Article 10 Section 5 Treatment of Income Table of Contents TITLE MPG CITE Income InKind 100501 Income from Property 100502 Income from SelfEmployment 100503 AllocationDeeming and Special Case Situations 100504 Resources Resource Title Processing Guideline Desk Aid Treatment of Income Spouses in Separate MFBUs How To HT 436 Spousal Allocation To An At Home SSI Spouse Or Child 100501 Treatment of Income InKind A Income InKind Income inkind exists when a full item of need for one or more MFBU members is earned or voluntarily contributed by a person other than a responsible relative for a full calendar month The contributing person must not be in the MFBU MEM 50509 DHCS Clarificat ion Inkind income exists when a payment is made to the provider of the item of need However if the money is given to the applicant beneficiary the entire amount is income rather than inkind Determining inkind income evaluate Housing Utilities Food Clothing 1931b cases only MEPM 10F Reevaluate inkind income when the applicantbeneficiary Income appears to be less than hisher needs Reports a loss decrease or absence of income Change in household composition Change in shared housing situation Reports a job start or other source of income Note Inkind cannot be assumed solely because the applicant beneficiary does not pay toward a need item The worker will document clarifications in case comments Note Inkind is for clothing is only counted for 1931b cases MPG LTR 788 613 B The value of free room and board received during a temporary MEM 50509 Temporary absence from the home will be considered as follows Absence from the Home If the absence is Then the inkind value will one month or less not be considered income more than one month be considered income to the extent that it exceeds the actual costs of maintaining the home to which they will return C Examples Situation Income InKind Applicantbeneficiary lives in a camper parked on the street While housing and utility needs exist payment is not met by an earned or voluntary contribution nor does the client pay for these need items No Applicantbeneficiary resides with friends who live in military housing The applicantbeneficiary pays 100 to the friend each month until a separate residence can be located No Same situation as above but friend freely provides housing and utilities per applicantbeneficiarys statement Yes Applicantbeneficiarys only child is an unborn There is no contribution from a person or organization to meet the items of need Does income inkind for the unborn from the mother exist No Parent maintains apartment house in exchange for housing The parent is an illegal alien and ineligible member of the MFBU The MFBU consists of two eligible children The amount used in the Ineligible Parent Yes budget is the inkind value for three people or the actual whichever is less A person owns a mortgage protection insurance policy The insurance company is now paying the mortgage payments due to the persons disability Income inkind occurs only when an entire item of need is contributed Since the person has paid and is paying premiums in this insurance the entire item of need is not contributed No A beneficiary who is in the military lives on base and does not pay rent or utilities Yes An unmarried minor parent lives with the parents parents provide free room and board to minor parent and the minor parents born children Income inkind is attributed only to the minor parents children as her parents are financially responsible relatives of the minor parent Yes A mother states that she generally purchases the clothing for herself and her children During the month of application she purchased no clothing for the family but her daughter received a new dress as a birthday present from an aunt Even though the only item of clothing obtained during the month was contributed by someone other than a financially responsible relative no income inkind for clothing is attributed to the daughter because all of her clothing is not contributed No A mother states she never spends any money on clothing for herself and her children All of their clothing and footwear are donated to her by friends neighbors and her church Since items of clothing may not be obtained every month income inkind for clothing is based upon the source of clothing when it is obtained Income inkind for clothing is attributed to a member of the MFBU only if all clothing obtained byfor that person is contributed by someone other than a financially responsible relative Yes A pregnant woman receives income inkind Income inkind for housing utilities or food is attributed to the unborn when the mother has the item contributed by someone other than a financially responsible relative Income inkind for clothing would be attributed to an unborn if the mother stated that all of the infants clothing and diapers will be contributed by someone other than a financially responsible relative once the child is born Yes Note last three situations apply to 1931b determinations only MPG Ltr 699 710 D Verification is only required if the applicantbeneficiary claims the MEM Verifications amount is lower than the allowed standard A written statement from the provider is acceptable See MPG 040701 E Value of Income InKind The state assigns a dollar value to each item of need These values MEPM are listed in MPG 1101Appendix A The worker shall enter the MFBU 10F information on the Display Inkind Income Summary screen in CalWIN Applicantsbeneficiaries shall be advised of the right to submit verification of the actual value if they believe the value is lower than the inkind values When a beneficiary receives free housing and has verified that the actual value of the housing is 95 The inkind value chart is higher the 95 is used in the SOC determination due to it being the lesser of the two amounts When one of the items of need is shared with persons who are not included in the MFBU the income inkind value to the members of the MFBU is the lesser of the MFBU members share or the net market value or actual cost of the item or the income amount assigned to the need item in MPG 1101Appendix A MPG Ltr 699 710 F Both earned and unearned income inkind is subject to all applicable MEM 50509 Exemptions income exemptions See MPG 1003 and deductions see MPG 1006 Deductions MPG Ltr 528 504 100502 Income from Property A The interest portion of the income from the Deed of Trust or mortgageIncome from is considered net income The interest portion of payments received Deed of Trust must be determined on an annual basis and divided by 12 to or Mortgage determine the monthly amount See MPG 100401 B Income from property in which the person holds a life estate is the Income from amount actually received Life Estate C The net income from personal property is the amount actually Income from received Personal Property D Rental Income The net income from rental property in which the person holds any ownership interest in Rental income shall be evaluated by the worker at the initial intake renewal and when the situation changes to the extent that the rental amount increasesdecreases a mortgage is paid off or the applicantbeneficiary discontinues renting the property The worker shall enter the MFBU information on the Display Rental Income Summary screen in CalWIN Deductions are calculated differently for income from the rental or real property not located on the same property as the principal residence and income from rental units on the same property as the principal residence The following deductions will be allowed when determining the net income from rental property Item Definition Taxes Assessments and Insurance Insurance and taxes are usually included in the monthly mortgage payment Divide the yearly cost by 12 to determine the monthly expense Interest on The mortgage includes principal and interest The Encumbrance principal portion of the payment is not a deduction Payments when computing income from a rental The interest is computed by dividing the prior years interest amount by 12 or using the last interest payment and projecting for the year Utilities The average for utility costs will be based on six months actual costs When six months documentation is not available the computation will be based on documented actual costs for a lesser period of time Upkeep and The amount of upkeep and repairs to be deducted Repairs is the greater of the following Fifteen percent of the gross monthly rental income plus 417 per month or The actual amount spent for upkeep and repairs during the month In addition to actual repair costs when applicable reasonable property management fees and homeowners association fees for condominium complexes Prorating Deductions All or a portion of expenses deducted from rental property must be prorated when the rental property is located on the home property that is exempt as the principal residence and the applicantbeneficiary lives in a portion of the property Note Expenses which are common to the property as a whole are prorated while expenses which can be attributed solely to the rental property are not prorated Deductible expenses which are common to the property as a whole will be prorated following these steps Step Action 1 Determine the number of rooms which are producing rental income 2 Based on the total number of rooms determine the percentage of the property which is producing the rental income divide the number of rooms producing income by the total number of rooms 3 Apply the percentage determined to the allowable expenses which are common to the property as a whole Example An applicant owns a duplicate The applicants half of the duplex contains 6 rooms The rental unit contains 4 rooms The total number of rooms in the computation 10 The number of rooms producing rental income 4 The percentage of the property producing rental income 40 The percentage is applied to each allowable expense which is common to the property as a whole to determine the amount to be deducted Income form Property Limited to Seasonal Use For the purpose of determining net yearly income for property limited to seasonal use the year is considered to begin in the first month of the year in which income normally begins Income from all months of the year shall be considered in determining net yearly income of the property regardless of the eligibility status of the beneficiary E Room and Board or Roommates NOTE MC 176 P Property Reserve Work Sheet is used for manual computations MPG Ltr 699 710 MediCal regulations provide three methods for computing net income from monies received for housing from nonfamily members living in the home of MediCal applicantsbeneficiaries The worker shall explain to the client how the net income is computed The following describes the circumstances under which each method is applicable Ten Percent Ten percent of the gross amount received is counted Gross as income when determining the SOC when both of Method the following conditions exists the individual who receives the income routinely provides room and board to nonfamily members and a business license is not required Example Applicant lives near a college and routinely rents their spare room to students Applicant does not have a business license and does not report the income as selfemployment At the time of application applicants adult daughter who is not considered to be a family member under the MediCal eligibility determinations is using the room and is paying applicant 80 per month Applicant states that if the daughter were to leave applicant would try to find someone else to rent the room The net monthly income in this instance is 800 10 percent or 80 Actual Costs The amount paid to an applicantbeneficiary which is Method in excess of the contributors actual SOC will be counted as income when both of the following conditions are met the individual who receives the income does not routinely provide room and board to nonfamily members and business license is not required Example MediCal household is 3 people Applicants mother lives in the home and gives the MFBU 100 per month to use toward meeting the household costs which directly benefits the MFBU If the mother were not in the home the applicant would not seek another person to move into the home Monthly cost of rent utilities and food equals 500 There are 4 persons residing in the home the mothers share of the actual costs is 125 Her 100 contribution is less than her share of actual cost there is no net income to the MediCal budget If the mother instead were contributing 130 per month then the net income to the budget would be 5 If the mother lived in a room with its own kitchen and bought and prepared all of her own food then the mothers share of actual costs would be of 500 rent and utilities or 125 If the mother contributes 100 per month to applicant net income would be 25 Self The net income to be counted when determining the Employment SOC is the net profit from selfemployment when Method one of the following conditions exists The individual who received the income has a business license or The individual reports the income for tax purposes as selfemployment or the individual considers the income as income from selfemployment The worker shall enter the MFBU information on the Display Room and Board Summary screen in CalWIN MPG Ltr 699 710 100503 SelfEmployment Income A Identifying SelfEmployment MEPM Generally it is clear whether an individual is selfemployed there are 10M occasionally instances where it can be difficult to determine whether the individual is selfemployed or working for another person or entity For example an individual may be working at a job that has characteristics of both selfemployment and being in anothers employ such as certain real estate agents or consultants Self The individual defines their scope and nature of Employment their work and daily work activities including work Indicators duration Applicable to individuals selling services as opposed to selling goods Others assume no or only limited liability for the individuals work and for the individual during the course of hisher work The individual does not work in someone elses facility or use someone elses capital The individuals employment requires that heshe own substantial equipment which is subject to depreciation and the individual bargains for and receives compensation which reflects the cost of such depreciation The individual files an income tax return as a selfemployed person eg files a Schedule C The person or entity providing compensation to the individual for hisher services does not deduct Social Security taxes or federal taxes from the compensation payment It is possible for these indicators to provide conflicting information For example an individual may not have Social Security or withholding tax deducted from hisher compensation and yet the individual is working on anothers premises under anothers supervision subject to anothers directions This scenario may occur where the employment is under the table Generally such an individual would not be considered selfemployed The worker shall give consideration to each of the above indicators in addition to any other factors that may be pertinent to the individuals job situation In the case of conflicting information the worker must weigh all of the indicators and exercise best judgment The worker shall enter the MFBU information on the Display Self Employment Summary screen in CalWIN MPG LTR 699 710 B Net selfemployment income is determined by subtracting those MEPM 10M Computing expenses which are directly related to the production of goods and Net Income services and without which the goods or services could not be from Self produced from the total business income Employment C Verification and Records of SelfEmployment Income Allowable Expenses Expenses which are directly related to the production of goods and services and which are subtracted from business income include the following Material and supply costs Wages and other benefits paid to employees Payment for rental of space or equipment Payment of interest on loans for capital assets or durable goods Transportation costs to call upon customers or deliver goods Maintenance and repair costs and Other necessary costs of doing business eg advertising business dues and publications and insurance Note If an expense is partially personal and partially business only the business part is deductible Expenses Although connected to business activities they are not Not directly related to the production of goods and services Allowed and cannot be subtracted from business income They include Entertainment costs Depreciation Expenditures to purchase capital equipment Payment on the principal of loans used to acquire capital assets or durable goods Meals and Transportation to and from work MPG Ltr 458 0901 The previous years tax return IRS forms 1040 Schedule C or Schedule F can be used to determine projected monthly selfemployment income When using the previous years tax returns to estimate income for the current year most of the business deductions allowed by the IRS are allowable for purposes of determining net business income with the exception of the above nonallowable expenses When the business was operated throughout the previous year the total net income is divide by 12 The resulting amount is the projected monthly selfemployment income that is apportioned into the monthly MediCal case budget for the current year If the business was not operated throughout the previous year the worker is to determine the number of months it was operated The total allowable business expenses for the previous year are subtracted from the total business income in the previous year The result is to be divided by the number of months the business was operated The remainder is the projected monthly selfemployment income to be apportioned into the monthly MediCal case budget for the current MEPM 10M MEPM 4M year Example A worker is able to determine from an individuals tax return that the individual had 12000 in business revenue and 4000 in allowable business expenses from the previous year The individual tells the worker that hisher business was operational for eight months of the previous taxable year To estimate monthly net business income for the current taxable year assuming the business will be operational for the entire current taxable year the worker is to subtract the 4000 in allowable business expenses from the 12000 total revenue The remainder of 8000 is to be divided by 8 the number of months the business was operated The result is 1000 in projected monthly net income from selfemployment for the current year Estimating Current Years Income when last years tax forms are unavailable or not indicative of the current years net selfemployment income The worker may have reason to believe that last years tax return will not provide a reasonably accurate estimate of this years income Additionally an applicantbeneficiary who believes that last years tax return does not accurately reflect this years income can request that the worker reevaluate hisher net business income based on recent statements of total business income and expenses In these situations workers are to request that the applicantbeneficiary provide documentation of current business income The documentation provided must include an organized coherent readable bookkeeping record or statement of total business revenues and business expenses for at least the previous three months Note Workers do have flexibility to make adjustments in the requirement that the applicantbeneficiary submit a bookkeeping record or statement for the last three months The applicantbeneficiary has the option of submitting documentation of business income for more than three months if heshe feels that it would be helpful in estimating hisher income The worker also has the option of requesting more than three months of business records or statements if heshe has reason to believe that it is likely that a substantially inaccurate estimate would result without the additional information Example 1 An applicant applies for MedCal in June The applicant is selfemployed providing daycare services and her client base is steady throughout the year She has bookkeeping statements for her business for February March and April but has not yet finished preparing statements for May The worker may accept a MEPM 10M MEPM 4M bookkeeping recordstatement for February through April Example 2 An applicant applies for MediCal in May He owns a small crab boat and fished from September through December last year His catch and income from it fluctuates substantially from month to month From January through March of this year he was unemployed Last year he was employed from January through March He owns a logging truck and from April through August of last year he contracted out to several small logging companies to haul felled logs to their mills His logging contract tends to produce consistent revenue He started his trucking operation in April of this year and expects to repeat last years work pattern He doesnt have a tax return from last year He kept poor records Estimating income in situations like this is difficult and worker needs to analyze all available information and exercise their best judgment in doing so The thoroughness of an applicants business records is a legitimate consideration in determining the extent of verification to require In this example the applicant has not kept thorough records and getting bank statements and verification for the last three months will not suffice to obtain a reasonable estimate of net business income for the year In this example it is reasonable for the worker to require verification of business income and expenses for the months in which the applicant was selfemployed as a fisherman Bank statements for deposited business income and receipts for business expenses are acceptable If the applicant has a credible reason for his inability to provide bank statements and certain business expense receipts it may be acceptable for example to use estimates of monthly catch and price to estimate business income and trip mileage fuel utilization and cost per gallon to estimate fuel costs Because the applicant started his trucking operation in the month prior to the month of application he should be able to produce statements and verification for this trucking business income The worker may also request statements and verification of income and Note Workers must use their best judgment when estimating net business income in these situations MPG Ltr 528 504 D Net profit from selfemployment is considered gross earned income Net Profit Net profit is the difference between gross income and business expenses If the computation of net profit discloses that a loss has occurred income from selfemployment will be zero Add any gross earnings of the person to the net profit if the computation results in a negative figure the loss are not treated as a deduction from other income of the M FBU EXAMPLE Gross receipts from selfemployment 400 Business expenses 450 Net profit 0 Earnings from other employment 300 Total gross earnings 300 F Deductions Once net profit gross earned income from selfemployment is determined earned income deductions are allowed Deduct from the total gross earnings of the selfemployed person the standard 90 deduction for work expenses and dependent care deduction if applicable When the applicantbeneficiary is entitled to the 30 and 13 deduction from earnings determine that amount based on the net earnings The remainder is net nonexempt earnings to the MFBU MPG LTR 528 504 100504 AllocationDeeming and Special Case Situations A Allocations must be computed for MFBUs including the following ACWDL Introduction medical or nursing facility and who is married to an institutionalized spouse NOTE The community spouse may live at home or in a Board Care facility Institutionalized Spouse Defined in MPG 010101c Dependent Family Members Minor or dependent children parents or siblings of either spouse provided these individuals reside with the community spouse Dependency is defined as any person who has any physical emotional or financial dependency NOTE Stepchildren shall be treated as natural children of the person in LTC or Board Care ACWDL NOTE Allocations are allowed to an at home spouse or child who 9003 receives SSI DHCS ClarificaMPG LTR 793 0613 tion B To determine a spousal allocation staff must take the following steps ACWDL 0903 Determining Spousal Allocations Step Action 1 Determine the net nonexempt income of the LTC person that exceeds the LTC maintenance need NOTE Net nonexempt income is the remainder of gross income after all allowable deductions 2 Determine the community spouse maintenance needs see MPG Appendix 1102A 3 Deduct the gross income of the community spouse from the maintenance need NOTE The remainder is an unmet need of the community spouse and can be allocated from the excess income of the LTC spouse This treatment begins the first day of the first month the spouses are in separate MFBUs In situations where money is allocated or deemed the allocated or deemed income must be considered when determining income available to the MFBU NOTE Form MC 176 AllocationSpecial Worksheet B is used for manual computation C Deposit of the longterm care spouses income into a joint account is ACWDL 0903 Treatment of considered to be a transfer of the income to the spouse at home No Income verification beyond evidence of such deposit is required in cases involving joint bank accounts When income is not deposited in a joint account the beneficiary must provide documentation that the monies have actually changed hands such as a cancelled check bank statements etc In cases involving deposit of the LTC spouses income into a joint account the worker must advise the spouses that any spousal allocation funds remaining in the joint account the month following the month of allocation will be considered 100 countable property of the LTC spouse This could result in MediCal discontinuance if the property reserve is allowed to exceed property limits NOTE If the spousal allocation is not spent in the month of receipt it may still have to be transferred from the joint account bearing the LTC spouses name the following month in order to maintain eligibility D To determine a dependent family member allocation staff must take Determining the following steps Dependent Family Member Allocations Step Action 1 Determine the maximum allocation base for each family member See Appendix 111A 2 Deduct the gross monthly income of that family member from the maximum allocation base of a family member 3 One third of the remainder shall be considered the family member allowance for that person 4 The total of all family member allowances shall be considered the total Family Member Allocation 5 The family member allocation shall be deducted from the income of the spouse with LTC status regardless of whether such amount is actually transferred to the family members NOTE At no time shall any income be allocated from the community spouse or family members living in the home to the spouse with LTC status MPG LTR 437 0201 E Staff must follow the benefit determination instructions detailed in the Treatment of Pickle Handbook found in Desk Aids 89 and 92 when determining the Income for income SOC for a person who meets the following criteria Person No Longer Currently receives RSDI benefits Receiving Was eligible for an d received RSDI and SSISSP benefits SSITitle XVI simultaneously in any month after April 1977 Benefits Was discontinued from SSISSP after April 1977 Received an RSDI COLA since being discontinued from SSISSP Would be entitled to receive SSISSP benefits if the RSDI COLAs received after SSISSP ineligibility are disregard MPG LTR 562 0904 F Excluded ChildrenTreat ment of Income and Allocation to Excluded Children Money may be allocated to an excluded child The allocation to an ACWDL 0425 excluded child is based on the income standard of the MediCal 9091 Program for which the MFBU is being evaluated eg Medically Needy 1931b etc To determine the allocation amount staff must Step Action 1 Subtract the household income standard excluding the child from the household income standard including the child the remainder amount is considered the unmet need 2 Subtract the excluded childs net nonexempt income from the gross unmet need the remainder is the allocation NOTE If information andor verification of the excluded childs income are not provided there will be no parental allocation of income to the excluded child Example of Allocation to Excluded Child Program 1931b Household Composition Stepfather Mother 7yr old 15yr old Excluded childs unmet need 1931b income standard for 4 1931b income standard for 3 Gross unmet need 1571 1306 265 Allocation to excluded child Gross unmet need Excluded childs income Allocation 265 165 100 MPG LTR 562 0904