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Effective: April 1, 2009 |
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20.25.20ar2 - Self-Employment Income (Archive) |
Self-employment income is evaluated to determine what amounts are considered self-employment income for purposes of eligibility.
In general, gross income for a self-employed client is the gross receipts from the business minus the allowable costs of doing business.
For information on calculating self-employment income, see MinnesotaCare Self-Employment Income and MA/GAMC Self-Employment Income.
For information on changes in self-employment income, see Income Changes.
Self-employed clients generally meet the following conditions, they:
l Work for themselves rather than for an employer.
Note: Some self-employed people may have an employer or work out of another's business location.
Examples include:
n Real estate sales people.
n People who work for commission sales.
n Manufacturer's representatives.
n Independent contractors.
n Some members of the clergy.
l Are responsible for their own work schedule.
l Are not covered under an employer's liability insurance or Workers' Compensation.
l May or may not have Social Security tax (FICA) deducted from the pay.
Examples of self-employment enterprises include:
l Farming.
l Product sales such as Avon, Tupperware, etc.
l Small businesses.
l Services, such as day care.
l Skilled trades such as roofers, painters, etc.
Review one or more of the following documents to confirm if an applicant or enrollee who has an employer or works from another person’r;s business location is self-employed:
l Paychecks.
l Type of tax forms filed by the client.
l Contact the client.
l Contact the entity that pays the client, but only with the client's consent.
A sole proprietorship:
l Is owned and controlled by one individual.
l Is not required to file a separate business tax return.
l Must include the profit or loss from all sole proprietorships on the client’s federal 1040 tax forms.
l Must file a separate tax schedule for each business operated as a sole proprietorship depending on the type of business:
n Farm: Must file a separate Schedule F.
n Non-farm: Must file a separate Schedule C.
A partnership:
l Is owned by two or more individuals.
l Must file a return on federal Form 1065 however it is not taxed as a separate entity.
Note: Farm partnerships must file a Schedule F along with a Form 1065.
l Each partner will also receive a Schedule K-1 (Form 1065) showing his/her distributive share of income, gain, loss, deduction, or credit. Count profits as earned income.
n Partners may receive differing shares depending on the original partnership agreement.
n Partners not working for the business still receive Schedule K-1 forms and are entitled to a distributive share of profit or loss. Count profits as unearned income.
Example:
A family of two adults and five children are members of a religious community that operates several businesses. None of the children work in any of the businesses. Each member of the community receives a Schedule K-1 form showing a distributive share of $4,000 for the previous tax year.
Action:
Count the $4,000 as unearned income to the children and as earned self-employment income to the parents.
A corporation exists separately from the individuals who own interest in it. A corporation must file a separate corporate tax return. There are two types of corporations:
l C-Corporation.
n C-corporations are taxed on the corporation's ordinary income on the corporation's tax return.
n Shareholders receive profits in the form of dividends. The dividends must be reported on the shareholder's individual tax return and are counted as unearned income to the client.
n Shareholders who perform work for the corporation are paid as employees and receive a W-2 form reporting their wages. The wages are counted as earned income to the client.
n Use the individual wages and dividends instead of the self-employment figures to compute income.
l S-Corporation.
n An S-corporation is a small business corporation of 35 or fewer shareholders and are taxed only at the shareholder level.
n An S-corporation is similar to a partnership in that each partner separately reports his or her share of the income, deductions, loss, and credits on their personal tax forms.
n Unlike a C-corporation, taxable distributions of profits are treated as capital gains rather than dividends, and are reported on Schedule D.
n S-corporations must file a tax return on form 1120-S.
Note: Farm S-corporations must file a form 1120-S and are not required to file a Schedule F. However, some farm corporations may file both forms.