Purpose: This section provides information on the treatment of self-employment income for calculating an individual’s eligibility for benefits.

Current Policy Effective Date: March 1, 2026

Date Last Reviewed: March 1, 2026

Previous Policy: December 1, 2015

POL M902: TREATMENT OF SELF-EMPLOYMENT INCOME

1. Applicants Must Report Gross Self-Employment Income

2. MAGI Programs Use The Adjusted Gross Income If There Is Not A Change In Income From Previous Year.

If current self-employment income is the same as the previous year, use the Adjusted Gross Income (AGI) on the previous year tax return plus:

Foreign Income excluded from AGI (line 37 or IRS Form 1040, line 4 on IRS Form 1040EZ, or line 21 of IRS Form 1040A) Nontaxable Social Security benefits (line 20a on IRS Form 1040) Tax-exempt interest received or accrues during the tax year (line 8b on IRS Form 1040)

3. Actual Business Expenses That May Be Deducted From Gross Self-Employment Income For MAGI Programs.

If self-employment income amount is different from the previous year or there is a change in the business source, a ledger or profit/loss statement can be used. Deduct from self-employment income the following business expenses:

Rent and utilities. Storage and warehousing charges. Upkeep of premises used for business. Depreciation. Advertising. Legal and Professional Fees. Interest on loans from your business (including mortgage interest paid to banks). Machinery repairs and maintenance. Wages and salaries paid to employees of business. Employees must be people that are not the applicant or other members of the assistance unit. Feed, stock, raw material, seed, plants and fertilizer. Taxes and insurance premiums paid on income-producing property. Rental payments on income-producing equipment. Privilege taxes such as licensing fees, gross receipts, and general excise taxes. Cost of merchandise and supplies. Transportation costs required to perform services or deliver goods that are related to the business. Other expenses incurred exclusively for the function of the business. Travel, meals, and entertainment - Expenses for lodging and transportation connected with overnight travel, if they are directly related to or associated with the active conduct of the trade or business. Do not allow expenses paid or incurred for a facility (such as a yacht or hunting lodge, etc.) used for any activity usually considered entertainment, amusement, or recreation. Do not deduct amounts paid or incurred for membership dues in any club organized for business, pleasure, recreation or other social purpose. This includes country clubs, golf, and athletic clubs, airline and hotel clubs.

4. Actual Business Expenses That May Be Deducted From Gross Self-Employment Income For Aged, Blind or Disabled, and Medicare Savings Programs.

Deduct from self-employment income the following business expenses:

Rent and utilities. Storage and warehousing charges. Upkeep of premises used for business. Machinery repairs. Wages and salaries paid to employees of business. Employees must be people that are not the applicant or other members of the assistance unit. Feed, stock, raw material, seed, plants and fertilizer. Taxes and insurance premiums paid on income-producing property. Rental payments on income-producing equipment. Privilege taxes such as licensing fees, gross receipts, and general excise taxes. Cost of merchandise and supplies. Transportation costs required to perform services or deliver goods that are related to the business. Other expenses incurred exclusively for the function of the business. Travel, meals, and entertainment - Expenses for lodging and transportation connected with overnight travel, if they are directly related to or associated with the active conduct of the trade or business. Do not allow expenses paid or incurred for a facility (such as a yacht or hunting lodge, etc.) used for any activity usually considered entertainment, amusement, or recreation. Do not deduct amounts paid or incurred for membership dues in any club organized for business, pleasure, recreation or other social purpose. This includes country clubs, golf, and athletic clubs, airline and hotel clubs.

Deduct out of pocket expenses for meals, toys and materials for child-care providers.

Do not deduct the following as business expenses:

Payments on the principal of the purchase price of income-producing real estate and capital resources, Examples of capital resources are equipment, machinery and other durable goods. Expenses and net losses from previous periods. Federal, state, and local income taxes. Money set aside for retirement purposes. Money set aside for other work-related personal expenses. Examples of other work related expenses are transportation to and from work, or entertainment expenses. Repayment on the principal of a bank loan. Depreciation on any equipment of resource used by the business. Penalties and fines related to the business. Charitable contributions made by the business.

5. Business Expenses Are Deductible When They Are Billed

Deduct allowable business expenses when they are billed or become due.

6. Self-Employment Income May Be Annualized

Annualize self-employment income when the following conditions are met:

Income is received over a short period of time but is intended to meet the financial needs of the assistance unit over the course of a year. Income is received on a monthly basis but represents annual income. Income is received from involvement in a business for less than a year but has been received for long enough to be able to average the income. In this case, income must also be indicative of future months.

7. Self-Employment Income May Be Averaged

Average self-employment income when the following conditions are met:

Income is intended to meet the financial needs of the assistance unit for a portion of the year and is indicative of the future. Income is received from involvement in a business that has not been in existence for long enough to provide sufficient information to annualize the income. In this case, income must also be indicative of future circumstances. Income substantially increases or decreases over the course of a year.

8. Self-Employment Income May Be Calculated on Monthly Basis

Allow applicant to anticipate self-employment income on a month-to-month basis rather than over the period of time covered by the income when this is advantageous to the assistance unit.

Re-calculate self-employment income when the most advantageous method is determined.