State of Wisconsin Department of Health Services

HISTORY

The policy on this page is from a previous version of the handbook. 

16.4 Earned Income

 

Earned income is income from gainful employment.

 

Under non-MAGIApply to households whose eligibility is determined using BadgerCare Plus relationship rules (prior to March 31, 2014) to budget income for a household prior to transitioning to MAGI BadgerCare Plus budgeting rules. 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 MAGIModified Adjusted Gross Income. MAGI rules are used to determine BadgerCare Plus eligibility for new applicants beginning in 2014 and for existing members as of March 31, 2014, or their next regularly scheduled renewal, whichever is later. MAGI rules are based on tax relationships and family relationships, and they consider taxable income and whether children and tax dependents are required to file. 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.

 

1. 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:

1. 1. There are predetermined vacation periods
   2. He or she will only be paid during work periods
   3. He or she will be paid only at the end of the work period, season, semester, or school year

 

2. Income In-Kind.
   
   Count in-kind benefits as earned income if they are all of the following:

1. 1. Regular
   2. Predictable
   3. Received in return for a service or product

 

Do not count the following:

1. 1. Meals and lodging for armed services members
   2. In-kind services that do not meet all three of the above criteria

    

2. 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.

    

3. Wage Advances.
   
   Count advances on wages as earned income in the month received.

 

4. Severance Pay.
   
   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.

 

5. Workers' Compensation.
   
   Under non-MAGI rules, count workers' compensation as earned income.

 

Under MAGI rules, do not count workers' compensation as earned income.

16.4.1 Specially Treated Wages

1. 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.

 

2. 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.

 

3. 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.

 

4. AmeriCorps.

 

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.

 

5. Title V—Older Americans Act of 1965.

 

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:

1. 1. Green Thumb.
   2. Experience Works.
   3. The National Urban League.
   4. National Senior Citizens Education and Research Center (Senior Aides).
   5. National Indian Council on Aging.
   6. U.S.D.A. Forest Service.
   7. WISEWisconsin Senior Employment Program.
   8. Community service employment programs, such as the Older Americans Community Service Program.

 

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).

16.4.2 Room and Board Income

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.

16.4.3 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.

16.4.3.1 Business Operations

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.

16.4.3.2 Identifying Farms and Other Businesses

Self-employment is identified according to the following criteria:

1. Organization. A farm or other business is organized in one of three ways:

1. • A sole proprietorship, which is an unincorporated business owned by one person.
   • A partnership, which exists when two or more persons associate to conduct business. Each person contributes money, property, labor, or skills and expects to share in the profits and losses. Partnerships are unincorporated.
   • A corporation is a legal entity authorized by a state to operate under the rules of the entity's charter. There may be one or more owners. A corporation differs from the other forms because a corporation:

   • • 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.

 

2. 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.

1. • Form 1065—Partnership
   • Form 1120—Corporation
   • Form 1120S—S Corporation
   • Form 4562—DepreciationA federal income tax deduction for the cost of a business asset that gradually loses value through the wear and tear of use. and Amortization
   • Form 1040—Sole Proprietorship
   • • Schedule C ( Form 1040 )—Business (non-farm)

     • Schedule E ( Form 1040 )—Rental and Royalty

     • Schedule F ( Form 1040 )—Farm Income

     • Schedule SE ( Form 1040 )—Social Security Self-Employment

 

3. 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:
   1. Does not have federal income tax and FICA payments withheld from a paycheck.

 

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.

 

1. 2. Does not complete a W-4 for an employer.
   3. Is not covered by employer liability insurance or workers' compensation.
   4. Is responsible for his or her own work schedule.

 

Examples of self-employment are:

1. 1. Businesses that receive income regularly (for example, daily, weekly, or monthly):

   2. 1. Merchant.

      2. Small business.

      3. Commercial boarding house owner or operator.

      4. Owner of rental property.

   2. Service businesses that receive income frequently and possibly sporadically:

   3. 1. Craft persons.

      2. Repair persons.

      3. Franchise holders.

      4. Subcontractors.

      5. Sellers of blood and plasma.

      6. Commission sales persons (such as door-to-door delivery).

   3. Businesses that receive income seasonally:

   4. 1. Summer- or tourist-oriented business.

      2. Seasonal farmers (custom machine operators).

      3. Migrant farm worker crew leaders.

      4. Fishers, trappers, or hunters.

      5. Roofers.

   4. 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.

16.4.3.3 Income Sources

Self-employment income sources are:

1. Business. Income from operating a business.

 

2. Capital Gains. 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.

 

3. Rental. 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:

1. 1. Add the interest portion of the mortgage payment and other operational costs common to the entire operation.
   2. Multiply the number of rental units by the total in step 1.
   3. Divide the result in step 2 by the total number of units to get the proportionate share.
   4. Add the proportionate share to any operational costs paid that are unique to any rental unit. This equals total expenses.
   5. Subtract total expenses from the total rent payments to get net rent.

 

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:

1. 1. When the owner is not an occupant, "net rent" is the rent payment received minus the interest portion of the mortgage payment and other verifiable operational costs. Operational costs include ordinary and necessary expenses such as insurance, taxes, advertising for tenants, and repairs. Repairs include such expenses as repainting, fixing gutters or floors, plastering, and replacing broken windows.

 

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. The carryover should only be done 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.

 

1. 2. When he or she receives income from a duplex, triplex, etc. and lives in one of the units, determine "net rent" as follows:
      1. Add the interest portion of the mortgage payment and other verifiable operational costs common to the entire operation.
      2. Multiply the number of rental units by the total in "a."
      3. Divide the result in "b." by the total number of units. This is the proportionate share.
      4. Add the proportionate share, "c.," to any operational costs paid by the member that are unique to any rental unit. The result is the total member expense.

      5. Subtract the total member expense, "d.," from the total rent payments to get "net rent."

       

4. Royalties.

 

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.

16.4.3.4 Calculating BadgerCare Plus Self-Employment Income

Calculate BadgerCare Plus income in one of the following ways:

• Using IRS tax forms (Section 16.4.3.2.1 IRS Tax Forms) completed for the previous year
• Anticipating earnings (Section 16.4.3.2.4 Anticipating Earnings)

16.4.3.4.1 IRS Tax Forms

IM workers do not fill out any IRS tax forms (or the Self-Employment Income Report form, F-00107). This is the responsibility of the applicant or member. IRS tax forms must be signed by the applicant or member.   Consult IRS tax forms only if all of the following are true:

• The business was in operation at least one full month during the previous tax year.
• The business has been in operation six or more months at the time of the applicationA request for BadgerCare Plus coverage. The request must be on the Department's application or registration form and must contain name, address, and a valid signature. The applicant must submit a signed and completed application form to complete the application process..
• The person does not claim a change in circumstances since the previous year.

 

If all three conditions are not met, use anticipated earnings (Section 16.4.3.2.4 Anticipating Earnings).

16.4.3.4.2 Worksheets

If you decide to use IRS tax forms, use them together with the self-employment income worksheets, which 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.

1. Sole Proprietor—Farm and Other Business (F-16037, and F-16037A)

1. 1. IRS Schedule C (Form 1040)—Non-farm Business Income
   2. IRS Schedule E (Form 1040)—Rental and Royalty Income
   3. IRS Schedule F (Form 1040)—Farm Income
   4. IRS Form 4797—Capital & Ordinary Gains

2. Partnership (F-16036)

1. 1. IRS Form 1065—Partnership Income
   2. IRS Schedule K-1 ( Form 1065 )—Partner's Share of Income

3. Corporation (F-16034)

IRS Form 1120—Corporation Income

4. Subchapter S Corporation (F-16035)
   1. IRS Form 1120S—Small Business Corporation Income
   2. IRS Schedule K-1 (Form 1120S—Shareholder's Share of Income)
    

Next, divide IMincome maintenance 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. Under MAGI rules, losses from self-employment can be used to offset 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.   Each self-employment operation (Sole Proprietor, Partnership, Corporation, S Corporation) requires its own Self-Employment page in CWW. However, if an individual owns multiple businesses within one self-employment operation—for example, a sole-proprietor operation with eight different rental buildings—combine the results of each worksheet (each rental building) into one monthly IM income amount before adding that total to any other income listed in the case (e.g., wages or Social Security).   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.

16.4.3.4.3 Depreciation, Depletion, and Disallowed Expenses

Under MAGI rules, countable self-employment income will be the same as the net self-employment taxable income. Depreciation and depletion expenses are allowable expenses.

 

The following expenses are disallowed expenses for BadgerCare Plus:

• Charitable donations

• 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.)

• Principal portion of mortgage payment

 

Note: Disallowed expenses are added back into an individual’s gross income on the BadgerCare Plus Budget page.

16.4.3.4.4 Anticipating Earnings

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:

1. The business was not operating at least one full month during the previous tax year.
2. The business was not operating six or more months at the time of the interview.

 

The following are examples of changed circumstances: The owner sold or simply closed down the business. The owner sold a part of his business (e.g., one of two retail stores). The owner is ill or injured and will be unable to operate the business for a period of time. A plumber gets the contract on a new apartment complex. The job will take nine months, and his or her income will increase. A farmer suffers unusual crop loss due to the weather or other circumstances. There is a substantial cost increase for a particular material such that there will be less profit per unit sold. Sales, for an unknown reason, are consistently below previous levels. The relevant period may vary depending on the type of business (consider normal sales fluctuations).

 

The Self-Employment Income Report form (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 Self-Employment Income Report form 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 Self-Employment Income Report form for each month separately or combine the months on one Self-Employment Income Report form.   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:

1. When two or more months of actual self-employment information is available, calculate a monthly self-employment net income average using all of the actual income information beginning from the date self-employment began or the date of the significant change. See Example 1 below.

2. When at least one full month but less than two full months of actual self-employment income information is available, calculate a monthly net income average using the actual net income received in any partial month of operation, the one full month of operation, and an estimate of net income for the next month. See Example 2 below.

3. When there is less than one full month of actual income information available, calculate a monthly net self-employment income average using the actual net income received in the partial month (since the change in circumstance occurred) and estimated income and expenses for the next two months. See Example 3 below.

  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 FoodShare and BadgerCare Plus on April 5, 2016. She reports that she started self-employment in January 2016. The agency uses a Self-Employment Income Report form for January, February, and March to determine the prospective self-employment income estimate for Bonnie’s BadgerCare Plus and FoodShare certification period (April 2016-March 2017).   On Bonnie’s September SMRFSix-Month Report form, 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. He started self-employment on December 15 of the previous year. To calculate his prospective self-employment income, he completes a Self-Employment Income Report form 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 and Child Care member who has been self-employed as a hair dresser since 2011. Jenny’s BadgerCare Plus and Child Care certification period is December 2015 to November 2016. The worker used Jenny’s 2014 tax return to establish a monthly income amount.   In March 2016, 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 Self-Employment Income Report form 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 Self-Employment Income Report forms.

  Use the anticipated earnings amount until the person completes an IRS tax form or reports a change in circumstances.

16.4.4 Verification

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 Self-Employment Income Report form 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.

16.4.4.1 Self-Employment Hours

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: 16-02

Release Date: 08/08/2016

Effective Date: 08/08/2016

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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