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Title 5: Centrally Administered Programs Page 70a Iowa Department of Human Services Employees’ Manual Chapter E: Healthy and Well Kids in Iowa (hawk-i) Self-Employment Income August 20, 2010 Determination of Net Profit Important: When the self-employment enterprise claims an expense of “wages,” do not allow the expense if the wages are paid to a member of the family included in the hawk-i family size when determining eligibility. Instead, consider the wages paid to the member of the family as earned income for that person.

1. Mr. A owns a restaurant. He lists wages paid to his wife, Laura, and several other non-related employees as a business expense for income tax purposes.

When determining the net profit from Mr. A’s restaurant business for hawk-i eligibility for the A’s two children, the worker does not allow Laura’s wages as a business expense deduction. Instead, Laura’s wages are treated as earned income for the household and added to Mr. A’s net profit when comparing income to the limits for a four-member household. 2. The household includes Mr. and Mrs. S, their 20-year-old son, and 16-year- old twin daughters. Mr. S owns a towing service and lists wages paid to his 20-year–old son as a business expense.

Since the 20-year-old is not included in the household size when establishing hawk-i eligibility of the 16-year-old daughters, the wages are allowed as a business expense when determining the net profit of Mr. S’s self-employed business. The net profit and any other countable income of Mr. or Mrs. S and their two daughters is compared to the income limits for a four-member household when determining hawk-i eligibility. Usually, the best information will be the most recent federal income tax return. However, when the applicant says that the most recent federal income tax return is not a good indicator of future income, determine the reason why the most recent federal income tax return is not a good indicator of future income. If there has been a change in the costs or nature of the self-employment enterprise, work with the applicant to determine an estimated net profit. If the net profit from the self-employment enterprise fluctuates from year to year, the net profit for the most recent two or three years can be averaged. Do not offset the loss from a self-employment enterprise against either the net profit from another self-employment enterprise or against any other type of income. Use a net profit of zero in the hawk-i eligibility calculation for a self- employment enterprise that shows a loss.