|
State of Wisconsin |
HISTORY |
The policy on this page is from a previous version of the handbook.
16.4.1 Specially Treated Wages
16.4.2 Room and Board Income 16.4.3 Self-Employment Income
16.4.3.2 Calculating BadgerCare Plus Self-Employment Income
16.4.3.2.3 Disallowed Expenses
16.4.3.2.4 Anticipating Earnings
16.4.3.3 Losses Offsetting Other Income (MAGI Rules Only)
16.4.4.1 Self-Employment Hours
Earned income is income from gainful employment.
Under non-MAGI rules, earned income for individuals younger than 18 years old is not counted. The gross earned income before any deductions are taken out is counted.
Under MAGI rules, earned income after pre-tax deductions will be counted. See Section 16.3.2 Pre-Tax Deductions for more information on pre-tax deductions.
Contractual Income
This provision applies primarily to teachers and other school employees.
When an employed BadgerCare Plus group member is paid under a contract, either written or verbal, rather than on an hourly or piecework basis, the income is prorated over the period of the contract. For example, if the contract is for 18 months, the income is prorated over 18 months no matter the number of installments made in paying the income. The income is prorated even if one of the following is true:
Do not count the following:
To determine the value of in-kind benefits, use the prevailing wage (but not less than the minimum wage) in the community for the type of work the person does to earn the benefits.
Count advances on wages as earned income in the month received.
Count severance pay as earned income in the month of receipt. Count severance pay that has been deferred at the employee’s request or through a mutual agreement with his or her employer as earned income when he or she would have received the amount had it not been deferred.
Workers' Compensation
Under non-MAGI rules, count workers' compensation as earned income.
Under MAGI rules, do not count workers' compensation as earned income.
Income Received by Members of a Religious Order
Under non-MAGI rules, count any compensation that a member of a religious order receives as earned income if the compensation is for gainful employment, even if the compensation is turned back over to the order. Count any compensation that a member of a religious order receives, not related to gainful employment, as unearned income even if the compensation is turned over to the order.
Under MAGI rules,if a person is a member of a religious order and has taken a vow of poverty, do not count any compensation that a member of a religious order receives if the compensation is turned back over to the order.
Housing Allowances for Members of the Clergy
Under MAGI rules, do not count any housing or housing utility allowances that are received as compensation for services as an ordained, licensed, or commissioned minister as income.
Jury Duty Payments
Under non-MAGI rules, count any portion of a jury payment that is over and above expenses as earned income.
Under MAGI rules, count all jury duty payments as earned income for the month in which it is received if the payments are not turned over to the individual’s employer. Amounts received separately as reimbursements or allowances for travel to and from the courthouse, meals, and lodging during jury duty are not countable.
Under non-MAGI rules, disregard any benefit whether cash or in-kind, including but not limited to living allowance payments, stipends, food and shelter, clothing allowance, and educational awards or payments in lieu of educational awards. Disregard any child care allowance to the extent it was used to meet child care expenses to participate in AmeriCorps. Disregard any basic health insurance policy, child care services, auxiliary aid, and services to people with disabilities and the national service.
Under MAGI rules, earnings or cash benefits received through AmeriCorps, including VISTA, will be counted as earned income. Educational awards received from AmeriCorps are not counted as income.
Count only wages and salaries paid to individuals as a result of their participation in a program funded under Title V of the Older Americans Act of 1965 as earned income.
These programs include, but are not limited to the following:
Identify programs funded under Title V of the Older Americans Act using documents provided by the member, contacts with the provider, or a local council on aging.
Do not count reimbursements (see Section 16.2 #19 Reimbursements).
Under non-MAGI rules, calculate the net amount by deducting one of the following from the gross amount received from each roomer or boarder: $15 roomer only, $111 Boarder only, $126 roomer and boarder. Under MAGI rules, these deductions are no longer used if this income is reported as room and board income. If room and board income is reported as self-employment income, see Section 16.4.3 Self-Employment Income for more information on counting self-employment income.
Self-employment income is income derived directly from one's own business rather than as an employee with a specified salary or wages from an employer. "Business” means an occupation, work, or trade in which a person is engaged as a means of livelihood.
A business is operating when it is ready to function in its specific purpose. The period of operation begins when the business first opens and generally continues uninterrupted up to the present. A business is operating even if there are no sales and no work is being performed. Thus a seasonal business operates in the off season unless there has been a significant change in circumstances. A business is not operating when it cannot function in its specific purpose. For instance, if a mechanic cannot work for four months because of an illness or injury, he may claim his business was not in operation for those months. Self-employment is identified according to the following criteria: Organization A farm or other business is organized in one of three ways:
Is taxed as a separate entity rather than the owners being taxed as individuals, and
Provides only limited liability. Each owner’s loss is limited to their investment in the corporation while the owners of unincorporated business are also personally liable.
IRS Tax Forms
A self-employed person who earns more than $400 net income must file an end-of-year return. A person who will owe more than $400 in taxes at the end of the year must file quarterly estimates. IRS tax forms for reporting self-employment income are listed below.
Employee Status
A person is an employee if he or she is under the direct "wield and control" of an employer. The employer has the right to control the method and result of the employee's service. A self-employed person earns income directly from his or her own business, and:
Note: A babysitter who works in someone else's home is considered an employee of that household even if the individual employing him or her does not withhold taxes or FICA.
Examples of self-employment are:
Businesses that receive income regularly (for example, daily, weekly, or monthly):
Merchant.
Small business.
Commercial boarding house owner or operator.
Owner of rental property.
Service businesses that receive income frequently and possibly sporadically:
Craft persons.
Repair persons.
Franchise holders.
Subcontractors.
Sellers of blood and plasma.
Commission sales persons (such as door-to-door delivery).
Businesses that receive income seasonally:
Summer- or tourist-oriented business.
Seasonal farmers (custom machine operators).
Migrant farm worker crew leaders.
Fishers, trappers, or hunters.
Roofers.
Farming, including income from cultivating the soil or raising or harvesting any agricultural commodities. It may be earned from full-time, part-time, or hobby farming.
Self-employment income sources are:
Income from operating a business.
Business income from selling securities and other property is counted. Under non-MAGI rules, personal capital gains are not counted as income. Under MAGI rules, personal capital gains and ordinary gains or losses are counted as unearned income. See Section 16.5 Other Income for more information.
Rental income is rent received from properties owned or controlled. Rental income is either earned or unearned. It is earned only if the owner actively manages the property on an average of 20 or more hours per week. It is unearned when the owner reports it to the IRS as other than self-employment income.
Use "net" rental income in the eligibility determination. "Net" rental income means gross rental receipts minus business expenses.
When a Medicaid group member reports rental income to the IRS as self-employment income, see 3A Reported to IRS as Self Employment Income.
If he or she does not report it as self-employment income, add "net rent" to any other unearned income on the appropriate worksheet. Determine "net rent" as detailed in 3B Rental Income Not Reported as Self-Employment Income.
3A Reported to IRS as Self-Employment Income
When the owner is not an occupant, net rental income is the rent payment received minus the interest portion of the mortgage payment and other verified operational costs.
When a life estate holder moves off the property and the property is rented, net rental income is the rent payment received minus taxes, insurance, and operational costs. The operational costs are the same as the costs the holder was liable for when living on the property.
When the owner lives in one of the units of a multiple unit dwelling and does not file taxes for the rental income, compute net rental income as follows:
3B Rental Income Not Reported as Self Employment Income
When a BadgerCare Plus group member reports rental income to the IRS as self-employment income, see 3A.
If he or she does not report it as self-employment income, add "net rent" to any other unearned income on the appropriate worksheet. Determine "net rent" as follows:
Capital expenditures are not deductible from gross rent. A capital expenditure is an expense for an addition or increase in the value of the property. It would include improvements such as finishing a basement; adding a room; putting up a fence; putting in new plumbing, wiring, or cabinets; or paving a driveway.
If an institutionalized person has excess operational costs above the monthly rental income, carry the excess costs over into later months until they are offset completely by rental income. But do the carryover only until the end of the year in which the expenses were incurred.
When a life estate holder moves off the property and the property is rented, count the net rental income the holder is entitled to receive. Net rental income is the gross rental income minus taxes, insurance, and other operational costs. The operational costs are the same as the costs the holder was liable for when living on the property.
Subtract the total member expense "d." from the total rent payments to get "net rent."
Royalty income is unearned income received for granting the use of property owned or controlled. Examples are patents, copyrighted materials, or a natural resource. The right to income is often expressed as a percentage of receipts from using the property or as an amount per unit produced. See Section 16.5 Other Income for more information on counting royalty income.
Calculate BadgerCare Plus income in one of the following ways:
Do not fill out any IRS tax forms (or the Self-Employment Income Report form; F-00107) yourself. This is the responsibility of the member. Consult IRS tax forms only if all of the following are true:
If all three conditions are not met, use anticipated earnings (Section 16.4.3.2.4 Anticipating Earnings).
If you decide to use IRS tax forms, use them together with the self-employment income worksheets (F-16034, F-16035, F-16036, F-16037, and F-16037A). The worksheets identify net income and depreciation by line on the IRS tax forms. For each operation, select the worksheet you need and, using the provided tax forms and/or schedule, complete the worksheet. These are:
IRS Form 1120 - Corporation Income
Next, divide IM income by the number of months that the business was in operation during the previous tax year. The result is monthly IM income. Add this to the fiscal test group's other earned and unearned income. If, monthly IM income is a loss, add zero to the non-self-employment income. When a household has more than one self-employment operation, the losses of one may be used to offset the profits of another. Apply this offset only to those self-employment operations that produced earned income. Do not apply a loss from unearned income to a gain in earned income. Losses from self-employment cannot be used to offset other earned or unearned income. Under non-MAGI rules, losses from self-employment cannot be used to offset other earned or unearned income. Under MAGI rules, losses from self-employment can be used to offset other income types. If you use more than one worksheet because there is more than one operation, combine the results of each worksheet into one monthly IM income amount before adding that total to any other income. Remember that while a salary or wage paid to a test group member is an allowable business expense, you must count it as earned income to the payee. Continue to process the group through the balance of the Handbook, including some additional work-related expenses that the IRS does not allow as business expenses.
Generally, expenses that are allowed by the IRS on business tax forms are considered allowed expenses for BadgerCare Plus. However, under non-MAGI rules, some specific expenses are allowed in the calculation of self-employment income on IRS tax forms but are not allowed for BadgerCare Plus. Under MAGI rules, countable self-employment income will be the same as the net self-employment taxable income.
Depreciation and Depletion
Through March 31, 2014, depreciation expenses will continue to be handled using the follow process for applicants tested under non-MAGI rules:
Net self employment income for BadgerCare Plus groups is first determined without allowing depreciation expenses. If the group’s total countable IM income exceeds 200 percent of the FPL, the self-employed group is allowed a second income test. For the second test, net self-employment income is redetermined, this time deducting depreciation expenses. If the total countable IM income minus the depreciation is less than 200 percent of the FPL, the adults and children are eligible for the Benchmark Plan. The premium for the parents and children in the household is 5 percent of the household’s total countable gross income including depreciation (i.e., depreciation expenses are not deducted).
Effective February 1, 2014, for new BadgerCare Plus applicants and effective April 1, 2014, for existing BadgerCare Plus members, depreciation and depletion expenses will be allowable expenses.
Under non-MAGI rules, the following expenses are not allowed for BadgerCare Plus:
Under MAGI rules, the following expenses will continue to not be allowed for BadgerCare Plus:
Work-related personal expenses, such as transportation to and from work
Employer work-related personal expenses, such as pensions, employee benefit and retirement programs, and/or profit sharing expenses. (Business expenses for employees’ pensions, benefits, retirement programs, and profit sharing expenses are allowable, but the work-related personal expenses of the employer are not.)
If past circumstances do not represent present circumstances, calculate self-employment income based on anticipated earnings. A change in circumstances is any change that can be expected to affect income over time. It is the person's responsibility to report changes. The date of an income change is the date you agree that a change occurred. You must also judge whether the person's report was timely to decide if the case was over or underpaid. Changes are then effective according to the normal prospective budgeting cycle. Do not recover payments made before the agreed on date. The following are other instances when you would use anticipated earnings:
The Self-Employment Income Report form (SEIRF) (F-00107) simplifies reporting income and expenses when earnings must be anticipated. It is modeled after IRS Form 1040, Schedule C, and can be used to report income for any type of business with any form of organization. However, some, especially farm operators, may find it easier to complete the IRS tax form when income and expense items are more complex. To compute anticipated earnings, the person must complete a SEIRF for those months of operation since the change in circumstances occurred following the guidelines below (remember, the beginning of a business is a change in circumstances). He or she may complete the SEIRF for each month separately or combine the months on one SEIRF. When a new self-employment business is reported or when a change in circumstance occurs and the past circumstances no longer represent the present, recalculate self-employment income:
Use the average until the person's next review or if a significant change in circumstances is reported between reviews.
| Example 1: Bonnie applies for Child Care and BadgerCare Plus on April 5, 2007. She reports that she started self-employment in January 2007. The agency uses a SEIRF for January, February, and March to determine the prospective self-employment income estimate for Bonnie’s BadgerCare Plus and Child Care certification period (April 2007-March 2008). On Bonnie’s September SMRF, no change in self-employment income is reported, and the worker continues to use the average determined at the time of application. |
| Example 2: Ricardo is applying for FoodShare and BadgerCare Plus eligibility on February 5, 2007. He started self-employment on December 15. To calculate his prospective self-employment income, he completes a SEIRF for December, January, and February including his actual and expected income and expenses for three months. The worker divides this total by three to determine an anticipated monthly average income amount. This amount is used until a change in self-employment is reported or until Ricardo completes a new application or a review. |
| Example 3: Jenny is a BadgerCare Plus member and Child Care recipient who has been self-employed as a hair dresser since 2002. Jenny’s BadgerCare Plus and Child Care certification period is December 2006 to November 2007. The worker used Jenny’s 2005 tax return to establish a monthly income amount. In March 2007, Jenny reports that she has been unable to work since breaking her arm on February 17. She is not sure when she will be able to return to work, but it will not be until at least May. The worker has Jenny complete a SEIRF for February 17-February 28 (actual income since the change in circumstance occurred) and for March and April using the best estimate of income to establish her prospective self-employment income. The worker will use these three months to determine a prospective self-employment income estimate for the remainder of the certification period. Jenny does not need to submit any additional SEIRFs. |
Use the anticipated earnings amount until the person completes an IRS tax form or reports a change in circumstances.
Under MAGI rules, losses from self-employment can be used to offset the individual’s other income types. In situations where an individual is planning to file a joint tax return with his or her spouse, losses from self-employment may offset the spouse’s income.
Self employment income is not available through data exchange and is therefore questionable (see Section 9.10 Questionable Items). Completed and signed IRS tax forms (see Section 16.4.3.2.1 IRS Tax Forms) are sufficient verification of farm and self-employment income. If anticipated earnings are used, a completed and signed SEIRF is sufficient verification. It is not necessary to collect copies of supportive items such as receipts from sales and purchases. However, you can require verification when the information given is in question. Document the reason for the request.
Count the time a self-employed person puts in on business-related activities involving planning, selling, advertising, and management along with time put in on production of goods and providing of services as hours of work.
This page last updated in Release Number: 15-02
Release Date: 09/02/2015
Effective Date: 09/02/2015
The information concerning the BadgerCare Plus program provided in this handbook release is published in accordance with: Titles XI, XIX and XXI of the Social Security Act; Parts 430 through 481 of Title 42 of the Code of Federal Regulations; Chapter 49 of the Wisconsin Statutes; and Chapters HA 3, DHS 2 and 101 through 109 of the Wisconsin Administrative Code.
Publication Number: P-10171