http://MI.LawHelp.org) or look in the yellow pages under "attorneys" or call the toll-free lawyer referral number, (800) 968-0738.