It is a gray area. Usually, the income of an inmate is from the penal system. Even a halfway house or work release is still part of that system. This bulletin does not address house arrest, but it does go into great detail about what is included in the penal system.
Although an individual may be allowed to participate in a work release program, those individuals are still confined to the penal institution and must return to the penal institution when not performing services. Although the work performed by those individuals is not performed at the penal institution itself, it is performed while the individual is an inmate at a penal institution. Neither section 32(c)(2)(B)(iv) of the Code nor its legislative history suggests that the place where the work is performed is relevant to a determination of whether the services are provided while the individual is an inmate at a penal institution. Thus, any payments received by the inmate while performing services in a work release program are amounts received while the individual is an inmate at a penal institution. Those amounts are excluded from the definition of earned income under section 32(c)(2)(B)(iv) of the Code.
With respect to individuals transferred to a halfway house, those individuals have not been released from their sentences, can be returned to the prison facility, and are usually required to perform services. Although these individuals are not confined to a prison, jail, or penitentiary, they are confined to the halfway house for the remainder of their sentence. Thus, a halfway house falls within the general definition of a penal institution. Accordingly, any amounts received for services performed by an inmate while at a halfway house are amounts received for services performed while at a penal institution. Those amounts are excluded from the definition of earned income under section 32(c)(2)(B)(iv) of the Code.
