SelfEmployment Income Examples of SelfEmployment Income Sole Proprietorship

Self-Employment Income

Examples of Self-Employment Income § Sole Proprietorship ‒ Business ‒ Farm § Partnership § S Corporation § Rental Real Estate ‒ Business vs. Non-Business

Types of Businesses

Location of Self Employment Income on the 1040 Tax Return § § § Business Income or (loss) (Line 12) Rental Real Estate (Line 17) Partnership (Line 17) S Corporation (Line 17) Farm (Line 18)

Examples that are NOT Self- Employment Income § § § Interest Income (Line 8 a) Dividends and Distributions (Line 9 a) Private Pensions/Annuities (Line 16 a/b) Unemployment Benefits (Line 19) Social Security Benefits (Line 20 a/b) Miscellaneous Income (Line 21)

Self-Employment Policy • Treatment of Self-Employment Income depends upon category/budgeting methodology – MAGI-Like - new policy based on IRS rules – SSI-Related - no change to policy – ADC-Related budgeting for spenddowns - no change to policy

Acceptable Documentation of Self Employment Income • Federal Tax Return – Can be used until March 31 st of following year • E. g. 2013 tax return used until March 31, 2015 – Must be signed, dated, and include all applicable tax forms and schedules

Required Tax Forms and Schedules Self Employment Type U. S. Individual Income Tax Return Documents 1040 Line # IRS Schedule Additional Forms Self Employment Business Wages Line 7 W-2, SE Business –Sole Proprietorship Line 12 C/C-EZ, SE Rental Real Estate Line 17 E-Page 1 Partnership Line 17 E- Page 2 and K-1 (1065), SE Form 1065 S Corporation Line 17 E-Page 2 and K-1 (1120 S), SE (if entry on 1040, Line 27) Form 1120 S Farm Line 18 F, SE

Acceptable Documentation of Self Employment Income, cont’d • Self-Employment Worksheet (13 OHIP/ADM-4, Attachment V) is used when A/R indicates that: – s/he does not file a tax return; – the business is new and a tax return had not been filed; or – last year's earnings are not representative of the current year's earnings.

Acceptable Documentation of Self Employment Income, cont’d • Self-Employment Worksheet continued: – All expenses allowed by IRS are permitted – A/R can submit up to 12 worksheets if necessary

Priority of Verification • Tax Return • Self-Employment Worksheets – 13 OHIP/ADM-4, Attachment V

Treatment of Business Related Resources

Business Related Resources • MAGI-Like and ADC-R A/Rs do not have a Resource Test • For all SSI-R A/Rs subject to a Resource Test: – Business property and all cash reserves necessary for the operation of the business are exempt – Liquid business resources are also exempt • Must be in separate business account, cannot be co-mingled with personal funds

Business Related Resources • Business Property includes: ‒ Motor vehicles ‒ Machinery ‒ Farm equipment ‒ Inventories ‒ Supplies ‒ Tools ‒ Equipment ‒ Government permits ‒ Livestock ‒ Produce

Tax Return Income Calculations

Sole Proprietorship MAGI-Like Budgeting Determining Net Profit for Business: • Form 1040, Line 12 - Business Income • Subtract allowable IRS deductions from Form 1040: – Line 27 - Deductible part of Self-Employment tax – Line 28 - Self-Employed SEP, SIMPLE, and qualified plans – Line 29 - Self-Employed health insurance deduction • Divide by 12 for monthly self-employment business income – Negative income can offset other countable, taxable income

Sole Proprietorship MAGI-Like Budgeting Determining Net Profit for Farm: • Form 1040, Line 18 - Farm Income • Subtract allowable IRS deductions from Form 1040: – Line 27 - Deductible part of Self-Employment tax – Line 28 - Self-Employed SEP, SIMPLE, and qualified plans – Line 29 - Self-Employed health insurance deduction • Divide by 12 for monthly self-employment business income – Negative income can offset other countable, taxable income

Sole Proprietorship SSI-Related Budgeting Determining Net Profit for Business: • Form 1040, Line 12 - Business Income • Subtract Form 1040, Line 27 - Deductible part of Self. Employment tax • Divide by 12 for monthly self-employment business income – If negative amount, enter zero in MBL

Sole Proprietorship SSI-Related Budgeting Determining Net Profit for Farm: • Form 1040, Line 18 - Farm Income • Subtract Form 1040, Line 27 - Deductible part of Self. Employment tax • Divide by 12 for monthly self-employment business income – If negative amount, enter zero in MBL

Partnerships MAGI-Like Budgeting Determining Net Profit: • Form 1040, Line 17 - Partnership Income • Less allowable IRS deductions from Form 1040: – Line 27 - Deductible part of Self-Employment tax – Line 28 - Self-Employed SEP, SIMPLE, and qualified plans – Line 29 - Self-Employed health insurance deduction • Divide by 12 for monthly self-employment business income – Negative income can offset other countable, taxable income

Partnerships SSI-Related Budgeting Determining Net Profit: • Form 1040, Line 17 - Partnership Income • Subtract Form 1040, Line 27 - Deductible part of Self. Employment tax • Divide by 12 for monthly self-employment business income – If negative amount, enter zero in MBL

S Corporation MAGI-Like Budgeting Determining Net Profit: • Form 1040, Line 17 - S Corporation Income • Subtract allowable IRS deductions from Form 1040: – Line 27 - Deductible part of Self-Employment tax – Line 28 - Self-Employed SEP, SIMPLE, and qualified plans – Line 29 - Self-Employed health insurance deduction • Divide by 12 for monthly self-employment business income – Negative income can offset other countable, taxable income

S Corporation SSI-Related Budgeting Determining Net Profit: • Form 1040, Line 17 - S Corporation Income • Subtract Form 1040, Line 27 - Deductible part of Self. Employment tax • Divide by 12 for monthly self-employment business income – If negative amount, enter zero in MBL

Rental Property Business vs. Non-Business

Business vs. Non-Business Rental Property • Business rental income is earned income for all categories • Non-business rental income is treated differently per category – Earned income for MAGI-like/ADC-Related categories – Unearned income for SSI-Related categories

Business vs. Non-Business Rental Property • Business rental income is earned income for all categories • Non-business rental income is treated differently per category – Earned income for MAGI-like/ADC-Related categories – Unearned income for SSI-Related categories

Rental Property • Business Rental Property – Rental real estate run as a business – Leases and other legal documents list business name – Separate business accounts

Rental Property • Non-Business Rental Property – Less formalized – Leases and other legal documents list owner’s name – Uses personal accounts

Non-Business Rental Property MAGI-Like Budgeting Determining Net Profit: • Form 1040, Line 17 - Rental Income • Divide by 12 for monthly self-employment business income – Negative income can offset other countable, taxable income

Non-Business Rental Property SSI-R Budgeting • Depreciation or depletion of property is not a deductible expense from non-business rental income for SSI-R A/Rs • Review Schedule E for deductions specific to depreciation or depletion

Non-Business Rental Property SSI-R Budgeting Determining Net Profit: • Schedule E, Line 21(or 22) - Rental Income (or loss) • Add any Depreciation/Depletion expenses from Schedule E, Line 18 • Divide by 12 for monthly self-employment business income – If negative amount, enter zero in MBL

Resources for Non-Business Property for SSI-R A/Rs Only • Homestead – exempt • Contiguous Property – exempt • Non-Contiguous Property – not exempt – Subject to 6% Rate-of-Return test

6% Test for Non-Business Property FMV - Mortgage/Loan Equity Value • If annual net rental income ≥ 6% of equity value of property then first $12, 000 of equity value is disregarded • If annual net rental income < 6% of equity value of property then entire equity value is counted

6% Test for Multiple Non-Business Properties • Apply 6% Rate-of-Return Test to each property separately • If applicable, disregard maximum of $12, 000 of equity value of all properties combined

S/E Policy for ADC-R Budgeting • Policy has not changed for calculation of Self-Employment income for ADC-Related budgeting • Depletion, Depreciation and Amortization are not allowable expenses and must be added back in to determine A/Rs countable Self-Employment income

S/E Policy for ADC-R Budgeting cont’d • Financial Status Form (DOH-4469) is used when tax return is not appropriate • LDSS may utilize Worksheets A and C to determine the annual adjusted Self. Employment income • If negative amount, enter zero in MBL