POL M902: TREATMENT OF SELF-EMPLOYMENT INCOME

1. Applicants Must Report Gross Self-Employment Income

2. MAGI Programs Use The Adjusted Gross Income If There Is Not A Change In Income From Previous Year.

If current self-employment income is the same as the previous year, use the Adjusted Gross Income (AGI) on the previous year tax return plus:

• • Foreign Income excluded from AGI (line 37 or IRS Form 1040, line 4 on IRS Form 1040EZ, or line 21 of IRS Form 1040A)

  • Nontaxable Social Security benefits (line 20a on IRS Form 1040)

  • Tax-exempt interest received or accrues during the tax year (line 8b on IRS Form 1040)

3. Actual Business Expenses That May Be Deducted From Gross Self-Employment Income For MAGI Programs.

If self-employment income amount is different from the previous year or there is a change in the business source, a ledger or profit/loss statement can be used. Deduct from self-employment income the following business expenses:

• • Rent and utilities.

  • Storage and warehousing charges.

  • Upkeep of premises used for business.

  • Depreciation.

  • Advertising.

  • Legal and Professional Fees.

  • Interest on loans from your business (including mortgage interest paid to banks).

  • Machinery repairs and maintenance.

  • Wages and salaries paid to employees of business. Employees must be people that are not the applicant or other members of the assistance unit.

  • Feed, stock, raw material, seed, plants and fertilizer.

  • Taxes and insurance premiums paid on income-producing property.

  • Rental payments on income-producing equipment.

  • Privilege taxes such as licensing fees, gross receipts, and general excise taxes.

  • Cost of merchandise and supplies.

  • Transportation costs required to perform services or deliver goods that are related to the business.

  • Other expenses incurred exclusively for the function of the business.

4. Actual Business Expenses That May Be Deducted From Gross Self-Employment Income For Aged, Blind or Disabled, and Medicare Savings Programs.

Deduct from self-employment income the following business expenses:

• • Rent and utilities.

  • Storage and warehousing charges.

  • Upkeep of premises used for business.

  • Machinery repairs.

  • Wages and salaries paid to employees of business. Employees must be people that are not the applicant or other members of the assistance unit.

  • Feed, stock, raw material, seed, plants and fertilizer.

  • Taxes and insurance premiums paid on income-producing property.

  • Rental payments on income-producing equipment.

  • Privilege taxes such as licensing fees, gross receipts, and general excise taxes.

  • Cost of merchandise and supplies.

  • Transportation costs required to perform services or deliver goods that are related to the business.

  • Other expenses incurred exclusively for the function of the business.

Deduct out of pocket expenses for meals, toys and materials for child-care providers.

Do not deduct the following as business expenses:

• • Payments on the principal of the purchase price of income-producing real estate and capital resources, Examples of capital resources are equipment, machinery and other durable goods.

  • Expenses and net losses from previous periods.

  • Federal, state, and local income taxes.

  • Money set aside for retirement purposes.

  • Money set aside for other work-related personal expenses. Examples of other work related expenses are transportation to and from work, or entertainment expenses.

  • Repayment on the principal of a bank loan.

  • Depreciation on any equipment of resource used by the business.

  • Penalties and fines related to the business.

  • Charitable contributions made by the business.

5. Business Expenses Are Deductible When They Are Billed

Deduct allowable business expenses when they are billed or become due.

6. Self-Employment Income May Be Annualized

Annualize self-employment income when the following conditions are met:

• • Income is received over a short period of time but is intended to meet the financial needs of the assistance unit over the course of a year.

  • Income is received on a monthly basis but represents annual income.

  • Income is received from involvement in a business for less than a year but has been received for long enough to be able to average the income. In this case, income must also be indicative of future months.

7. Self-Employment Income May Be Averaged

Average self-employment income when the following conditions are met:

• • Income is intended to meet the financial needs of the assistance unit for a portion of the year and is indicative of the future.

  • Income is received from involvement in a business that has not been in existence for long enough to provide sufficient information to annualize the income. In this case, income must also be indicative of future circumstances.

  • Income substantially increases or decreases over the course of a year.

8. Self-Employment Income May Be Calculated on Monthly Basis

Allow applicant to anticipate self-employment income on a month-to-month basis rather than over the period of time covered by the income when this is advantageous to the assistance unit.

Re-calculate self-employment income when the most advantageous method is determined.