Article 10 Section 2 – Earned/Unearned Income

 

18B18B18B18B18BTable of Contents

 

 

Title

MPG

Cite

Earned/Unearned Income

10.02.01

Gross Earned Income

A.   Overview

a.    Wages, salaries, bonuses and commissions

b.    Net profit from self-employment.

c.    Earnings under Title 1 of the Elementary and Secondary Education Act.

d.    Job Training Partnership Act (JTPA).

e.    Payments under the Economic Opportunity Act.

f.     Training incentive payments and work allowances

g.    Income received for having provided IHSS

h.    Net income from real or personal property 

i.      Earnings from public service employment.

j.      Strike benefits paid to union members

k.    Therapeutic wages of persons in Long Term Car

l.      Post-Adoptive Services Payments

B.   Tips

C.   Earned Income Tax Credit (EITC)

D.   Temporary Worker's Compensation (TWC)

E.   State Disability Insurance (SDI)

10.02.02

Gross Unearned Income

A.   Overview

a.    Retirement, Survivors, and Disability Insurance payments (RSDI)

b.    Annuities

c.    Pensions

d.    Retirement payments

e.    Disability payments

f.     Railroad Retirement and any other payments

g.    Unemployment Insurance Benefits.

h.    Proceeds from a life insurance policy

i.      Other insurance payments.

j.      Loans which do not require repayment.

k.    Gifts

l.      Child/spousal support received

m.  Inheritances

n.    Contributions

o.    Prizes and awards

p.    Net income from the rental of real or personal property

q.    Dividends

r.     Interest payments

s.    Royalties

t.      Public Assistance

u.    Incentive payments or training allowances under the Job Training Partnership Act (JTPA).

v.    Strike benefits

w.   Proceeds from the sale of blood

x.    Cash payments from non-governmental agencies

 

B.   Workers Compensation Payments

C.   Veteran’s Payment

D.   Veterans Educational Benefits

10.02.03

0B0B0B0B0BIncome Verification

A.   Use of Federal Income Tax Return

B.   Verifying Earned Income

C.   Verifying Earned Income from Self-Employment

D.   Verifying Earned Income In-Kind

E.   Verifying Tips

F.    Verifying Unearned Income

10.02.04

IRS Form 1040

Appendix A

 

10.02.01 Earned/Unearned Income

 

A.   19B19B19B19B19BGeneral

It is necessary to determine whether income is earned or unearned in order to apply the correct exemptions and deductions to compute share-of-cost.  Once earned and unearned income has been identified, it must be evaluated for exempt status.  (See Article 10, Section 3.)

 

This section provides a listing of earned and unearned income.  Additionally, required income verifications are detailed.

 

 

10.02.02 Gross Earned Income

 

A.

Overview

Gross earned income includes, but is not limited to:

a.    Wages, salaries, bonuses and commissions from an employer or business enterprise

Waitresses, cooks, busboys, etc., often have the cost of meals included in the gross income.  The meal cost is added to wages by the employer for tax purposes, but may not always be identified as meal allowance on the pay stub.  The total gross income, including the meal allowance is to be used in the income computations.

b.    Net profit from self-employment. See MPG Article 10, Section 5.03 for determining net profit from self-employment.

c.    Earnings under Title 1 of the Elementary and Secondary Education Act

d.    Payments under the Job Training Partnership Act (JTPA)

Exception:  Payments which are identified by the local JTPA office as an incentive payment or training allowance will be considered as gross unearned income.  Additionally, see MPG Article 10, Section 3.13 for regulations regarding exempt JTPA payments.

e.    Payments under the Economic Opportunity Act

f.     Training incentive payments and work allowances under ongoing manpower programs

g.    Income received for having provided IHSS (e.g., homemaker) services

Exception: In-home caregiver wages received by a spouse or parent for care of a spouse or minor child in receipt of federal, state or local government in-home services program shall be exempt as income. See MPG Article 10, Section 3.37 regarding exemption.

h.    Net income from real or personal property which is the result of continuous and appreciable effort on the part of the applicant or beneficiary.  This includes income from:

·         Room and board 

·         The rental of rooms which requires daily effort on the part of the beneficiary

·         A business enterprise

·         The sale of produce, livestock, poultry, dairy products and other similar items

 

Please see MPG Article 10, Section 5.2 for the treatment of Income from Property.

i.      Earnings from public service employment.  This includes Census Income.

j.      Strike benefits paid to union members who are required to perform a union function, such as picketing, to receive these benefits.  As these benefits are contingent upon the performance of some union function, the striker cannot be required to obtain such benefits.  (See below, for regulations regarding treat­ment of strike benefits as unearned income.)

k.    Therapeutic wages of persons in Long Term Care.  (See MPG Article 1 for definition.)

l.      Post-Adoptive Services Payments are considered earned income if received by a beneficiary as a service provider unless documentation can be provided to show that it is a reimbursement of expenses.

 

MPG LTR 616 (09/07)

ACWDL 85-14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACWDL 07-02

 

 

20B20B20B20B20BB.
Tips

Tips actually received for the performance of work activities, in spite of the amount calculated by the employer for tax withholding purposes  is considered earned income.

 

Tips are added to gross wages to calculate federal income tax withholding.  When tips are added to the wages and the same amount is a deduction on the pay stub, the tip amount on the pay stub is not income.  Instead the applicant/beneficiary's actual tips reported will be used to calculate total earnings.  This is true whether the applicant/beneficiary reports more or less tips than are entered by the employer on the pay stubs.  The applicant/beneficiary must complete a sworn statement to describe the reason for any discrepancy between the pay stubs and the amount actually reported.

 

MPG LTR 528 (05/04)

MEPM LTR 274

 

21B21B21B21B21BC.
22B22B22B22B22BEITC

Actual Earned Income Tax Credit (EITC) payments received either as a tax refund or an advance payment are earned income in the month received ONLY FOR ABD CASES.  This is exempt income for AFDC-MN and MI cases.

ACWDL 89-71

 

D.

Temporary Worker's Compensa-tion (TWC)

Temporary Worker's Compensation (TWC) payments are treated as earned income when received by a person who:

·         Is not an ABD-linked MN person and is either an AFDC-linked MN/MI person or in the same MFBU with an AFDC-linked MN/MI person; and

·         Continues to be employed by the employer for whom he/she was working when the injury causing the TWC payments was incurred

 

NOTE: The following deductions may be applied against TWC income:

·         $90 Work Expense

·         Student Exemption

·         $30+1/3 and

·         Dependent Care

ACWDL

 95-63

 

 

23B23B23B23B23BE.
24B24B24B24B24BState Disability Insurance (SDI)

State Disability Insurance (SDI) Payments are treated as earned income when received by an eligible or ineligible AFDC-MN/MI person in the MFBU.

 

NOTE: The following deductions may be applied against SDI income:

·         $90 Work Expense

·         Student Exemption

·         $30+1/3 and

·         Dependent Care  

MPG LTR 347 (03/96)

ACWDL

 96-09

 

 

10.02.03 Gross Unearned Income

 

25B25B25B25B25BA.
26B26B26B26B26BOverview

Gross unearned income includes, but is not limited to:

 

a.    Retirement, Survivors, and Disability Insurance (RSDI) payments from the Social Security Administration

b.    Annuities, which are sums paid yearly or at other specific intervals in return for payment of a fixed sum by the annuitant

c.    Pensions

d.    Retirement payments

e.    Disability payments from any source, other than State Disability Insurance Benefits (SDI/DIB) are to be considered unearned income

f.     Railroad Retirement and any other payments made by the Railroad Retirement Board

g.    Unemployment Insurance Benefits.

 

NOTE: If items a through g, listed above, are received in a lump sum payment, the retroactive benefits are personal property.  Retroactive SSI and SSA benefit payments are not included in the property reserve for a period of six months after the month in which they are received.

 

h.    Proceeds from a life insurance policy received by the beneficiary upon death of the insured, which are in excess of the lesser of:

·         $1,500; or

·         The amount expended on the insured person's last illness and burial expenses

i.      Other insurance payments

j.      Loans which do not require repayment. Loans which do require repayment, that are not exempt, are considered property in the month received rather than income.

k.    Gifts

l.      Child/spousal support received, whether provided voluntarily or by court order

m.  Inheritances which are in the form of cash, securities, stocks, bonds, mutual funds, CSV of life insurance policies, savings accounts (including IRA, Keogh, CD, T-Bills), or other liquid assets

n.    Contributions from any source.  A contribution is any benefit in cash or in-kind for which the contributor has no legal liability.

o.    Prizes and awards

p.    Net income from the rental of real or personal property which is not considered gross earned income as stated above

q.    Dividends are considered unearned income, with the following exception:

Effective August 1, 2005, dividends are exempt for the purpose of determining eligibility for ABD Medi-Cal and Medicare Savings Programs when the interest or dividends are paid to an individual from his or her property, which has been counted in the property reserve. (See MPG Article 10, Section 3.35.)

r.     Interest payments from any source, including trust accounts, trust deeds and contracts of sale are considered unearned income, with the following exception:

Effective August 1, 2005, interest is exempt for the purpose of determining eligibility for ABD Medi-Cal or Medicare Savings Programs when the interest or dividends are paid to an individual from his or her property, which has been counted in the property reserve. (See MPG Article 10, Section 3.35.)

s.    Royalties, including, but not limited to, payments to:

·      A holder of a patent or copyright, for the use of the invention

·      The owner of a mine, oil well or similar holding, for the extraction of the product or other use

t.      The portion of a Public Assistance recipient's income which is NOT used to determine their own grant

u.    Incentive payments or training allowances under the Job Training Partnership Act (JTPA). (See MPG Article 10, Section 3.13 for regulations regarding exempt JTPA payments.)

v.    Strike benefits paid to union members who are not required to perform any union function to receive these benefits, or to persons who perform union functions voluntarily.  These benefits are unconditionally available income and strikers are required to take all action necessary to obtain them.  (See item above, for regulations regarding treatment of strike benefits as earned income.)

NOTE: If items H through V, listed above, are received in a lump sum payment, the retroactive benefits are unearned income in the month received and property in the following month.

w.   Proceeds from the sale of blood are considered unearned income, unless the income meets exemption criteria for irregular or infrequent income (See MPG Article 10, Section 3.22).

x.    Cash payments from non-governmental agencies such as the American Red Cross, Easter Seals and The Shriners may be partially counted as property and partially counted as unearned income. 

The amount specifically for medical and social services is considered property and is exempt in the month following the month of receipt.  The excess is counted as unearned income in the month of receipt (See MPG Article 9, Section 6.25).

 

MPG LTR 562 (05/04)

MPG LTR 579 (08/05)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACWDL 05-17

 

27B27B27B27B27BB.
28B28B28B28B28BWorkers Compensa-tion Payments

Worker's Compensation payments are counted as unearned income when received by an ABD-linked MN person, or a person who does not meet the earned income requirement above.

 

If received in a lump sum payment, the retroactive benefits are personal property.

ACWDL

 95-63

 

 

29B29B29B29B29BC.
30B30B30B30B30BVeteran’s Payment

The following Veteran’s payments are treated as unearned income:

·         Pensions based on need

·         Compensation payments

·         Education assistance

ACWDL 87-34

 

 

31B31B31B31B31BD.
32B32B32B32B32BVeterans Educational Benefits

The Veterans Administration (VA) currently provides educational benefits under three educational assistance programs; Veterans Educational Assistance Program (VEAP), GI Bill, and the Post 9/11 GI Bill.

 

GI Bill

Eligible veterans who served on active duty in the military prior to January 1, 1977 are entitled to receive educational benefits from the VA under the GI Bill. The entire amount of educational benefits received under the GI Bill is considered unearned income for educational purposes.

 

Post 9/11 GI Bill

The Post 9/11 GI Bill expands educational benefits for military veterans who served since September 11, 2001. There are three payments associated with the Post 9/11 GI Bill:

 

·         Tuition and Fees

·         Monthly Housing Allowance

·         Annual Books and Supplies Stipend of $1,000.

 

Treatment of Post 9/11 Payments:

 

Type of Payment

Treatment

Tuition and Fees

Tuition and fees are paid directly to the educational institution.

These payments are not counted as income to the veteran. This treatment applies to all Medi-Cal programs.

Monthly Housing Allowance

The monthly housing allowance is paid directly to the veteran on a monthly basis.

The monthly housing allowance is treated as unearned income for all Medi-Cal programs.

Annual Books and Supplies Stipend

The annual books and supplies stipend of $1,000 is paid directly to the veteran on a proportional basis based on enrolled units.

Two different treatments apply:

·         Aid to Families with Dependent Children/Medically Needy (MN), 1931(b) and Medically Indigent (MI) treatment. The annual books stipend is excluded to the extent that the proceeds are used to meet the non-tuition educational expenses.

·         Aged Blind and Disabled/MN treatment. The annual books stipend is excluded as income.


Verification:

Post-9/11 GI Bill payments are identified as VA-CH 33 payments. The VA award letter is acceptable evidence to be used to document type, amount, and frequency of payments.

 

The annual books and supplies stipend will be verified in accordance with UUMPG Article 4, Section 7 – Verification/Documentation ProceduresUU.

 

Veterans’ Educational Assistance Program (VEAP)

The Veterans' Educational Assistance Program (VEAP) is a contribution matching program for persons entering active military service after December 31, 1976.  Persons on active military duty voluntarily contribute to the VEAP educational fund.  Upon discharge from the military, eligible veterans are entitled to receive educational benefits from the Veterans Administration (VA).

 

The VEAP program consists of the government contributing $2 for every $1 contributed by active military personnel to an educational fund.

 

Two-thirds of the benefits received under the VEAP (Post Vietnam Veterans Educational Assistance) program are considered unearned income for educational purposes.  The remaining one-third is exempt.

 

Verification:

The worker will verify receipt of payments under the VEAP program by completing form CW 5.  On form CW 5, the worker must include a request for the VA to identify under which program educational benefits are being issued.

 

The veteran may elect to withdraw his or her contri­bu­tion, but forfeits entitlement to matching funds from the VA.  When a veteran voluntarily withdraws his or her own contribution, the money received should not be counted as income because the funds are a return of the veteran's own money.

 

The veteran's unused contribution to VEAP is counted as property upon withdrawal, since the withdrawal from VEAP means that the funds are no longer earmarked specif­ically for educational purposes.

 

NOTE: See MPG Article 10, Section 3.24 and MPG Article 10, Section 3.25 for regulations regarding exemption of Veterans Aid and Attendance payments and certain pension payments to LTC veterans.

 

If received in a lump sum payment, the retroactive benefits from the VA are personal property.

 

MPG LTR 643 (07/08)

MPG LTR 758 (07/12)

ACWDL 87-34

 

ACWDL 12-15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MEM No. 310

 

 

EMC 2

DHS #91077

 

 

10.02.04 Income Verification

 

33B33B33B33B33BA.
Use of Federal Income Tax
Return

A photocopy of the previous year’s federal income tax return (IRS 1040 and/or 1040EZ) is acceptable verification of income if the income tax return reflects the income reported on the statement of facts. When using form 1040/1040EZ, the following procedures will be followed:

 

·         Income reported on the tax return that is no longer being received will not be counted.

 

·         Positive gross amounts (that are still being received), reported in the Income Section (Lines 1-21) of the tax return (before taxes are applied), will be counted. (See Appendix A.)

 

·         Negative amounts, reported in the Income Section, will be treated as zero.

 

·         The positive income amounts, divided by 12 (or the number of months the income was actually received), are the average monthly gross income figures.

 

·         The average monthly gross income figures will be used to compute the correct level of benefits unless there is a discrepancy with the income reported on the statement of facts.

 

·         Small discrepancies, which are due to a pay increase or cost of living adjustment, may be clarified over the phone and a case comment will be entered. The most accurate income amount will be used (between the amount reported on the 1040 and the amount reported on the statement of facts).

 

·         Current information will be requested to clarify significant discrepancies, other than those due to a pay increase or cost of living adjustment.

 

NOTE:  When an applicant/beneficiary is reporting self-employment income, procedures for self-employment income verification using Schedule C or F will be followed according to MPG Article 10, Section 5.3.

 

Example 1:  Elaine applies for Medi-Cal on November 5th. She reports income from a job that she has had for several years and income from alimony checks. Her statement of facts indicates that she earns $2,000 per month and receives $165 per month in alimony. She provides her previous year’s tax return as verification of income. Therefore, her tax return is used to compute eligibility as follows:

 

Step

Action

Calculation

1

Review Line 7 (Wages, salaries, tips, etc) on IRS Form 1040 

$24,000

2

Review Line 11 (Alimony received) on IRS Form 1040 

$2,000

3

Calculate gross earnings by dividing each line by 12:

 

·         Gross earned income = $2,000 per month

·         Gross unearned income = $166.66

 

Example 2:  Jerry applies for Medi-Cal and his statement of facts indicates that he currently earns $4,000 per month. He provides his previous year’s tax return as verification of income. The tax return reflects both earnings and unemployment benefits. Jerry explains that he received unemployment benefits for one month and received income from employment for the remainder of the year (11 months). He continues to work at the same job. Therefore, his tax return is used to compute eligibility as follows:

 

Step

Action

Calculation

1

Review Line 7 (Wages, salaries, tips, etc) on IRS Form 1040 

$46,000

2

Review Line 19 (Unemployment compensation) on IRS Form 1040 

$200

3

Calculate gross earnings by dividing Line 7 by 11 (the number of months he had earnings)

 

·         Gross earned income = $4,181.81 per month.

·         Because the unemployment benefits have stopped, they will not be counted toward determining his Medi-Cal share of cost.

 

MPG LTR 469 (10/01)

ACWDL 01-50

 

MEPM 4M

 

 

34B34B34B34B34BB.
35B35B35B35B35BVerifying Earned Income

Earned income will be verified as follows:

·         Only one pay stub is required to verify income. The pay stub submitted does not have to be dated within the last 30 days, but must be the most recent available to the applicant/beneficiary.  As long as the pay stub accurately reflects the amount reported on the statement of facts, there is not a requirement for the pay stub to be dated within a certain time period.

 

·         Additional pay stubs may be requested if income reported is inconsistent with that of the submitted pay stub. A discrepancy does not exist if income reported on the application is clearly “NET” earnings. If additional pay stubs are requested, a case comment is required.

 

·         A copy of last year’s federal income tax return that accurately reflects current income

 

·         Signed letter from the employer, form 07‑21 HHSA, that shows gross amount and date of paycheck

 

·         If verification cannot be obtained by one of the above, see MPG Article 4, Section 7.10.C regarding the use of the statement of facts or a sworn statement.

 

MPG LTR 469 (10/01)

ACWDL 01-50

 

MEPM 4M

 

 

36B36B36B36B36BC.
37B37B37B37B37BVerifying Earned Income from Self-Employment

Self-employment income will be verified by viewing a photocopy of one of the following and documenting in case comments:

 

·         Receipts showing gross earnings and expenses

·         Business records (profit/loss).  These records are not required to be for the entire year

·         Copy of the most recent federal income tax return and appropriate schedules:

 

·         Schedule C – Profit or Loss from Business

·         Schedule D – Capital Gains and Losses

·         Schedule F – Profit or Loss from Farming.

 

Please see MPG Article 10, Section 2.4.A above for information on how to use the federal income tax return.

 

NOTE:  Workers have flexibility in accepting bookkeeping records that are available to the applicant or additional records, which the applicant feels will more accurately reflect the net income of the business.  (See MPG Article 10, Section 5.3.C for examples.)

 

MPG LTR 528 (05/04)

ACWDL 01-50

 

MEPM 4M

 

MEPM 274

 

38B38B38B38B38BD.
39B39B39B39B39BVerifying Earned Income In-Kind

Verification is only required if the applicant/beneficiary claims the amount is lower than the allowed standard.  A written statement from the provider of the need item is acceptable.

 

MPG LTR 528 (05/04)

ACWDL 01-50

 

MEPM 4M

 

 

40B40B40B40B40BE.
41B41B41B41B41BVerifying Tips

Acceptable verifications of tip income are:

 

·         Amount reported on stub, or

 

·         Amount actually reported by applicant/beneficiary

 

If discrepancy exists in the amount of tips reported, the applicant/beneficiary may sign a sworn statement about the reason for the discrepancy.

 

MPG LTR 528 (05/04)

ACWDL 01-50

 

MEPM 4M

 

 

42B42B42B42B42BF.
43B43B43B43B43BVerifying Unearned Income

Unearned income will be verified by viewing any of the following:

 

1.    Award letter or most recent COLA increase notice

 

2.    IEVS/PVS printout.  See MPG Article 4, Section 7.11.B for more information about verification through automated systems

 

3.    Current bank statement if direct deposit (NOTE:  amount shown may be net amount if Medicare premiums are being deducted or an overpayment is being collected).  The applicant/beneficiary should be asked if they are paying for Medicare or repaying an overpayment and this clarification should be entered in case comments.  Verification of this amount may be necessary if IEVS is not available.

 

4.    Copy of check or check stubs (NOTE:  amount shown may be net amount if Medicare premiums are being deducted or an overpayment is being collected).  The applicant/beneficiary should be asked if they are paying for Medicare or repaying an overpayment and this clarification should be entered in case comments.  Verification of this amount may be necessary if IEVS is not available.

 

5.    Signed statement from person or organization providing the income

 

6.    See MPG Article 4, Section 7.10.C regarding the use of the statement of facts or a sworn statement for income received from the United States Government.  This statement shall constitute verification pending receipt by the county department of verification from the appropriate government agency, when the verification in 1) through 5) cannot be provided.

 

EXCEPTION:  Unearned income in-kind is not to be verified unless the applicant/ beneficiary states that the actual value is less than the standard value shown in MPG Article 10, Section 5.1.E and Appendix A-1.  When appropriate, unearned income in-kind should be verified on form MC 210 S-I, however, a written statement from the provider of the need item is acceptable.

 

NOTE:  Many types of unearned income are taxable under certain conditions. Examples of unearned income which may be taxable are pensions, annuities, RSDI, alimony, prizes, lottery and other gambling winnings. Workers must be alert to the possibility of taxes being withheld on unearned income and assure that the actual gross amount is verified and used in the share of cost computation.

 

MPG LTR 469 (10/01)

MPG LTR 528 (05/04)

ACWDL 01-50

 

MEPM 4M

 

 

Appendix A

 

The income reported on Lines 7 through 21 is treated in accordance with Medi-Cal regulations. Remember any negative amount should be treated as zero.

·         If individual is reporting self employment, use either IRS 1040 and Schedule C/F or 3 months Profit and Loss to determine gross amount, instead of the amount reported here.

·         When computing unearned income, use the amounts before taxes are taken (15a, 16a & 20a).

 

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MPG LTR 469 (10/01)

ACWDL 01-50