E-3100, Types of Earned Income

Revision 13-2; Effective June 1, 2013

Earned income may be in cash or in-kind. Payment of earned income may be:

  • wages,
  • net earnings from self-employment,
  • farm income,
  • payments for services performed in a sheltered workshop or work activities center,
  • certain royalties and honoraria, or
  • certain refunds of federal income taxes and advance payments by employers made in accordance with the earned income credit provisions of the Internal Revenue Code.

To budget variable earned income:

  • determine an average pay amount,
  • convert income to a monthly amount, and
  • project income for future months if anticipated to continue.

Converting Monthly Income

The eligibility system will convert income that is received other than monthly to a monthly amount by using the following conversion process below:

  • Divide yearly income by 12.
  • Multiply weekly income by 4.33.
  • Add amounts received twice a month (semi-monthly).
  • Multiply amounts received every other week by 2.17 (bi-weekly).

Weekly earnings are converted to monthly amounts by multiplying weekly earnings by 4.33. For example, if weekly earnings are $150, the calculation is: $150 weekly earnings X 4.33 = $649.50 monthly earnings.

Bi-weekly earnings are converted to a monthly amount by averaging the bi-weekly earnings, then multiplying the average bi-weekly earnings by 2.17. For example, if average bi-weekly earnings are $300, the calculation is: $300 average bi-weekly earnings X 2.17 = $651 monthly earnings.

When projecting earned income, if there is verification of the actual amount of earnings received during an entire calendar month, use the actual amount received instead of the above procedures for converting weekly and bi-weekly earnings to a monthly amount. For example, the client earns $150 each week. During July, he received the following payments: $150 on July 1, $150 on July 8, $150 on July 15, $150 on July 22, and $150 on July 29. The amount budgeted is the actual income received in July ($750), not $649.50 ($150 weekly earnings X 4.33 = $649.50). $649.50 would be used as the projected income for following months beginning in August.

Note: When income is new or terminated and only a partial month's income is received in the start or terminated month, do not convert the income. Use actual, unconverted income.

 

E-3110 Wages

Revision 10-2; Effective June 1, 2010

Wages are what a person receives (before any deductions) for working as someone else's employee.

Wages include salaries, commissions, bonuses, severance pay and any other special payments received because of employment. They may also include the value of food, clothing or shelter, or other items provided instead of cash, referred to as in-kind earned income.

If a person is a domestic or agricultural worker, the law requires the value of food, clothing or shelter, or other items provided instead of cash, be treated as in-kind unearned income.

Note: If a person receives wages from an S Corporation and is also a shareholder of the S Corporation, consult the regional attorney.

Wages or Self-Employment

Under certain conditions, services performed as an employee may be considered self-employment rather than wages. Typically, services provided by ministers, real estate agents or newspaper vendors are considered self-employment rather than wages. Statutory employees are independent contractors and are treated as self-employed individuals. There are four categories of statutory employees:

  • agent drivers or commission drivers;
  • certain full-time life insurance salespeople;
  • full-time traveling or city salespeople; and
  • home workers.

Kinds of Wages

Some, but not all, forms of wages are:

Salaries — Payments (fixed or hourly rate) received for work performed for an employer.

Commissions — Fees paid to an employee for performing a service (for example, a percentage of sales). Commissions are wages when paid if the payment stems from an employer-employee relationship. The wages of a salesperson paid on a straight commission basis are the gross commissions paid minus any amounts paid specifically as advances or reimbursements for travel or business expenses incurred in the employer's business. Advances against commissions to be earned in the future are wages when paid.

Bonuses — Amounts paid by employers as extra pay for past employment (for example, for outstanding work, length of service, holidays, etc.) as part of the employment relationship.

Severance Pay — Payment made by an employer to an employee whose employment is terminated independently of his wishes or payment is made due to voluntary early retirement and normally considered earned wages. When an employee’s severance pay is budgeted, contact state office for special treatment of some severance pay.

Military Basic Pay — The service member's wage, which is based solely on the member's pay grade and length of service. When military personnel wages are budgeted, contact state office for special treatment of the service member’s compensation.

Special Payments Received Because of Employment —Items such as vacation pay, advanced/deferred wages, etc. Payments are not wages after the first six months. Any payments, or portion thereof, received by an employee during the first six months period, which according to the employer, are attributable to the employee's own contributions to the plan are not wages. Such payments are a return on the employee's premium rather than pay for service.

Note: Workers' compensation payments are not wages.

References:

 

E-3120 Self-Employment

Revision 10-1; Effective March 1, 2010

Net earnings from self-employment are the gross income from any trade or business that a person operates, less allowable deductions for that trade or business. Net earnings also include a person’s share of profit or loss in any partnership to which a person belongs. These are the same net earnings that a person would report on a federal income tax return.

If a person is both employed and self-employed, his earned income consists of his wages plus net earnings from self-employment. Typically, services provided by ministers, real estate agents or newspaper vendors are considered self-employment rather than wages. Statutory employees are independent contractors and are treated as self-employed individuals. There are four categories of statutory employees:

  • agent drivers or commission drivers;
  • certain full-time life insurance salespeople;
  • full-time traveling or city salespeople; and
  • home workers.

See Section E-6000, Self-Employment Income, for more details on treatment of this type of earned income.

 

E-3130 Farm Income

Revision 09-4; Effective December 1, 2009

Farm income is earned income when either the person or spouse is doing the farming or operating the farm as a business. See Section E-6000, Self-Employment Income, for more details on treatment of this type of earned income.

 

E-3140 Certain Payments in a Sheltered Workshop

Revision 09-4; Effective December 1, 2009

Payments for services performed in a sheltered workshop or work activities center are what a person receives for participating in a program designed to help a person become self-supporting, even though payment does not meet the definition of wages.

 

E-3150 Certain Royalties and Honoraria

Revision 09-4; Effective December 1, 2009

Royalties that are earned income are payments to a person in connection with any publication of the person’s work. Honoraria that are earned income are those portions of payments, such as an honorary payment, reward or donation, received in consideration of services rendered for which no payment can be enforced by law.

If a person receives a royalty as part of a trade or business, see Section E-3120, Self-Employment. See Section E-6000, Self-Employment Income, for more details on treatment of this type of earned income.

If a person receives another type of royalty or honorarium, investigate unearned income policy.

 

E-3160 Certain Federal Income Tax Refunds

Revision 09-4; Effective December 1, 2009

Refunds on account of earned income credits are payments made to a person under the provisions of Section 43 of the Internal Revenue Code of 1954, as amended. These refunds may be greater than taxes a person has paid. A person may receive earned income tax credit payments along with any other federal income tax refund a person receives because of overpayment of the person’s income tax. Advance payments of earned income tax credits are made by the employer under the provisions of Section 3507 of the same code. A person can receive earned income tax credit payments only if a person meets certain requirements of family composition and income limits.

Federal income tax refunds made on the basis of taxes a person has already paid are not income to a person, as stated in Section E-1740, Miscellaneous Things That May Not Be Income.

 

E-3170 Census Bureau Wages

Revision 10-1; Effective March 1, 2010

The census is a count of everyone living in the United States and is mandated by the U.S. Constitution. The U.S. Census Bureau conducts the census every 10 years.

Wages paid by the Census Bureau for temporary employment related to census activities are excluded income for the Medicare Savings Programs (MSP). Do not include these wages in the eligibility budget for MSP.

These wages for temporary employment are not countable income in the month of receipt, but are considered a resource thereafter.

Wages paid by the Census Bureau for temporary employment related to census activities are included in eligibility or co-payment budgets for any other Medicaid for the Elderly and People with Disabilities (MEPD) program that is not an MSP.

For cases with a combination of regular Medicaid benefits and an MSP, the wages are countable in the eligibility budget (and co-payment, if applicable) for the regular Medicaid program, but are excluded in the eligibility budget for MSP.

Example: Individual is being considered for Pickle with Qualified Medicare Beneficiary (QMB) benefits. The wages paid by the Census Bureau for temporary employment related to census activities are included in the eligibility budget for Pickle, but are excluded in the eligibility budget for QMB.