Alabama Administrative Code › Title 660 - ALABAMA DEPARTMENT OF HUMAN RESOURCES › Chapter 660-4-2 - CERTIFICATION OF ELIGIBLE HOUSEHOLDS › Section 660-4-2-.06 - Action On Households With Special Circumstance

Current through Register Vol. 42, No. 9, June 28, 2024
The procedures for handling income received from boarders by a
				household that does not own and operate a commercial boardinghouse are
				described in Section 1101.
For all other households receiving self-employment income,
				including those households that own and operate a commercial boardinghouse, the
				county department shall calculate the self-employment income in accordance with
				the policies in the section. See Enter Self-employment income in OACIS
				Self-employment is working for oneself, rather than for an employer.
				Self-employment for food assistance purposes involves a business, job, or
				enterprise which an individual or individuals work for gain or profit, rather
				than wages or salaries paid by an employer.
SELF-EMPLOYMENT BUSINESSES
1. The income and resources of an
			 unincorporated businelss are treated as the self-employment income and
			 resources of the proprietor
2. The
			 income and resources of a partnership are treated similarly with each partner
			 receiving a proportionate share of the partnership income and resources.
S CORPORATIONS AND OTHER CORPORATIONS
1. S Corporations are closely-held family
			 corporations in which income from such is reported together with other
			 household income on its tax return. S Corporations are "pass through" entities
			 for tax purposes. The income of these companies are passed through to their
			 owners and reported on the owners' personal income tax returns. Income from an
			 S Corporation is counted as earned income, but it is not treated as
			 self-employment. Owners of S Corporations are considered employees of the
			 corporation and; therefore, cannot be considered as self-employed. Because they
			 are not considered self-employed, they are not entitled to the exclusion of
			 certain costs of producing self-employment income (40% standard deduction). In
			 an S Corporation only the salary paid to the employee-owner is subject to
			 employment tax.
For those households who have an S Corporation, only the income
				as reported on the household's income tax return, form 1040, for the S
				Corporation is budgeted as earned income and annualized over a 12-month period.
				If the household reports a net loss, the income attributed to the food
				assistance household would be zero since net losses may not be used to offset
				other income. Losses experienced by employees of S Corporations must not be
				offset against other countable income in the household.
The income of other types of corporations is income to the
				shareholder only if it is distributed to the shareholder. Any cash or expenses
				paid to or for the household from corporate funds should be considered
				"distributions" and counted as income.
2. Corporate assets for any corporation
			 should be clearly registered in the name of the corporation to receive an
			 exclusion from the household's resource determination. Otherwise, these would
			 be considered property of the household and counted or excluded as appropriate
			 according to the provisions found in Chapter 8. Additionally, the value of the
			 stock which represents the value of non-income producing corporate property is
			 considered a resource to the stockholder.
Annualizing Self-employment Income
Self-employment income may be received irregularly or on a
				regular basis and is handled as follows:
1. Self-employment income which represents a
			 household's annual income shall be annualized over a 12 month period even if
			 the income is received within only a short period of time during those 12
			 months. For example, self-employment income received by farmers shall be
			 averaged over a 12-month period, if the income is intended to support the
			 farmer on an annual basis.
If the averaged annualized amount does not accurately reflect
				the household's actual circumstances because the household has experienced a
				substantial increase or decrease in business, the county department shall
				calculate the self-employment income on anticipated earnings. The county
				department shall not calculate self-employment income on the basis of prior
				income (e.g., income tax returns) when the household has experienced a
				substantial increase or decrease in business.
2. Self-employment income which is received
			 on a monthly basis but which represents a household's annual support shall
			 normally be averaged over a 12 month period. This self-employment income shall
			 be annualized even if the household receives income from other sources in
			 addition to self-employment.
If, however, the averaged amount does not accurately reflect
				the household's actual monthly circumstances because the household has
				experienced a substantial increase or decrease in business, the county
				department shall calculate the self-employment income based on anticipated
				earnings.
3. Self-employment
			 income which is intended to meet the household's needs for only part of the
			 year shall be averaged over the period of time the income is intended to cover.
			 For example, self-employed vendors who work only in the summer and supplement
			 their income from other sources during the balance of the year shall have their
			 self-employment income averaged over the summer months rather than a 12-month
			 period.
DETERMINING THE PERIOD OF TIME SELF-EMPLOYMENT INCOME IS
				INTENDED TO COVER
In an effort to determine if the self-employment income which
				is received other than on a regular monthly basis is intended to support the
				household on an annual basis, other factors, in addition to the household's own
				statement, could provide some indication as to how long the household could
				sustain itself on such income would have to be examined and evaluated. Such
				factors would include, but would not be limited to, previous year's business
				and personal expenses, tax records, anticipated expenses for the current year,
				income received from other sources during the previous year, income during the
				coming year, and so on. Such factors, when compared with the income from
				seasonal self-employment, would provide a basis for making a determination as
				to how long the income is intended to support the household.
For example, if the previous year's expenses were proportionate
				to the household's income from self-employment, it could be an indication that
				the income would sustain the household for a year. Therefore, the household's
				income could be annualized. If expenses were not proportionate with the income,
				it could be assumed that such income could not sustain the household for a
				year; therefore, income would be averaged over the period of time for which
				such income is received.
Although the period of time for which the income is intended to
				cover would be a factor in determining the length of the household's
				certification period, all household circumstances would have to be evaluated.
				Additionally, although information obtained by the household would provide some
				indication as to the appropriate certification period to be assigned, the
				responsibility for establishing the appropriate certification period remains
				that of the county department.
NEW SELF-EMPLOYMENT ENTERPRISES
If a household's self-employment enterprise has been in
				existence for less than a year, the income from that self-employment enterprise
				shall be averaged over the period of time the business has been in operation,
				and the monthly amount projected for the coming year.
However, if the business has been in operation for such a short
				time that there is insufficient information to make a reasonable projection,
				the household may be certified for less than a year until the business has been
				in operation long enough to base a longer projection.
TERMINATION OF SELF-EMPLOYMENT
When a self-employed household whose income and expenses have
				been annualized and prorated over a 12-month period goes out of business, the
				county department must remove the prorated income from the food assistance
				budget when the last income is received from that source. For example, a farmer
				reports that he plans to stop farming and expects to sell his last crop in
				October. The sale of the crop has previously been anticipated and the income
				had already been included in the averaged amount. The averaged amount would be
				counted for October. No self-employment income would be counted for
				November.
1. If the household is
			 expected to receive residual income after the person stops being actively
			 engaged in the self-employment enterprise, the county department must calculate
			 the residual self-employment income based on anticipated amounts.
The income can either be counted in the month it is anticipated
				to be received or the county department can average the income forward over the
				certification period.
2.
			 When the self-employment income is no longer counted in the food assistance
			 budget, the self-employment expenses are no longer allowed, even if they
			 continue to be incurred.
Determining Monthly Income from
				Self-employment
For the period of time over which self-employment income is
				determined, the county department must add all gross self-employment income
				(including capital gains); divide the gross self-employment income by the
				number of months over which the income will be averaged. This is the amount to
				be shown on the DHR-FAD-1139.
The households with self-employment income are entitled to a
				standard deduction of 40% of the gross proceeds from the self-employment income
				as a cost of doing business. This procedure is automated.
For those households whose self-employment income is not
				averaged but is instead calculated on an anticipated basis, as noted in Item A
				of this section, the county department must:
1. Add any capital gains the household
			 anticipates it will receive in the next 12 months, starting with the date the
			 application is filed.
2. Divide the
			 amount by 12. This amount shall be used in successive certification periods
			 during the next 12 months, except that a new average monthly amount shall be
			 calculated over this 12-month period if the anticipated amount of capital gains
			 changes.
3. The monthly anticipated
			 average of capital gains as determined above shall then be added to the
			 anticipated monthly self-employment income.
Households with self-employment income are entitled to standard
				deductions of 40% of the gross proceeds from the self-employment income as a
				cost of doing business. This procedure is automated.
OTHER HOUSEHOLD INCOME AND SELF-EMPLOYMENT
				INCOME
The monthly net self-employment income shall be added to any
				other earned income received by the household. The total monthly earned income,
				less a 20% earned income deduction, shall then be added to all monthly unearned
				income averaged by the household. (This process is handled by
				automation.)
SPECIAL PROVISION FOR FARMERS
For purposes of this provision, to be considered a
				self-employed farmer, the farmer must receive or anticipate receiving annual
				gross proceeds of $1000 or more from the farming enterprise.
A fisherman is treated the same as a self-employed farmer if
				the fisherman is self-employed and receives or anticipates receiving annual
				gross proceeds of $1,000 or more from fishing. This applies even if the
				fisherman is only involved in catching or harvesting the fish as well as
				watermen, cray fishermen and other type fishermen.
When the Secretary of Agriculture determines that a farm
				emergency exists due to a natural disaster, any payments to farmers pursuant to
				such a determination shall be excluded from income and resources for food
				assistance purposes. This exclusion is required by Section 312(d) of the
				Disaster Relief Act of 1974, as amended in 1988.
CERTAIN FARM PAYMENTS
a. Agricultural Stabilization and
			 Conservation Service (ASCS) cash payments including payments for crop losses
			 are counted as earned self-employment income except when such payments are for
			 loans. Farm loans are excluded from income for food assistance
			 purposes.
b. Payments from the
			 Federal Crop Insurance Corporation (FCIC) are considered recurring lump-sum
			 payments, and as such they are considered as resources.
c. Crop insurance settlements from private
			 companies which are made as a nonrecurring lump sum payment are counted as a
			 resource.
TERMINATION OF FARM SELF-EMPLOYMENT INCOME
When a farm self-employment household whose income and expenses
				have been annualized and anticipated over a 12-month period, discontinues
				farming, the county department shall remove the farm self-employment income
				from the budget in accordance with the appropriate reporting and processing
				time frames for changes.
Annualized farm self-employment income that had been prorated
				as income from the budget due to termination of self-employment would lose its
				resource exclusion. However, any property or vehicles essential to farm
				self-employment of a household member engaged in farming is excluded as a
				resource for one year from the date the household member terminates farm
				self-employment.
Capital Gains
The proceeds from the sale of capital goods or equipment shall
				be calculated in the same manner as capital gains for Federal income tax
				purposes. However, even if 50% of the proceeds from the sale of capital goods
				or equipment are taxed for Federal income tax purposes, the State agency shall
				count the full amount of the capital gain as income for food assistance
				purposes.
RECAPTURED DEPRECIATION
The Internal Revenue Service (IRS) allows self-employed persons
				to deduct depreciation as a cost of doing business. Then, when a piece of
				equipment, for instance, is sold before the end of its useful life, the former
				owner must declare a portion of depreciation as income. This is commonly
				referred to as recaptured depreciation. Recaptured depreciation is NOT counted
				as income for food assistance purposes.
RECAPTURED INVESTMENT CREDIT
IRS allows for a percentage of certain investments to be
				deducted as an expense. If the asset is disposed of or ceases to be eligible
				before the end of the recapture period for recovery property or before the end
				of the estimated life used to figure the credit, a percentage of the credit may
				have to be recaptured. This is commonly referred to as recaptured investment
				credit. Recaptured investment credits are NOT counted as income for food
				assistance purposes.
Allowable Costs of Producing Self-employment
				Income
Households with self-employment income are given a standard
				deduction of 40% of the gross proceeds from self-employment income for
				operating expenses as a cost of doing business. The standard will be used for
				all food assistance households reporting self-employment income. This procedure
				is automated.
Assigning Certification Periods
Households that receive their annual support from
				self-employment and have no other source of income may be certified for up to
				12 months.
For those households that receive other sources of income or
				whose self-employment income is intended to cover a period of time that is less
				than a year, the county department shall assign a certification period
				appropriate for the household's circumstances.
For those self-employed households that receive their annual
				income in a short period of time, the initial certification period shall be
				assigned to bring the household into the annual cycle. For example, the county
				department may provide for recertification at the time the household normally
				receives all or a majority of its annual income or the State agency may prefer
				to have the annual cycle coincide with the filing of the household's income
				tax.
Special Instructions for Farmers in USDA Payment-in-Kind (PIK)
				Program
The following policy establishes the procedures for handling
				grain received by farmers under the new Payment-In-Kind (PIK) Program. Under
				this program, farmers who have already taken portions of land out of production
				under the Land Diversion or Acreage Reduction Programs will be encouraged to
				take more land out of production. Farmers who enroll will receive surplus grain
				which can be retained for their own use or sold. Rice and upland cotton, as
				well as wheat, corn and sorghum are involved in PIK program.
Grain received under this program should normally be considered
				self-employment income. It should be included when annualizing income if the
				household indicated the grain will be sold during the year. It should be noted
				that no income is in fact realized by the household until the commodities are
				sold. Indeed, farmers receiving PIK payments from the Commodity Credit
				Corporation (CCC) will incur no Federal income tax liability until sale of the
				commodities occurs. However, the Food Assistance Program regulations provide
				for a process of annualizing to be used when certifying self-employed
				households, such as farmers. PIK commodities, like any other product of the
				farm enterprise, should be included as part of annual income if their sale may
				be reasonably anticipated during the year for which income is being calculated.
				This process allows self-employed households to have certification periods that
				reflect the uneven time frames in which their income is generated.
It should also be noted that in many cases farmers will sell
				commodities they own to CCC and receive them back from CCC as PIK commodities.
				Farmers will be paid by CCC for the commodities with the payment being used to
				repay price support loans previously extended to the farmer by CCC. These sales
				and loan repayments should be treated as completely separate from the receipt
				of PIK commodities and handled in the same manner as any other sale of
				commodities and repayment of a price support loan.
The value of any grain which the household intends to use for
				feed or seed would not be considered a resource. In those instances where the
				household intends to retain the grain without sale longer than 12 months, it
				should be considered a non-liquid resource. It should also be noted that
				farmers who qualify for PIK grain and are already storing grain under a CCC
				loan will be allowed to divert for personal use the amount of PIK entitlement
				from their own storage, and will be released from any obligation for that
				amount of grain. PIK grain should be considered as described above whether
				diverted from the farmers own storage or received from the
				CCC.