Article 10 Section 5 Treatment of Income

 

Table of Contents

Title

MPG Cite

Income In-Kind

10.05.01

Income from Property

10.05.02

Income from Self-Employment

10.05.03

Allocation/Deeming and Special Case Situations

10.05.04

 

 

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

 

 

10.05.01 Treatment of Income In-Kind

 

A.
Income In-Kind

Income in-kind 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.

 

In-kind 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 in-kind.

 

Determining in-kind income evaluate;

·   Housing

·   Utilities

·   Food

·   Clothing [1931(b) cases only]

Re-evaluate in-kind income when the applicant/beneficiary;

·   Income appears to be less than his/her 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: In-kind cannot be assumed solely because the applicant/ beneficiary does not pay toward a need item.  The worker will document clarifications in case comments.

 

Note:  In-kind is for clothing is only counted for 1931(b) cases.

 

MPG LTR #788 (6/13)

MEM

50509

 

DHCS

Clarification

 

 

 

 

 

 

MEPM

10F

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

B.
Temporary Absence from the Home

The value of free room and board received during a temporary absence from the home will be considered as follows:

 

If the absence is…

Then the in-kind 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.

 

MEM

50509

 

 

C.
Examples

 

Situation

Income In-Kind

Applicant/beneficiary 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

Applicant/beneficiary resides with friends who live in military housing. The applicant/beneficiary 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 applicant/beneficiary's statement.

Yes

Applicant/beneficiary's only child is an unborn. There is no contribution from a person or organization to meet the items of need. Does income in-kind 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 budget is the in-kind value for three people or the actual, whichever is less).

Yes

A person owns a mortgage protection insurance policy. The insurance company is now paying the mortgage payments due to the person's disability.  (Income in-kind 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 parent's born children. (Income in-kind is attributed only to the minor parent's 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 in-kind 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 in-kind for clothing is based upon the source of clothing when it is obtained.

Income in-kind for clothing is attributed to a member of the MFBU only if all clothing obtained by/for that person is contributed by someone other than a financially responsible relative). 

Yes

*A pregnant woman receives income in-kind.  (Income in-kind 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 in-kind for clothing would be attributed to an unborn if the mother stated that all of the infant's 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 1931(b) determinations only.

 

MPG Ltr #699 (7/10)

 

 

D.
Verifications

Verification is only required if the applicant/beneficiary claims the amount is lower than the allowed standard.  A written statement from the provider is acceptable.  See MPG 04.07.01.

 

MEM

50509

 

 

E.
Value of Income In-Kind

The state assigns a dollar value to each item of need. These values are listed in MPG 11.01.Appendix A.  The worker shall enter the MFBU information on the Display Inkind Income Summary screen in CalWIN.  Applicants/beneficiaries shall be advised of the right to submit verification of the actual value if they believe the value is lower than the in-kind values.

 

When a beneficiary receives free housing and has verified that the actual value of the housing is $95.  The in-kind 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 in-kind value to the members of the MFBU is the lesser of the MFBU member’s share or the net market value or actual cost of the item or the income amount assigned to the need item in MPG 11.01.Appendix A

 

MPG Ltr # 699 (7/10) 

MEPM

10F

 

 

F.
Exemptions/ Deductions

Both earned and unearned income in-kind is subject to all applicable income exemptions See MPG 10.03 and deductions see MPG 10.06.

 

MPG Ltr# 528 (5/04)

MEM

50509

 

10.05.02 Income from Property

 

A.
Income from Deed of Trust or Mortgage

The interest portion of the income from the Deed of Trust or mortgage is considered net income.  The interest portion of payments received must be determined on an annual basis and divided by 12 to determine the monthly amount.  See MPG 10.04.01.

 

 

B.
Income from Life Estate

Income from property in which the person holds a life estate is the amount actually received.

 

C. 
Income from Personal Property

The net income from personal property is the amount actually received.

 

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 increases/decreases, a mortgage is paid off, or the applicant/beneficiary 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 unit(s) 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 Encumbrance Payments

The mortgage includes principal and interest.  The principal portion of the payment is not a deduction when computing income from a rental.

The interest is computed by dividing the prior year’s 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 Repairs

The amount of upkeep and repairs to be deducted is the greater of the following:

·   Fifteen percent of the gross monthly rental income; plus $4.17 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 applicant/beneficiary 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 applicant’s 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 in those months.

 

NOTE:  MC 176 P Property Reserve Work Sheet is used for manual computations.

 

MPG Ltr# 699 (7/10)

 

E. 
Room and Board or Roommates

Medi-Cal regulations provide three methods for computing net income from monies received for housing from non-family members living in the home of Medi-Cal applicants/beneficiaries.  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 Gross Method

Ten percent of the gross amount received is counted as income when determining the SOC, when both of the following conditions exists:

·   the individual who receives the income routinely provides room and board to non-family 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 self-employment.  At the time of application, applicant’s adult daughter (who is not considered to be a family member under the Medi-Cal 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 $8.00 (10 percent or $80).

Actual Costs Method

The amount paid to an applicant/beneficiary which is in excess of the contributor’s 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 non-family members; and

·   business license is not required.

 

Example: Medi-Cal household is 3 people.  Applicant’s 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 mother’s 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 Medi-Cal 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 mother’s share of actual costs would be ¼ of $500 (rent and utilities) or $125.  If the mother contributes $100 per month to applicant, net income would be $25.

Self-Employment Method

The net income to be counted when determining the SOC, is the net profit from self-employment when 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 self-employment or the individual considers the income as income from self-employment.

 

The worker shall enter the MFBU information on the Display Room and Board Summary screen in CalWIN.

 

MPG Ltr #699 (7/10)

 

10.05.03 Self-Employment Income

 

A.
Identifying Self-Employment

Generally it is clear whether an individual is self-employed, there are occasionally instances where it can be difficult to determine whether the individual is self-employed or working for another person or entity.

For example, an individual may be working at a “job: that has characteristics of both self-employment and being in another’s employ, such as certain real estate agents or consultants. 

 

Self-Employment Indicators

·   The individual defines their scope and nature of their work and daily work activities, including work-duration.

·   Applicable to individuals “selling” services (as opposed to selling goods).

·   Others assume no, or only limited, liability for the individual’s work and for the individual during the course of his/her work.

·   The individual does not work in someone else’s facility, or use someone else’s capital.

·   The individual’s employment requires that he/she 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 self-employed person (e.g., files a Schedule C).

·   The person or entity providing compensation to the individual for his/her 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 his/her compensation and yet the individual is working on another’s premises, under another’s supervision, subject to another’s directions. This scenario may occur where the employment is “under the table.” Generally, such an individual would not be considered self-employed.

 

The worker shall give consideration to each of the above indicators in addition to any other factors that may be pertinent to the individual’s 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 (7/10)

MEPM

10M

 

B.
Computing Net Income from Self-Employment

Net self-employment income is determined by subtracting those expenses which are directly related to the production of goods and services, and without which the goods or services could not be produced from the total business 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 (e.g. advertising, business dues and publications, and insurance).

 

Note: If an expense is partially personal and partially business, only the business part is deductible.

Expenses Not Allowed

Although connected to business activities, they are not directly related to the production of goods and services, 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 (09/01)

MEPM

10M

 

C.
Verification and Records of Self-Employment Income

The previous year’s tax return IRS forms 1040, Schedule C or Schedule F can be used to determine projected monthly self-employment income.

When using the previous year’s 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 non-allowable 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 self-employment income that is apportioned into the monthly Medi-Cal 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 self-employment income to be apportioned into the monthly Medi-Cal case budget for the current year.

 

Example: A worker is able to determine from an individual’s tax return that the individual had $12,000 in business revenue and $4,000 in allowable business expenses from the previous year. The individual tells the worker that his/her 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 $4,000 in allowable business expenses from the $12,000 total revenue. The remainder of $8,000 is to be divided by 8 (the number of months the business was operated). The result is $1,000 in projected monthly net income from self-employment for the current year.

 

Estimating Current Year’s Income when last year’s tax forms are unavailable or not indicative of the current year’s net self- employment income.   The worker may have reason to believe that last year’s tax return will not provide a reasonably accurate estimate of this year’s income. Additionally, an applicant/beneficiary who believes that last year’s tax return does not accurately reflect this year’s income can request that the worker reevaluate his/her net business income based on recent statements of total business income and expenses. In these situations, workers are to request that the applicant/beneficiary 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 applicant/beneficiary submit a bookkeeping record or statement for the last three months. 

 

The applicant/beneficiary has the option of submitting documentation of business income for more than three months if he/she feels that it would be helpful in estimating his/her income.

 

The worker also has the option of requesting more than three months of business records or statements if he/she 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 Med-Cal in June. The applicant is self-employed providing day-care 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 bookkeeping record/statement for February through April.

 

Example 2

An applicant applies for Medi-Cal 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 year’s work pattern. He doesn’t 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 applicant’s 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 self-employed 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 expenses from last year’s trucking operation if the applicant indicates that last year’s trucking income and expenses to date are not representative.

 

Note: Workers must use their best judgment when estimating net business income in these situations.

 

MPG Ltr# 528 (5/04)

 

 

 

 

 

 

 

 

 

MEPM

10M

 

MEPM 4M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MEPM

10M

MEPM 4M

 

D.
Net Profit

Net profit from self-employment is considered gross earned income.  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 self- employment 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 self-employment $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 self-employment is determined, earned income deductions are allowed. Deduct from the total gross earnings of the self-employed person the standard $90 deduction for work expenses and dependent care deduction if applicable.

 

When the applicant/beneficiary is entitled to the $30 and 1/3 deduction from earnings, determine that amount based on the net earnings. The remainder is net non-exempt earnings to the MFBU.

 

MPG LTR# 528 (5/04)

 

10.05.04 Allocation/Deeming and Special Case Situations

 

A.
Introduction

Allocations must be computed for MFBUs including the following:

 

Term

Definition

Community Spouse

A person who is not an inpatient in a 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 01.01.01.c

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.

  

NOTE: Allocations are allowed to an at home spouse or child who receives SSI.

 

MPG LTR 793 (06/13)

ACWDL

91-84

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACWDL

90-03

DHCS Clarifica-tion

 

B.
Determining Spousal Allocations

To determine a spousal allocation staff must take the following steps:

 

Step

Action

1

Determine the net non-exempt income of the LTC person that exceeds the LTC maintenance need.

NOTE: Net non-exempt income is the remainder of gross income after all allowable deductions.

2

Determine the community spouse maintenance needs, see MPG Appendix 11.02.A.

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 Allocation/Special Worksheet B is used for manual computation.

ACWDL

09-03

 

C.
Treatment of Income

Deposit of the long-term care spouse’s income into a joint account is considered to be a transfer of the income to the spouse at home.  No 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 spouse's 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 Medi-Cal 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 spouse's name the following month in order to maintain eligibility.

ACWDL

09-03

 

D.
Determining Dependent Family Member Allocations

To determine a dependent family member allocation staff must take the following steps:

 

Step

Action

1

Determine the maximum allocation base for each family member. See Appendix 11.1.A.

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 (02/01)

 

 

E.
Treatment of Income for Person No Longer Receiving SSI/Title XVI Benefits

Staff must follow the benefit determination instructions detailed in the Pickle Handbook found in MPG 05.19 Appendix B when determining the income SOC for a person who meets the following criteria:

 

·   Currently receives RSDI benefits

·   Was eligible for an d received RSDI and SSI/SSP benefits simultaneously in any month after April 1977

·   Was discontinued from SSI/SSP after April 1977

·   Received an RSDI COLA since being discontinued from SSI/SSP

·   Would be entitled to receive SSI/SSP benefits if the RSDI COLAs received after SSI/SSP ineligibility are disregard

 

MPG LTR 562 (09/04)

 

 

F.
Excluded Children/Treatment of Income and Allocation to Excluded Children

Money may be allocated to an excluded child.  The allocation to an excluded child is based on the income standard of the Medi-Cal Program for which the MFBU is being evaluated (e.g., Medically Needy, 1931(b), 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 child’s net non-exempt income from the gross unmet need, the remainder is the allocation.

  

NOTE: If information and/or verification of the excluded child’s 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 child’s unmet need

1931b income standard for 4 = 1931b income standard for 3 =

Gross unmet need

$1,571

 -1,306

$265

Allocation to excluded child

Gross unmet need

Excluded child’s income

Allocation

$265

- 165

$100

  

MPG LTR 562 (09/04)

ACWDL

04-25

90-91