Earned Income

Definition

Earned income is received as compensation for employment.

 

Refer to Chewable Byte 2024-111 How to Complete Employment Detail Page for CalSAWS entries. 

Wages and Salaries [63-502.13]

• All wages and salaries of an employee include:
• Wages earned or diverted to a third party by the employer to pay for household expenses (except for military payments diverted to an ex-spouse by court order).
• Recurring earmarked income that is not considered unearned income or exempt. 

Earmarked income is income received by a CalFresh household that the provider has designated for a specific purpose.

• Example
• IHSS payments received to care for a disabled person.
• Vacation pay received while the individual is still employed. (Vacation pay received in a lump sum a month or more after the final paycheck from employment is considered a resource.)
• Example
• Example

 

• Work study earnings. Refer to Students.

 

The following are NOT considered earned income:

• EITC payments received monthly. These are considered a resource.
• A meal deduction on a paycheck for a food service job. This is considered an exempt vendor payment.
• Monies withheld from earned income to repay a prior overpayment received from that income source.
• Rent paid directly to the landlord by an employer in addition to paying the household its regular wages. This is considered an exempt vendor payment and is not counted as income or a deduction.

 

Self-Employment [63-503.41]

Self-employment income, including tips, is considered earned income. Determine the gross by subtracting the actual business expenses or a 40% standard deduction from the total self-employment income, whichever the client chooses.

If the household chooses the standard 40% deduction, the EW must combine their regular self-employment income and tips earned through self-employment and enter them in CalSAWS. This allows the system to apply the 40% deduction for both regular and tip income from self-employment. Refer to CB 2024-106 for instructions on how to proceed.

 

Refer to Self-Employment [63-503.41] for detailed information and examples on budgeting.

• Income from a room rental or boarder is considered self-employment income (Only if the CalFresh household owns the property.
• Losses from self-employment as a farmer are to be offset against any other countable income in the household.

Reminder: The client must verify self-employment expenses only when selecting the “actual” self-employment deduction. Verification is not required for the 40% deduction from self-employment income.  If the client fails to provide verification of their expenses, the 40% standard deduction must be allowed.

Determination

Self-employment must be determined on a case-by-case basis. A person who works for wages or commission is not self-employed. Criteria such as tax returns, employer reports, to the IRS, Social Security tax withholdings, etc., can be used to determine self-employment. In most situations, if a client files their income tax as “self-employed,” they are considered self-employed for CalFresh as well; however, other criteria must also be taken into account when making the self-employment determination.

• If the client is employed by a company or an individual but chooses to file as self-employed for tax purposes only, the existence of an employee-employer relationship must be explored before making the self-employment determination for CalFresh.
• If the client has no self-employment expenses because they are paid for by another individual or company, the relationship between the payee of the costs and the client must also be explored to determine if there is an employee-employer relationship.

An individual does not need to meet all of the criteria mentioned above. In all circumstances, all the available information must be used, and the situation must be thoroughly explored to determine if the case should be considered self-employment. A sworn affidavit from the client may be needed in order to clarify any conflicting or unclear information.

Independent Contractor

An independent contractor is a business or individual who provides goods or services to another entity under a specific or implied contract or agreement. In addition, an independent contractor is not subject to the other’s control or the other’s right to control the manner and means of performing the services. Earned income generated by an independent contractor is treated as self-employment income.

Gig Contractor

A gig contractor is an individual who earns income working as an independent contractor whose work is coordinated by a third party. Earned income generated by a gig contractor is treated as self-employment income. Gigs are typically short-term jobs coordinated in conjunction with an online or application-based tool provided by a third party.

Examples of gig contractor jobs are, but not limited to:

• DoorDash®
• Lyft®
• Uber®
• Instacart®
• PostMates®
• GrubHub®
• Task Rabbit®

Gigs are typically paid per task by the third party to the independent contractor via direct deposit to their bank account. The total payment amount deposited may not reflect the gross income amount earned prior to deductions, including various fees charged by the third party.

Income verification, such as a pay stub, physical or electronic earnings statement, notification of per-gig gross payment via payment application, attestation, etc., must be requested from the CalFresh applicant or recipient. If the individual is a gig contractor for more than one third party, income verification must be provided for each third party. At the end of the year, gig contractors receive from the third party an IRS Form 1099-MISC reporting payment for total services performed that year. Individuals may receive multiple IRS Form 1099-MISCs from multiple third parties in one year.

There are situations in which, in order to apply the self-employment rules, it should also be considered whether an employer-employee relationship exists.

Employee-Employer Relationship

When determining the employee-employer relationship, there are certain criteria that must be explored.

1. Who has behavioral control of the work or services performed? Who decides:
   1. when and where the work done;
   2. what tools or equipment should be used to perform the work;
   3. what workers to hire or to assist with the work;
   4. where and when to purchase supplies and/or services;
   5. what work should be performed and who should perform it; and
   6. what order or sequence should the work be performed in?
2. Who has financial control of the “business?” Who decides:
   1. which expenses are reimbursed to the worker;
   2. how much to pay for the reimbursement;
   3. how and when the worker is paid; and
   4. who can negotiate the cost of the services?

Example

Example

Example

Example

Example

Example

Training

Training allowances from vocational and rehabilitation programs (such as CET) recognized by Federal, State, or local governments are considered earned income to the extent that they are not reimbursements. Refer to Budgeting Concepts for specific situations and examples.

Job Corps

Job Corps earnings are paid hourly at the minimum wage level or above. Small weekly amounts ($30, for example) are usually a training reimbursement, not earnings. Job Corps may deduct FICA from $ 30-week training stipends. This is for worker's compensation, but Job Corps still considers the $30 training reimbursement.

The EW should verify with Job Corps if there is a question as to whether a payment is earnings or reimbursement.

Workforce Investment Act (WIA)

WIA earnings are considered earned income. Any training allowances and need-based payments are treated as reimbursements and are therefore exempt. Refer to Exempt Income [63-502.2].

Military Pay

Military personnel are paid on the first and 15th of each month. If the first falls on a weekend or holiday, the payday is the last working day of the month prior to the first of the month. A check stub indicating gross pay is not attached to the check of the 15th.

A check stub is attached to the check, typically received on the first of the month. It shows the total gross and net income and deductions for:

• The prior month's 15th of the month pay, and
• The current month's first of the month pay.

Due to this payment method, a quarterly reporting household cannot verify earnings received on the 15th of the submit month. 

Therefore, EWs shall count as income the amount reflected on the pay stub received on the first of the month as income for that month.

In months that a paycheck is received on the last working day of a month (because the first is a holiday or falls on a weekend) that check is treated as if it were received on the first of the following month.

Example

Combat Zone

A portion of military pay made available to the household is exempt, if that portion of military pay is received as a result of a household member being deployed to a designated combat zone.

In order to determine what portion is exempt, the Eligibility Worker must:

1. Establish what amount of the military person’s pay was actually available to the household prior to being deployed to the designated combat zone.
   1. If the military person was part of the household prior to the deployment to a combat zone, this amount is considered net military pay.
   2. If the military person was not part of the household prior to his/her deployment to a designated combat zone, the current amount is the amount the absent military person actually made available to the household prior to deployment to the designated combat zone.
2. Determine the amount of military pay the deployed household member is making available to the household.
3. Determine if the amount of military pay made available is equal to or less than the amount the household was receiving from the military person prior to deployment to a designated combat zone:
   1. If the military pay is equal to or less than the amount the household was receiving from the military person prior to deployment, all of the pay would be counted as income to the household.
   2. Any portion of the amount that exceeds the amount the household was receiving prior to deployment should be excluded as income when determining the amount of CalFresh benefits.

The combat zone pay is excluded from the household income for the duration of the service person’s deployment into a designated combat zone.

For detailed information on the treatment of combat zone pay as a resource, refer to Combat Zone Pay. 

Designated Combat Zones

The following are combat zones designated by either an Executive Order from the President, Public Law 104-117, the Department of Defense or in support of Operation Iraqi Freedom:

Combat Zone	Description
Arabian Peninsula Areas	The Persian Gulf Red Sea, Gulf of Oman, the part of the Arabian Sea north 10 degrees North latitude and west of 68 degrees East longitude, the Gulf of Aden, and the countries of Bahrain, Iraq, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates
Kosovo Area	Federal Republic of Yugoslavia (Serbia and Montenegro), Albania, the Adriatic Sea and the Ionian Sea
Afghanistan
Bosnia, and Herzegovina, Croatia and Macedonia
Pakistan, Tajikistan and Jordan
Kyrgyzstan and Uzbekistan
Philippines	Only troops with order referencing Operation Enduring Freedom
Yemen
Djibouti
Somalia
Israel

 

Exempt any portion of earnings subtracted from an individual's basic pay under the Veteran's Benefits Improvement and Health Care Authorization Act of 1986 (PL 99-576, Sec. 303(a)(i). Refer to Exempt Income [63-502.2].

Title I, AmeriCorps [63-502.134 & 63-507(a)(17)]

All AmeriCorps payments are exempt, with the exception of AmeriCorps VISTA payments. See Exception below.

Payments received from AmeriCorps programs are exempt and should not be counted as income for eligibility or benefit determination. Some of the AmeriCorps programs are:

• AmeriCorps State
• AmeriCorps National
• AmeriCorps NCCC.

Exception: AmeriCorps*VISTA payments received by CalFresh recipients are exempt. AmeriCorps*VISTA payment received by new applicants, who were not receiving Public Assistance or CalFresh at the time they joined VISTA are counted as earned income. For these individuals, these payments are not exempt for eligibility and benefit determination.

Refer to Exempt Income [63-502.2] for a complete list of AmeriCorps programs.

Strikers-Picket Duty

Any portion of striker's benefits received as compensation for picketing is considered earned income. (The remaining amount is considered unearned income.)

Paid Work Experience (PWEX)

PWEX positions are in the non-profit sector. The County of Santa Clara is the employer of record and pays wages directly to the client. Clients are paid at a rate determined by the county and are employed 20 hours per week. These positions are six months in length. The income earned is considered Nonexempt income for the purpose of determining eligibility for public assistance. Refer to CWES Handbook Employment Connection Tier II - Paid Work Experience (PWEX) for more information.

Related Topics

Unearned Income