View History

16.4 Earned Income

16.4.1 Specially Treated Wages

16.4.2 Room and Board Income

16.4.3 Self-Employment Income

16.4.3.1 Definitions

16.4.3.1.1 Income

16.4.3.1.2 Business

16.4.3.1.3 Operating

16.4.3.1.4 Real Property

16.4.3.1.5 Non-real Property

16.4.3.2 Identifying Farms and Other Businesses

16.4.3.2.1 By Organization

16.4.3.2.2. By IRS Tax Forms

16.4.3.2.3 By Employee Status

16.4.3.3 Self-Employed Income Sources

16.4.3.4 Calculating BadgerCare Plus Self-Employment Income

16.4.3.4.1 IRS Tax Forms and Worksheets

16.4.3.4.2 Depreciation, Depletion, and Disallowed Expenses

16.4.3.4.3 Anticipated Earnings

16.4.3.4.3.1 Reporting Anticipated Earnings

16.4.3.4.4 Backdated Months

16.4.4 Verification

16.4.4.1 Self-Employment Hours

16.4.4.2 Live-In Care Providers

 

Earned income is income from gainful employment.

 

Earned income after pre-tax deductions is 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. 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

 

  1. Income In-Kind.

    Count in-kind benefits as earned income if they are all of the following:
    1. Regular
    2. Predictable
    3. Received in return for a service or product

 

Do not count the following:

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

     

  1. In-kind room and board for employees may be considered not countable income in situations where it is provided as a convenience to the employer and when it is provided on the employer’s premises. Do not include the value of room or board if the following conditions are met:

    1. Board. All of the following must be met:

      • The meals are furnished on the business premises of the employer.

      • The meals are furnished for the convenience of the employer.

    1. Room. All of the following must be met:

      • The lodging is furnished on the business premises of the employer.

      • The lodging is furnished for the convenience of your employer.

      • The lodging is a condition of your employment. The employee must accept the lodging in order to be able to properly perform the job duties.

  2.  

Example 1: Alicia is working as a resident assistant at the college she attends. In exchange for working, she receives lodging in a residence hall and a meal plan at the college during the semesters she works. The college requires her to live in the residence hall and use the meal plan as part of her job as a resident assistant. Do not count Alicia’s room and board as in-kind income.
  1.  

  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.

     

  1. Wage Advances.

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

 

  1. 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.

 

  1. Workers' Compensation.

    Do not count workers' compensation as earned income.

16.4.1 Specially Treated Wages

  1. Income Received by Members of a Religious Order.

    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.

 

  1. Housing Allowances for Members of the Clergy.

    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.

 

  1. Jury Duty Payments.

    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.

 

  1. AmeriCorps.

 

Earnings or cash benefits received through AmeriCorps will be counted as earned income. Educational awards received from AmeriCorps are not counted as income.

 

Note: This does not include earnings or cash benefits received through VISTA (see #22 Special Programs) in Section 16.2 Income Types Not Counted.

 

  1. 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. 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. WISE .
    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).

 

  1. Live-in care providers

 

Do not count any wages of a live-in care provider if those wages meet the conditions listed in #45 Live-In Care Providers in Section 16.2 Income Types Not Counted. See Section 16.4.4.2 Live-In Care Providers for more information about verifying whether the wages should be counted.

16.4.2 Room and Board Income

There are no special deductions if the 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

16.4.3.1 Definitions

16.4.3.1.1 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.

16.4.3.1.2 Business

Business means an occupation, work, or trade in which a person is engaged as a means of livelihood.  

16.4.3.1.3 Operating

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 16.4.3.3.4 Anticipated 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, and there is no one else to carry out the duties of the business, he or she may claim his or her business was not in operation for those months.

16.4.3.1.4 Real Property

Real property means land and most things attached to the land, such as buildings and vegetation.

16.4.3.1.5 Non-real Property

Non-real property means all property other than real property. Non-real property is personal or business property that typically is movable rather than attached to land.

16.4.3.2 Identifying Farms and Other Businesses

A farm or other business should be identified according to the following criteria:

16.4.3.2.1 By Organization

A farm or other business is organized in one of the following ways:

16.4.3.2.2. By 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.

Schedule K-1 (Form 1065)—Partner's Share of Income, Deductions, Credits, etc.

Schedule K-1 (Form 1120S)—Shareholder's Share of Income, Deduction, Credts, etc.

16.4.3.2.3 By 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:

 

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.

 

 

Examples of self-employment include:

16.4.3.3 Self-Employed Income Sources

All self-employment income is earned income, except royalty income and some rental income.

 

Self-employment income is income that is reported to the IRS as farm or other self-employment income or as rental or royalty income. When income is not reported to the IRS, the worker must judge whether or not it is self-employment income.

 
Self-employment income sources are:

 

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. Add the annual interest portion of the mortgage payment and other operational costs common to the entire operation.
  2. Divide the result in step 1 by the total number of units to get the proportionate share.
  3. Multiply the amount in step 2 (the proportionate share) by the number of rental units.
  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.

 

Example 2: George owns a four-unit apartment building and lives in unit one. 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 four units equals a proportionate share of $5,531.

 

$5,531 multiplied by three rental units equals $16,593. This represents his total budgetable annual expenses. His total annual rental income equals $28,800 ($800 per unit per month).

 

 $28,800

-$16,593

 $12,207

 

$12,207 / 12 = $1,017.25 net monthly rental income

 

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_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. Determine "net rent" as follows:

  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. 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 annual interest portion of the mortgage payment and other annual verifiable operational costs common to the entire operation.

  2. Divide the result in "a" by the total number of units to get the proportionate share.

  3. Multiply the amount in “b” (the proportionate share) by the number of rental units.

 

Note: Rental units mean the total number of units minus the unit the owner lives in.

 

  1. 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.

  2. Subtract the total member expense, "d," from the total annual rent payments to get annual net rental income. Budget this amount.

16.4.3.4 Calculating BadgerCare Plus Self-Employment Income

Calculate BadgerCare Plus income in one of the following ways:

16.4.3.4.1 IRS Tax Forms and Worksheets

IM workers do not fill out 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. IRS tax forms must be signed by the applicant or member.

 

Workers should consult IRS tax forms only if all of the following conditions are met:  

 

If all three conditions are not met or if IRS tax forms were not filed and are not available, use anticipated earnings (Section 16.4.3.4.4 Anticipated Earnings).

 

If you decide to use IRS tax forms, use them together with the chart 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.

 

 

  1. Sole Proprietor

There is no worksheet for Sole Proprietor. See Process Help, Section 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:

  1. Partnership (F-16036)
  1. Subchapter S Corporation (F-16035)

 

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. 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, S Corporation) requires its own Self-Employment page in CWW.

 

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.  Similarly, dividends or other types of passive income (as defined by the IRS) must be counted as unearned income.

 

Even though IRS Schedule D (Form 1040) – Personal Capital Gains and Losses is associated with sole proprietorships, it is not considered self-employment income. If someone reports personal capital gains or losses, it is counted as unearned income (see Section 16.5 Other Income).

 

16.4.3.4.2 Depreciation, Depletion, and Disallowed Expenses

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:

 

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

16.4.3.4.3 Anticipated Earnings

If past circumstances do not represent present circumstances, workers should calculate self-employment income based on anticipated earnings. Anticipated earnings should 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 on date.

16.4.3.4.3.1 Reporting Anticipated Earnings

The Self-Employment Income Report form, F-00107, (also called a SEIRF) and the Self-Employment Income Report: Farm Business form, F-00219, simplify reporting income and expenses when earnings must be anticipated. Self-Employment Income Report forms 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 Self-Employment Income Report form 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 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 Self-Employment Income Report form for each month or combine the months on one Self-Employment Income Report form.

 

When a new self-employment business is reported or when a significant change in circumstance occurs, recalculate self-employment income as follows:  

 

Example 3: James applies for BadgerCare Plus on November 1, 2017. He reports that he was self-employed starting in April 2017. The agency asks James to complete Self-Employment Income Report forms for April, May, June, July, August, September, and October so that his prospective self-employment income can be determined for his BadgerCare Plus certification period (November 2017–October 2018).

 

 

Example 4: Bonnie applies for Child Care and BadgerCare Plus on April 5, 2016. She reports that she was self-employed starting in January 2016. The agency asks Bonnie to complete a Self-Employment Income Report form for January, February, and March so that her prospective self-employment income can be determined for her Child Care and BadgerCare Plus certification period (April 2016–March 2017).

 

 

Example 5: Ricardo applies for FoodShare and BadgerCare Plus on February 5. He was self-employed starting December 15. The agency asks Ricardo to complete a Self-Employment Income Report form for December, January, and February so that his prospective self-employment income can be calculated. The completed Self-Employment Income Report form 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.

 

 

Example 6: Jenny is a BadgerCare Plus member who has been self-employed as a hairdresser since 2012. Jenny’s BadgerCare Plus 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 Self-Employment Income Report form 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, until the person completes an IRS tax form, or until a significant change in circumstances is reported between renewals.

 

16.4.3.4.4 Backdated Months

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:

  1. Average self-employment income for the application month forward (to determine ongoing eligibility).
  2. Determine eligibility for the backdated months as if the applicant or member had applied in the earliest backdated month requested:
  3. Consider any significant changes that occurred during the backdated months that would require a new average to be calculated for the second and/or third month. If there has not been a significant change or a change in the tax filing year during the backdated months, the average calculated for the earliest month can be used throughout the backdated months.

 

Example 7: Maggie applied for BadgerCare Plus 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 BadgerCare Plus for the backdated months of March, April, and May.

 

Example 8: Glenn applied for BadgerCare Plus 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 BadgerCare Plus for the backdated months of June, July, and August.

  

Example 9: Hershel applied for BadgerCare Plus 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 BadgerCare Plus 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 BadgerCare Plus for the backdated month of March.

16.4.4 Verification

Self-employment income information is not available through data exchanges and therefore must be verified (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 tax forms are not available or cannot be used because of a significant change in circumstances, a completed and signed Self-Employment Income Report form(s) is also sufficient verification.

 

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 9.10 Questionable Items). If requesting verification, workers must document the reason for the request in case comments.

 

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:  

16.4.4.1 Self-Employment Hours

Count the time a self-employed person spends on business-related activities involving planning, selling, advertising, and management, along with time spent on the production of goods and services provided as hours of work.

16.4.4.2 Live-In Care Providers

 
 
 

This page last updated in Release Number: 19-02

Release Date: 09/10/2019

Effective Date: 06/22/2019