MA-2250: INCOME

VII. COUNTABLE EARNED INCOME

A. Definitions

1. Regular employment - Engaged in on a full-or part-time basis, may be permanent or temporary; includes seasonal work.

2. Self-Employment - Net income of the person from a business enterprise or trade controlled by oneself, i.e., produce sales, farming, craft sales, babysitting in one's own home.

3. Wages/salary - Compensation paid regularly for services rendered, i.e., babysitting in the home of another, sales, clerk, EITC, sheltered workshop income including ADAP and VR incentives, etc.

4. Commissions - percentage of money made on sales and given in pay, in addition to salary or wages.

5. Tips - Gratuities or sums of money in excess of $20 per month given voluntarily for services rendered.

C. Wages

1. Includes wages from:

a. employment, tips, seasonal work, babysitting in the home of another, domestic employment,

b. earnings and payments received by an a/r participating in JTPA,

c. earnings from the Title V Program for adults age 55 or older (through U.S. Department of Labor),

d. annual leave pay when subject to tax deductions,

e. sick pay for the first six months after work stops due to disability or illness.

f. earnings from work performed in a sheltered workshop or work activities center.

2. Responsibility of the A/R

Unless the a/r is mentally or physically incapable or requests assistance, he must provide verification of income. Refer to 5. below for acceptable sources of verification.

D. Self-Employment

Self-Employment is the gross income from a continuing trade or business less allowable deductions for that trade or business. This includes farm income (refer to E. below for procedures for farm income).

Self-employment also includes any distributive share (profit at the end of the year after salaries are paid), whether or not distributed, of income from a trade or business carried on by a partnership. Count profit from a partnership or corporation as distributable income even if the a/r states it is not available. A verified net loss can be deducted from other self-employment income in the base period.

4. Only deduct expenses which have been paid and are business related. Allowable operational expenses include but are not limited to:

a. Taxes required to operate the business (only the percentage that can be claimed as a business expense),

b. License and permit fees,

c. Interest portion of mortgage (principal not allowed),

d. Rent payments,

e. Insurance on stock, personal and real property,

f. Labor costs and employee benefits such as Worker's Compensation and Social Security,

g. Maintenance of real and personal property,

h. Utility costs paid by the a/r,

i. Products required to operate the business,

j. Interest payments on loans for equipment, etc., necessary for producing the income,

k. Business related transportation costs, or

l. Food costs of self-employed baby sitters who baby sit in their own homes. Use the a/r's records of food costs.

Note: Operational expenses included on tax returns which are not allowable must be added back in when computing gross countable income. Do not allow depreciation as an operational expense.

5. Net Loss from Self Employment

When a member of a Medicaid couple, a Medicaid individual, a Medicaid individual's ineligible spouse or one of two ineligible parents incurs a verified net loss, deduct it from any other self-employment earnings for the tax year in which the loss was incurred, regardless of which individual incurred the loss.

a. Do not use the loss to offset other self-employment income until it can be accurately established (usually not prior to the close of the a/r's taxable year).

b. Once the loss is established it may only be used to offset income from other self-employment earnings of the budget unit.

c. Do not reduce total self-employment earnings below zero when deducting the net loss from other self-employment earnings.

9. Computation

a. If the a/r states there has been no change in the business earnings in the past year, base the current year's profits on the prior year's profit.

(1) The estimate of the current year should be the same as net profit for the previous year. Monthly income should be one-twelfth of the net profit as shown on the tax return for the previous year.

(2) If there are no tax records, use a/r' business records to determine gross income and operational expenses. Subtract the total operational expenses paid in the base period (maximum of 12 months prior to month of application) from gross income received in base period. Divide this amount by 12 (or the number of months used) to determine a countable gross monthly income. See Section II to compute net earned income.

b. If the a/r states there has been a change in income and the method in a. above would not be accurate, apply the Gross-Net Ratio.

(1) Determine the ratio between the net profit and gross receipts for last year from the a/r's tax return or business records (e.g., net profit of $1200 for $6000 gross receipts or 20%).

(2) Determine the actual gross receipts for the current taxable year thus far from the a/r's records and project it for the remainder of the year (e.g., $4,000 in current year's receipts for the first 6 months gives an assumed gross of $8,000 for the entire year).

(3) Apply the gross-net ratio (e.g. 20% of $8,000 is $1,600) to the gross receipts projected for the year to obtain an estimate of net profit.

(4) Prorate the net profit equally into the 12 months of the taxable year.

c. Projecting Partial Years Profit for Whole Year

When the b.u. is engaged in a new business, have the individual supply a profit and loss statement or other business records for the taxable year to date so a net profit can be derived. Project for the year and prorate to a monthly amount.

10. If the business is to be continued but no profit is realized due to circumstances beyond the control of the a/r, do not consider the property value in reserve.

a. Flag the case for review of income when the income begins again.

b. Discuss with the a/r his plans for meeting living expenses. Determine what income is available from other sources.

11. Business being discontinued

a. Application Processing

Show as reserve the remaining portion of the current year's total available net business income.

b. During the Certification Period

Include in reserve net proceeds still available from the dissolution of the business.

E. Farm Income

Farm income is self-employment from production of crops or livestock. Income from a farm which is leased to another individual is counted as rental income.

Consider all income received from the sale of farm products such as:

a. Crops,

b. Livestock such as beef, poultry, etc.,

c. Livestock products such as milk, eggs, etc.,

d. Proceeds from the Soil Bank,

e. Cash rent, or

f. Other sources of farm income such as insurance payments for damaged crops.

Allowable operational expenses include but are not limited to:

a. Fertilizer, insecticides, seed, crop insurance,

b. Livestock maintenance,

c. Interest portion of mortgage (principal not allowed),

d. Rent payments,

e. Taxes on farm property or equipment,

f. Building and equipment maintenance/insurance,

g. Interest payments on debts or loans directly related to producing the income such as interest on loans for seed and fertilizer,

h. Labor, or

i. Verified costs of transportation related only to the farm operation.

Note: Operational expenses included on tax returns which are not allowable must be added back in when computing gross countable income.

8. Computation

a. If the a/r states there has been no change in the business earnings in the past year, base the current year's profits on the prior year's profit.

(1) The estimate of the current year should be the same as net profit for the previous year. Monthly income should be one-twelfth of the net profit as shown on the tax return for the previous year.

(2) If there are no tax records, use a/r's business records to determine gross income and operational expenses. Subtract the total operational expenses paid in the base period (maximum of 12 months prior to month of application) from gross income received in base period. Divide by 12 (or the number of months used) to determine a countable gross monthly income. See Section IX. to compute net earned income.

b. If, the a/r states there has been a change in income and the method in a. above would not be accurate, apply the Gross-Net Ratio.

(1) Determine the ratio between the net profit and gross receipts for last year from the a/r1s tax return or business records (e.g., net profit of $1200 for $6000 gross receipts or 20%).

(2) Determine the actual gross receipts for the current taxable year thus far from the a/r's records and project it for the remainder of the year (e.g., $4,000 in current year's receipts for the first 6 months gives an assumed gross of $8,000 for the entire year).

(VII.E.8.b.)

(3) Apply the gross-net ratio (e.g. 20% of $8,000 is $1,600) to the gross receipts projected for the year to obtain an estimate of net profit.

(4) Prorate the net profit equally into the 12 months of the taxable year.

c. Projecting Partial Years Profit for Whole Year

When the b.u. is engaged in a new business, have the individual supply a profit and loss statement or other business records for the taxable year to date so a net profit can be derived. Project for the year and prorate to a monthly amount.

9. Farm Operation Being Discontinued

a. Application

When processing the application, show as reserve the remaining portion of the current year's total available net business income.

b. During the Certification Period

Include in reserve net proceeds still available from the dissolution of the farm business.

F. Supplemental Payments in Excess of State Maximum Rates for Foster Care . Payments and State Foster Home Funds Paid by the County

Definition - Payments by a county which exceed the State maximum rates or exceed the rates set by the county