Gross Income or Net Income: When Does it Matter?

The difference between gross income and net income is not always clear to some family child care providers.

But there are times when it can be an important distinction.

Gross income is the amount of money you earn from your family child care business, before any expenses. This includes parent fees, subsidy payments, Food Program income, grants, and all other earnings.

Net income (also called your profit) is your gross income minus your business expenses (as reported on your tax return).

When Does it Matter?

The most common situation where this comes up is when you participate on the Food Program. If your family is low income you will be eligible to receive a higher reimbursement (Tier I) for the children in your care, including for your own young children. To qualify to receive this higher reimbursement rate, your Food Program sponsor must look at your net income, not gross income.

If you are applying to receive Food Stamps (Supplemental Nutrition Assistance Program - SNAP) or subsidized federal housing (Section 8 of the federal Housing Act), your eligibility will be based on your net income, not gross income.

There may be other benefits offered by state and local governmental agencies in your area that you may qualify for based on your income. In most situations the program will want to know your net income.

Over the years I've heard from child care providers who have been denied a benefit because the agency is looking at their gross income, rather than their net income. Sometimes this can happen because the agency is used to dealing with people who work as employees (who will report their gross income), rather than with self employed child care providers.

If you are applying for assistance/benefit from a governmental agency (or even a private agency) and they are asking for your gross income, double check to see if they should be looking at your net income. If necessary, ask to see the rules/regulations they are relying on to determine your eligibility.

I've seen a number of situations where the child care provider was successful in qualifying for a benefit after the agency was pressed to reexamine their rules.

Loans

Qualifying for a loan to buy or remodel a home has its own special problems. Most banks will look at your profit (net income) as reported on the bottom line of your IRS Form Schedule C. In fact, this doesn't accurately reflect your ability to repay a loan.

Tom Copeland - www.tomcopelandblog.com

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