Page 61

Title 8: Medicaid Page 56 Iowa Department of Health and Human Services Employees’ Manual Chapter E: Income Non-MAGI-Related Self-Employment Revised April 11, 2025 Determining Income from Self-Employment If you are making a self-employment income projection based on a client’s business records, assume that any deductions taken on the business records are allowable by the IRS, absent evidence to the contrary. However, do not allow the following:  Deduction for purchases of capital equipment. Capital equipment usually has a life span in excess of one year.  Payment for a mortgage to buy capital resources used in self-employment. The portion of the payment applied toward the principal is not an allowable deduction, but the portion that is interest is an allowable deduction. When an expense is for both personal and self-employment purposes, such as expenses of a home that is also used for self-employment, divide the expense according to the percentage that the client uses the item for self-employment.

Mr. O operates a self-employment business from his home. He deducts one- third of the home rent and one-third of the utilities on his income tax return as a business expense. One-third of the rent and utilities is an allowable deduction from gross self-employment income. Calculate self-employment income as follows: Divide any verified loss from self-employment over the taxable year in the same way as net earnings. Deduct a verified loss from self-employment from income of other self-employment businesses or from earnings of the client or the client’s spouse. Consider changes in self-employment income when they occur. Continue annualized income from self-employment throughout the year, even if the person does not expect to earn any more income from self-employment.

Gross self-employment earnings - Allowable business expenses = Net profit - 15.3% Social Security deduction (net profit x 0.153) if applicable = Countable self-employment income