Contract Income 430-05-50-15-30

(Revised 03/01/06 ML3017)

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Individuals who receive contract income that does not represent their annual income must have the income prorated over the period of time intended to cover.

 

Example:

A household reports in November that they entered into a coaching contract for the months of November, December, January and February.  The contract is for $2,000 with a one-time payment on February 15.  Since this contract does not represent the household's annual income, the $2,000 must be prorated over 4  months.  The only month income of $500 would be anticipated and counted is for the benefit month of February.

 

Individuals who receive contract income which is renewable on a yearly basis and is intended as their annual income must have this income averaged over a 12-month period. These individuals may include school employees (such as teachers, cooks, bus drivers, and janitors), share croppers, etc.

 

A contract for income must be written or implied and the salary amount identified in the contract must be for a set dollar amount, not an hourly or piece meal basis. Additionally, the salary must be paid based on the set dollar amount, not paid by how many hours were worked or the amount of work that was completed.

 

If the contract indicates an hourly wage and the employer verifies the contract is for a predetermined total salary amount, the income is considered contract income. If the contract indicates a predetermined total salary amount, but the individual is paid based on the number of hours worked or the amount of work that was completed, it is not contract income and is treated as normal earned income.

 

Example:

John signed a contract for 9 months as a school janitor and the contract states he will receive $9000 in monthly installments. John states the income is intended for his annual support:

If John is paid $1000 every month regardless of the hours he works, it is a true contract situation and we would budget $9000 by 12 months = $750 monthly.

However, if John’s monthly wages vary by the number of hours he works per month, it is not a true contract because John is being paid by the hour, not by the contract amount. (For example, one month his wage shows 160 hours x $6.25 per hour and 20 hours x $9.38 overtime, and the next month shows 100 hours x $6.25, and the pay is equal to the hourly rate.) John’s income would be budgeted as received in this situation, not annualized or averaged over the period of the contract.

 

Contract income that is intended for the individual’s annual income must be annualized over a 12 month period, even though predetermined non-work periods are involved or actual compensation is scheduled for payment during work periods only.

 

A food stamp applicant initially applies and has a new contract or an ongoing food stamp household that initially starts receiving contract income during participation in the program. In these instances, the worker must anticipate income and annualize, but not count any income until the budget month that the individual will actually receive a check.

 

Example:

A household applies in June and has a contract to start teaching in August. The income from the contract must be annualized, however, the first month that any contract income would be counted is August for food stamp purposes.

 

Once the household is in a continuing cycle of income, the worker must annualize income expected and begin counting the monthly amounts the first month of participation.

 

Example:

In January, a household applies for food stamps and a teacher in the household has been under contract for the last year and receives contract income for the months of August through May. Starting with the benefit month of January, the contract income must be prorated over 12 month and 1/12 of it must be counted as income and used when calculating January benefits (the first month of participation).

 

Contract Renewal

The renewal process may involve signing of a new contract each year, may be automatically renewable, or, as in cases of school tenure, rehire rights may be implied and not require a written contract.