*** The Health Care Programs Manual (HCPM) has been replaced by the Minnesota Health Care Programs Eligibility Policy Manual (EPM) as of June 1, 2016. Please refer to the EPM for current health care program policy information. ***
Effective: June 1, 2011 |
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20.25.20.10 - MA Self-Employment Income |
Archived: June 1, 2016 (Previous Versions) |
This section provides information on calculating and verifying self-employment income for MA Method A, MA Method B, MA-EPD and Medicare Savings Programs (MSP).
See Income Changes for information on when to redetermine income when there has been a change in self-employment.
See MinnesotaCare Self-Employment Income for policy on calculating MinnesotaCare self-employment income.
Calculating Self-Employment Income.
Verifying Self-Employment Income.
MA Method B, Medicare Savings Programs and MA-EPD.
Specific Types of Self-Employment Income.
Calculating Self-Employment Income
Count a client’s net earnings from self-employment. A client’s net earnings from self-employment is the gross income from any trade or business less allowable business expenses. The business expenses that may be deducted from self-employment income vary by health care program.
Clients can verify their net earnings from self-employment using documents that accurately reflect the client’s current net self-employment earnings. These documents include, but are not limited to:
l tax returns.
l business records.
l accounting records.
l receipts.
l statements from an outside accountant.
l ledger books or bookkeeping records.
Tax returns from the previous year may be used, unless the amount of self-employment income and expenses reported on tax returns is no longer a good indicator of current and anticipated income.
When tax forms are used to verify income the business expenses reported on the tax forms must be used, unless those expenses are not allowed to be deducted under Minnesota Health Care Programs (MHCP) policy.
Follow these rules when calculating the MA Method A net self-employment income:
l Allow capital gains and capital losses if they are part of the self-employment business.
Note: Allow capital gains and losses that can be distinguished from other business income only if the household expects similar gains or losses in the coming year.
l If an applicant or enrollee operates more than one self-employment business, deduct a loss from one self-employment business from any profit of a second self-employment business.
l Certain business expenses that are allowed for tax purposes are not allowed as deductions from self-employment income for MA Method A purposes. These deductions found on the business schedules of the tax return or in business records should be added to the net profit or loss of the business before completing the MA income calculation.
The following business expenses that may be allowed for tax purposes are not allowed as a business deduction for purposes of calculating net self-employment income for MA Method A eligibility. Add the following to self-employment income if they were deducted from self-employment income on tax forms, schedules or other documents the client uses to verify income:
l Carry forward net operating loss (NOL) from a previous tax year.
l Personal federal, state, and local income taxes.
l The self-employed client's share of FICA.
Note: Allow the employer's share of FICA payments made for employees who are not members of the MA household.
l Money set aside for the self-employed person's own retirement.
l Work-related personal expenses.
l Payments on principal of loans.
Note: Allow interest payments as a self-employment expense.
l Charitable contributions.
l Depreciation.
l Wages or other benefits paid to a member of the MA household, regardless of whether that person is applying for or receiving MA. (Do not count this income received by these persons as income when determining MHCP eligibility.)
l Any expenses not allowed by the IRS, unless specifically authorized by this manual. For information on expenses allowed by the IRS, see www.IRS.gov.
l The costs of building an inventory.
Note: Deduct the cost of a product only after it sells.
l Personal and entertainment expenses.
MA Method B, Medicare Savings Programs and MA-EPD
Follow these rules when calculating net self-employment income for MA Method B, Medicare Savings Programs and MA-EPD:
l Allow deductions for all expenses the IRS allows as a self-employment expense.
Note: Add any expenses not allowed by the IRS back into the total profit or loss. For information on expenses allowed by the IRS, see www.IRS.gov.
l Deduct a self-employment loss from other household earned income.
Specific Types of Self-Employment Income
For instructions on how to treat specific types of self-employment income, see:
Self-Employment Transportation.