When families apply for free or reduced-price school meals through the National School Lunch Program (NSLP) or the School Breakfast Program (SBP), they’re asked to report household income. The distinction between gross and net income matters — and the federal rules are very specific.
Many schools mistakenly ask for net income (take-home pay). That’s incorrect for most families, but not for all. The correct rule depends on how the income is earned.
What the Federal Guidance Really Says
Definition of “Income” in NSLP
The USDA’s annual Income Eligibility Guidelines define “income” as the amount before deductions such as taxes, Social Security, insurance premiums, charitable contributions, and bond payments. (Food and Nutrition Service)
From the 2025–2026 guideline notice:
“Income … means income before any deductions such as income taxes, Social Security taxes, insurance premiums, charitable contributions, and bonds.” (Food and Nutrition Service)
This matches long-standing USDA rules and the Eligibility Manual for School Meals. (USDA Food and Nutrition Service)
Thus, wages, salaries, commissions, tips, etc., should be counted in full (gross) amounts. (Federal Register)
Self-Employment / Business Income Exception
One nuance: for self-employment or farm income, the determination uses net income (gross receipts minus business/farm expenses). The USDA instructions recognize that for a business, “net income from non-farm self-employment” or “net income from farm self-employment” is used. (Food and Nutrition Service)
So:
- Wage/salary or employment income → report gross before deductions
- Self-employment / business / farm income → report net (after business expenses)
Other income sources (pensions, retirement, Social Security, interest, alimony, etc.) likewise count before deductions. (Food and Nutrition Service)
Why Some Schools Ask for Net Income — and Why That’s Problematic
Why the error happens:
- Some local administrators may misunderstand “income” as “take home pay” after taxes/deductions.
- Financial aid applications (for college, benefits) often work with adjusted or net income, which may lead to confusion.
- Legacy software or application systems might have form fields using “net income” or “after deductions” for convenience.
Why it’s a serious issue:
- Underreporting risk
If families subtract deductions (taxes, insurance, etc.) and report their net, their reported income will be lower than the official standard. That could lead to over-eligibility (granting benefits to ineligible households) or misallocation of funds, hurting program integrity. - Inconsistent with federal rules
Requests for net income contradict the USDA’s explicit requirement that gross income be used (except self-employment). That could expose the school or district to audit findings or compliance issues. - Equity and fairness
Families with similar gross income might report differently if one deducts heavily (due to high taxes, benefits, etc.), creating unfair disparities.
Sample Language You Can Use (for schools/districts)
Note: When completing this application, report gross income (income before taxes, insurance or other deductions). Do not subtract deductions to arrive at net pay.
Exceptions: If someone in the household is self-employed or operates a small business/farm, you should report net income (after subtracting allowable business expenses).
All other sources of income — wages, pensions, Social Security, unemployment, interest, alimony, child support, etc. — should be entered in their full, undeducted amount.
You can cite USDA’s form instructions or the Income Eligibility Guidelines in your policy or parent communications.
Possible Counterpoints & How to Address Them
- “Families don’t know gross vs net.”
You can provide instructional examples, or the “household letter/instructions” accompanying the application can give clear guidance (USDA prototype applications include this). (Food and Nutrition Service) - “What about payroll deductions (taxes, benefits)?”
Those are not subtracted. The rule is explicit: deductibles like taxes and insurance premiums are not to reduce the income reported. (Food and Nutrition Service) - “What about self-employment?”
As noted above, for self-employment, business expenses are subtracted. That is an allowed exception in USDA rules. (Food and Nutrition Service)