Kansas Family Medical Assistance
Manual (KFMAM)
Eligibility Policy - 4/18/2024
06000 >>> 06200
06100
06200 Self-employment Income Budgeting - See 5330 for guidelines to determine if an individual is self-employed. Self-employment income will be based on the countable net income as reported on the Federal tax return. The individual will be required to provide a copy of the most recent personal tax return including all schedules and attachments. In instances where the individual states they have not filed their tax return and it is after the IRS filing deadline, the previous year’s return may be used if an extension has been filed with the IRS. Verification of the extension is not required. If the individual does not file taxes or has not yet filed taxes because this is a new self-employment business, or the current return is not representative, completion of the KC5150 self-employment worksheet by the individual is required.
6210 Tax Return Filed - When a tax return has been filed, the countable amount of self-employment tax that the individual paid must be deducted from the gross self-employment income. The Schedule 1, also known as Form 1040) or Schedule SE is used to determine the amount of self-employment tax paid located on the deductible part of self-employment tax line. This amount should be deducted from the amount of income taken directly from each schedule where applicable. The following outlines which line on each schedule is used for each type of business:
• Business income – Net profit amount from Schedule C or C-EZ
• Rental real estate, partnerships, S-corporations – Total rental real estate amount from Schedule E
• Farm income – Net farm profit from Schedule F
• Capital Gains – Capital Gains amount from the 1040 divided by 12
• Other Gains – Other Gains amount from the 1040 (Schedule 1) divided by 12
When the tax return reports more than one business, the self-employment tax must only be deducted from one of the self-employment businesses, preferably the business that has a net profit larger than the amount of the self-employment tax.
When a loss is reported on one or more of the schedules, it is to be treated as zero income for the eligibility determination and cannot be deducted from another source of income, even if the other source is another form of self-employment.
Provided the return reflects a full year of self-employment earnings, a twelve month average shall be established.
6211 Tax Return Not Filed or Does Not Contain Full Years Earnings - If a tax return has not been filed (e.g., employment just started or client has not filed a return), the KC5150- Self-employment worksheet is required. The applicant is required to complete the worksheet documenting all income and expenses for the 12 months prior to the month of application. Ledgers and other business records are not accepted as verification of self-employment income.
An average is determined by totaling all gross earnings in the months being counted, subtracting the total expenses, and dividing by the respective number of months. The calendar months being used and the corresponding earnings must be clearly documented in the case record.
6212 Need for New Estimate/Average Based on Changes in Income - In cases where the consumer indicates their tax return is not representative of the existing self-employment income, both the most recent personal tax return and the self-employment worksheet are required so staff may evaluate this. The reason for the discrepancy must also be clearly documented by the applicant and is only allowed when there is a definitive change in the amount of business.
6220 Wages from a business - When a business owner pays themselves a wage from the business, this is to be treated as a separate form of income and budgeted separately from the self-employment. Verification of the wages shall follow the Tiered verification policy. However, when the income cannot be verified using Reasonable Compatibility, alternative methods of verification are allowed. When income cannot be verified using Reasonable Compatibility, the individual’s most recent personal tax returns’ Form 1040 may be used if the individual indicates that the wages are only representative of those that have been paid from the business and not a combination of other jobs held. The total amount of wages to be used in the determination can be located on the 1040 Form under wages, salaries, tips etc. When no other verification is available, self-attestation of the wages is accepted.
6230 Capital Gains - For individuals who report self-employment income and provide a tax return as verification, any amount from Capital Gains or Other Gains is countable. Capital Gains can be located on the schedule 1040 or the Schedule D of the tax return. The amount of gains reported under net short and/or long-term capital gain or (loss) shall be used. These amounts will need to be prorated over the year. This will mean dividing the total by 12 to determine the monthly countable amount.