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State of Wisconsin |
HISTORY |
The policy on this page is from a previous version of the handbook.
Self-employment income is income 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 (see Section 15.6.5.3 Anticipating Earnings).
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 or she may claim his or her business was not in operation for those months.
IM income is self-employment income that is counted in determining IM eligibility and benefits.
Real prope rty means land and most things attached to the land, such as buildings and vegetation.
Non-real property means all property other than real property.
Identify a farm or other business according to the following criteria.
A farm or other business is organized in one of the following ways:
A sole proprietorship, which is an unincorporated business owned by one person.
A partnership, which exists when 2 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 owners' loss is limited to their investment in the corporation while the owners of unincorporated business is also personally liable.
An LLC , a business structure that combines the pass-through taxation of a partnership or sole proprietorship (the members are taxed directly) with the limited liability of a corporation.
A self-employed person who earns more than $400 net income must file an end-of-year return with the IRS . 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.
Form 1065 - Partnership or multi-member LLC
Form 1120 - Corporation or LLC electing to be taxed as a corporation
Form 1120S - S Corporation
Form 4562 - Depreciation & Amortization
Form 1040 - Sole Proprietorship or single member LLC
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
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 all of the following applies:
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.
Does not complete a W-4 for an employer.
Is not covered by employer liability insurance or worker's compensation.
Is responsible for his or her own work schedule.
Business assets are generally income producing property. Exclude assets directly related and essential to producing goods or services.
In EBD cases, all real and non-real business property is exempt if the business is currently operating (see Section 15.6.1.3 Operating) for the self-support of the EBD individual. There is no profitability test.
Note: See Section 16.9 Non-Home Property Exclusions.
Ask the EBD person to furnish the documents needed to:
Describe the business, its properties, and its assets.
Show the number of years it has been operating.
Identify any co-owners.
Show the estimated gross and net earnings for the current tax year.
If the property is not currently operating, exempt it if there is reasonable expectation it will resume operating within the next 12 months. Base your reasonable expectation on the following information:
Date of last use.
Reason property is not in current use.
Estimated date the person expects to resume use.
If he or she decides not to resume, the property becomes a countable asset in the month after the decision not to resume.
Extend the 12 months only when a disabling condition prevents the person from resuming business use of the property.
With corporations you can easily distinguish between personal and business checking and savings accounts. A corporation is a separate legal entity and the accounts it owns must be in the corporation's name. Accounts in the name of the owners are personal accounts.
For partnerships and sole-proprietorships, a cash account is a business account if the person claims that it is a business account. Disregard a business account, if the profitability test is passed, even if a partner or sole-proprietor makes withdrawals from the account for personal use. You don’t need a profitability test for EBD cases.
Expenses that are allowed self-employment deductions on the IRS business tax forms are allowed expenses for Medicaid. Some specific expenses that have been identified as not allowed in the calculation of Self Employment Income on the IRS tax forms and therefore not allowed for Medicaid are:
Net loss carryover from previous periods,
Federal, State, and local income taxes,
Charitable donations,
Work-related personal expenses, such as transportation to and from work,
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), or
Principal payments on loans for the purchase price of income producing real estate, capital assets/equipment, and durable goods.
All self-employment income is earned income, except royalty income and some rental income.
Self-employment income is income that is reported to IRS as farm or other self-employment income or as rental or royalty income. When income is not reported to the IRS, you must judge whether or not it is self-employment income.
Self-employment income sources are:
Business. Income from operating a business.
Capital Gains. Business income from selling securities and other property is counted. Personal capital gains are not counted as income.
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 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 (see Section 16.8.1.6 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, compute the annual net rental income as follows:
Add the annual interest portion of the mortgage payment and other annual operational costs (including taxes) common to the entire operation.
Divide the result in step 1 by the total number of units to get the proportionate share.
Multiply the amount in step 2 (the proportionate share) by the number of rental units. Rental units means the total number of units minus the unit the owner lives in.
This equals total expenses.
Subtract total annual expenses from the total annual rental income to get net annual rental income.
Divide the net annual rental income by 12 to get the net monthly rental income. Budget this amount.
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Example 1: George owns a 4 unit apartment building and lives in unit 1. His annual interest paid on his mortgage for the most recent tax year is $9,765. His operational expenses, including taxes on the house from the most recent taxes is $12,359. This totals $22,124. This amount divided by 4 units = a proportionate share of $5,531.
$5,531 * 3 rental units = $16,593. This represents his total budgetable annual expenses. His total annual rental income = $28, 800 ($800 per unit per month).
$28,800 -$16,593 $12,207
$12,207 / 12 = $1,017.25 net monthly rental income. |
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.
IM income (see Section 15.6.1.1 Income) is anything you receive in cash or in-kind that you can use to meet your needs for food, clothing, and shelter by either:
Using IRS tax forms completed for the previous year, or
Anticipating earnings (see Section 15.6.5.3 Anticipated Earnings)
IM workers should not complete any IRS tax forms on an applicant's or member's behalf. It is the responsibility of the applicant or member to complete IRS tax forms.
Workers should only consult IRS tax forms only if all of the following conditions are met:
If all three conditions are not met, use anticipated earnings (see Section 15.6.5.3 Anticipated Earnings).
If you decide to use IRS tax forms, use them together with the charts in Process Help, Section 16.2 Self-Employment Income, or the self-employment income worksheets, which identify which income and expenses need to be entered onto the Self-Employment page by line on the IRS tax forms.
For each operation, select the worksheet you need (if applicable) and, using the provided tax forms and/or schedule, complete the worksheet (if applicable) and enter the income and expenses onto the Self-Employment page.
Sole Proprietor - Farm and Other Business
There is no worksheet for Sole Proprietor. See Process Help, 16.2.2.3.2 Entering Information for a Sole Proprietorship to identify which lines need to be entered in CWW for each of the following IRS tax forms:
Partnership (F-16036)
CWW will calculate the monthly countable income for each self-employment business, which will be added to the fiscal test group's other earned and unearned income. If monthly IM income is a loss, the loss will be subtracted from 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.
Depreciation is an allowable deduction for EBD Medicaid cases.
If past circumstances do not represent present circumstances, workers should calculate self-employment income based on anticipated earnings. Anticipated earnings should also be used in the following situations:
IM workers should determine whether it is necessary to use anticipated earnings on a case-by-case basis and document the reasons for the determination in case comments.
The date of an income change is the date a worker and applicant or member agree that a significant change in circumstances occurred. IM workers must also judge whether the person’s report was timely to decide if the case was overpaid or underpaid. Changes are then effective according to the normal prospective budgeting cycle. IM workers should not recover payments made before the agreed upon date.
The Self-Employment Income Report form (F-00107) (also called a SEIRF) simplifies reporting income and expenses when earnings must be anticipated. It can be used to report income for any type of business with any form of organization. However, some people, especially farm operators, may find it easier to complete the applicable IRS Form 1040 schedule when income and expense items are more complex.
For anticipated earnings to be determined, the applicant or member must complete a SEIRF for the months of operation since the significant change in circumstances occurred, not to exceed 12 months. (Note: The beginning of a business is a significant change in circumstances.) When requesting verification, the SEIRF forms will be prepopulated with the individual’s and business’ information, and will identify each individual month for which income and expenses are needed. However, he or she may complete a separate SEIRF for each month or combine the months on one SEIRF.
When a new self-employment business is reported or when a significant change in circumstance occurs, recalculate self-employment income as follows:
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Example 2: James applies for Medicaid on November 1, 2017. He reports that he was self-employed starting in April 2017. The agency asks James to complete SEIRFs for April, May, June, July, August, September, and October so that his prospective self-employment income can be determined for his Medicaid certification period (November 2017–October 2018). |
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Example 3: Bonnie applies for Child Care and Medicaid on April 5, 2016. She reports that she was self-employed starting in January 2016. The agency asks Bonnie to complete a SEIRF for January, February, and March so that her prospective self-employment income can be determined for her Child Care and Medicaid certification period (April 2016–March 2017). |
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Example 4: Ricardo applies for FoodShare and Medicaid on February 5. He was self-employed starting December 15. The agency asks Ricardo to complete a SEIRF for December, January, and February so that his prospective self-employment income can be calculated. The completed SEIRF includes Ricardo’s actual income and expenses for December and January, and his expected income and expenses for February. The worker divides the total by three to determine an anticipated monthly average income amount. This amount would be used until Ricardo reports a significant change in self-employment or until Ricardo renews his benefits. |
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Example 5: Jenny is a Medicaid member who has been self-employed as a hairdresser since 2012. Jenny’s Medicaid 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.
Jenny completes a SEIRF for February 17 – February 28 (actual income since the significant change in circumstance occurred), and for March and April using a best estimate of income. The worker uses these three months (February, March, and April) to determine a prospective self-employment income estimate for the remainder of the certification period (through November 2016). |
Use the average until the member’s next renewal or if a significant change in circumstances is reported between renewals.
Use the anticipated earnings amount until the person completes an IRS tax form or reports a significant change in circumstances.
Self-employment income information is not available through data exchanges and therefore must be verified (see Section 20.3.8 Income).
Completed and signed IRS tax forms (see Section 15.6.2.2 By IRS Tax Forms) are sufficient verification of farm and self-employment income. A completed and signed SEIRF (or SEIRFs) is also sufficient verification.
If a Program Add request is made on a case with self-employment income, use the existing SEIRF information, instead of re-verifying it, if all of the following are true:
Note: It is not necessary to collect copies of supportive verification, such as receipts from sales and purchases. However, verification can be requested when the information given is in question (see Section 20.4.1 Questionable Items Introduction). If requesting verification, workers must document the reason for the request in case comments.
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.
Self-employment income is averaged over the number of months the business has been in operation in a tax year or anticipated based on an average of SEIRFs. It is not based on exact income for a single month, as that does not take into consideration seasonal work and fluctuating income for the business. If an individual had applied in a backdated month, eligibility would not be determined on the basis of one month of self-employment income; instead, eligibility would be based on an average of at least three months of income.
When a self-employed applicant or member requests backdated benefits for health care, workers must do the following:
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Example 6: Maggie applied for Medicaid in June and requested backdated eligibility to March. She has been self-employed as a seamstress since February of the same year. She does not file taxes.
For the application month of June, SEIRFs would be used for all available months – February, March, April, and May to budget average income for the month of June and ongoing.
If she had applied in March, her income would have been averaged based on actual income for the months of February, March, and April, so SEIRFs for February, March, and April would be used for determining her eligibility for Medicaid for the backdated months of March, April, and May. |
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Example 7: Glenn applied for Medicaid in September and requested backdated eligibility to June. He has been self-employed as a farmer, but reported having a true significant change in circumstances in May.
For the application month of September, SEIRFs would be used for all months since the significant change – May, June, July, and August to budget average income for the month of September and ongoing.
If he had applied in June, his income would have been average based on actual income for the months of May, June, and July, so SEIRFs for May, June, and July would be used for determining his eligibility for Medicaid for the backdated months of June, July, and August. |
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Example 8: Hershel applied for Medicaid and FoodShare for himself in April and requested backdated eligibility to January. He owns a bakery and filed taxes. However, he reports that his previous year’s taxes no longer reflect his earnings due to a true significant change that occurred in March.
For the application month of April, SEIRFs would be used for all months since the significant change occurred in March, so Hershel’s actual income for March and estimated income for April and May would be used to budget average income for the month of April and ongoing.
If he had applied in January, taxes would be used as verification of his income, so his taxes can be used for determining his eligibility for Medicaid for the backdated months of January and February.
However, because of the significant change in March, an average of March, April, and May SEIRFs would be used for determining his eligibility for Medicaid for the backdated month of March. |
This page last updated in Release Number: 19-02
Release Date: 9/10/2019
Effective Date: 6/22/2019
The information concerning the Medicaid program provided in this handbook release is published in accordance with: Titles XI and XIX of the Social Security Act; Parts 430 through 481 of Title 42 of the Code of Federal Regulations; Chapters 46 and 49 of the Wisconsin Statutes; and Chapters HA 3, DHS 2, 10 and 101 through 109 of the Wisconsin Administrative Code.
Notice: The content within this manual is the sole responsibility of the State of Wisconsin's Department of Health Services (DHS). This site will link to sites outside of DHS where appropriate. DHS is in no way responsible for the content of sites outside of DHS.
Publication Number: P-10030