5101:1-40-20.4 ADC-related medicaid: earned income.

(A) Earned income

(1) “Earned income” is payment received by an individual for services performed as an employee or as a result of the individual being engaged in self-employment or as a result of providing room and board or board.

(2) Earned income includes wages, salary, commissions, or profit from activities such as business enterprise, farming, etc., in which the recipient is engaged as a self-employed individual or as an employee.

(3) Generally, wages include all remunerations from employment. The verified amount which is being garnisheed is excluded from determination of gross earnings.

(4) “Earned income with respect to self-employment” means the total profit from a business enterprise resulting from a comparison of the gross receipts with the business expenses directly related to producing the goods or services. Where the individual is both employed and self-employed, the individual’s gross earned income will consist of his or her wages plus the proceeds from self-employment minus operating expenses.

(5) State temporary disability insurance and temporary worker’s compensation payments are considered earned income when such payments are employer funded; made to an individual who remains employed during recuperation from a temporary illness or injury pending return to the job; and are specifically characterized under state law as temporary wage replacements. Short-term disability benefits paid under public employees retirement system, state teachers retirement system, school employees retirement system and highway patrol retirement system meet these conditions.

(6) The county department of job and family services (CDJFS) shall determine the monthly gross amount of earnings, i.e., the amount of earnings before taxes and other deductions and apply the appropriate income disregards to determine the monthly net earned income.

(7) If the employed individual works a set number of hours per pay period, that set number of hours shall be used in computing the individual’s gross monthly earned income. The gross monthly income shall be computed by either using the gross earnings listed on the individual’s pay stubs or by multiplying the set number of hours per pay period by the hourly rate of pay as the figure to be used in converting the income into a standard month.

(8) If the employed individual has fluctuating hours, the pay shall be averaged to arrive at a figure to be used in converting the income into a standard month. In these fluctuating income situations, the CDJFS shall use actual pay stubs for at least four weeks, when possible, in arriving at a figure to use in converting the income into a standard month.

(9) Averaging the previous four weeks of earned income is suggested as a guide in determining a representative figure in situations involving fluctuating income. Sometimes, the earned income from the prior four week period is not representative of current or future income. In situations when the prior four week period is not representative of future income, the CDJFS shall project countable income for a pay period based on a best estimate. The best estimate shall be determined based on a number of variables which may affect the determination. The variables that may need to be considered include situations when:

(a) There are more than four weeks of pay stubs available and the assistance group member advises the CDJFS representative that an average of a longer period of time would be more representative of the individual’s average earnings because the most recent four weeks of earnings were less or greater than average. In the event that more than four weeks of pay stubs are available at the time that the CDJFS is making the determination, the CDJFS shall use all income related information within three months of the estimate that is available in order to arrive at a representative figure to be subsequently converted into a standard month. This includes situations when the assistance group member disagrees with the use of earnings from the past four week period as indicative of future earnings. Also, when there are more than four weeks of pay stubs available, but the assistance group member advises the CDJFS that the earned income that is expected in the future is going to be less than that in the most recent (four weeks) past, the CDJFS shall use all income related information that is available (including the individual’s projection of future earnings) to determine a representative figure. Additionally, some pay stubs reflect year-to-date earnings. This is an acceptable method of determining average income for longer than the four week period prior to the eligibility determination.

(b) Conversely, if there are fewer than four weeks of pay stubs available at the time of the eligibility determination, the CDJFS shall use all income information that is available in order to arrive at a representative figure. This includes situations when the employed assistance group member disagrees with the use of earnings from the past four week period as indicative of future earnings.

(c) If there are no pay stubs available because the employment is new, the CDJFS shall project an estimated amount for a pay period based on the CDJFS’ best estimate of the individual’s income and circumstances. In this situation, the CDJFS’ best estimate shall be based on projected wages from and hours of employment as reported by the individual. The CDJFS’ best estimate for the pay period shall be converted into a standard month as set forth in rule 5101:1-40-20.2 of the Administrative Code. The CDJFS must remind the individual of their reporting responsibilities, especially in regard to its earnings.

(10) The computed average (and the subsequent conversion to a standard monthly figure) shall remain unchanged until a change in income occurs or until the next reapplication. A reported change in income will require a recomputation of the budget.

(11) All changes in income, resources and circumstances must be reported to the CDJFS in accordance with the provisions set forth in rule 5101:1-2-07.3 of the Administrative Code whenever a change in income is reported (including increases in hourly wages, a change from fluctuating hours to set hours, change in employer, part-time to full-time employment or vice versa), the monthly income must be recomputed according to the policy set forth in this rule and in rule 5101:1-40-02.2 of the Administrative Code to determine continued eligibility.

(12) In calculating the gross nonexempt income (both earned and unearned), the monthly amount shall be rounded down to the nearest whole dollar by dropping all cents. All cents in gross weekly, biweekly, or semi-monthly income shall be dropped prior to applying the conversion factors to convert the income into a standard month. Hourly rates which contain cents are not to be rounded, but are converted in the exact amount. The rounding down to the nearest whole dollar does not occur until the weekly income is computed. The cents are dropped when the weekly income is determined and again when the monthly income is computed by the use of the conversion factors.

(13) In calculating the expenses which may be subtracted from gross nonexempt income, the actual amount of each expense shall be used in the computation. The sum of these expenses shall be deducted from the assistance group’s (rounded down) monthly income prior to dropping cents, in the determination of countable income. An assistance group may have allowable expenses which fall into different categories. The expenses are added and totaled by category. The sum of each category of expenses is deducted from the corresponding category of gross income. The balance remaining after expenses are deducted shall be rounded down prior to adding the categories of income.

(B) Definition of self-employment and gross earnings

(1) An individual who operates his or her own business has earnings from self-employment. The gross earnings and the amount and type of operating expenses must be determined.

(2) An individual who performs managerial duties or puts forth efforts to operate and rent his or her own real property has earnings from self-employment. Only in situations where the individual directly manages his or her own rental property will this be considered self-employment.

(3) “Gross earnings from self-employment” means the total proceeds or gross receipts from self-employment minus operating expenses. Operating expenses are deducted from the total proceeds or gross receipts to determine gross earned income to be applied to the one hundred eighty-five per cent and ninety per cent federal poverty levels. Earned income disregards are deducted from the calculated gross earned income.

“Operating expenses” are the identifiable costs of producing goods or services and without which the goods or services could not be produced. Verified costs of certain items necessary for the operation of a self-employment business/farm are appropriately deducted from the total business income to determine gross earnings.

(1) The following are those items which may be deducted as operating expenses:

(a) The cost of renting land, buildings, machinery, and equipment necessary for the operation of the business or farm.

(b) The cost of utilities for business or farm buildings.

(d) The amount of real property taxes (except special assessment taxes that increase the value of the property) on business or farm land owned or being purchased by the individual.

(e) The cost of employees” wages and benefits and the employer’s share of the employees’ social security taxes.

(f) The costs of repairs and maintenance of business or farm property (including buildings, machinery, equipment, trucks, etc.) owned or being purchased by the individual, if such expenditures do not appreciably add to the value of the property.

(g) The interest portion of business and farm loans or mortgages.

(h) Insurance on business and farm property (including buildings, machinery, livestock, cars, trucks, etc.).

(i) Business licenses.

(j) The cost of gas and oil for business or farm vehicles.

(k) The cost of feed, fertilizer, seeds, plants, and farm supplies.

(l) The cost of breeding fees, veterinary fees, and livestock medicines.

(m) The cost of advertising.

(n) Postage.

(o) The cost of tools purchased for the business.

(p) Attorney fees related to the business.

(q) The cost of tax return preparation.

(r) Wholesale cost of products sold.

(s) Business-related travel expenses.

(t) The cost of business transportation (including parking expenses). Travel expenses to and from the individual’s home to place of employment are not deductible. Travel expenses while at work (such as going to pick-up materials required for the business) are considered a business expense. Personal use of a motor vehicle is not an allowable expense. All transportation expenses must be prorated according to how the motor vehicle is used.

(2) Deductions from gross receipts from self-employment may not be made for any of the following:

(a) Monies paid to purchase capital assets, equipment, machinery, and other durable goods.

(b) Payments on the principal of mortgages on income-producing real property.

(d) Any amount claimed as a net loss sustained in any prior period.

(e) Any amount claimed as the applicant/recipient’s own federal, state, local, and social security taxes.

(f) Any amount claimed as personal business and entertainment expenses and personal transportation.

(3) Standard deduction for operating expenses for home day-care providers: a flat fifty per cent deduction from gross earnings from self-employment related to being a home day-care provider may be used in lieu of determining and verifying actual operating expenses. If an assistance group is able to document acceptable operating expenses (as set forth in paragraph (C) of this rule) that exceed the fifty per cent standard deduction, the actual expenses may be used in the determination of gross earned income.

(D) Establishing annual gross earned income from self-employment.

(1) Generally, it will be necessary for the self-employed individual to provide copies of their tax return from the previous year and the individual’s current business records in order for a projection of annual gross income to be determined. Additionally, the self-employed individual’s estimate of expected income and expenses must be secured.

(2) The amount of annual gross earned income from self-employment shall be determined by subtracting the allowable annual operating expenses (or, if applicable, the standard deduction as set forth in paragraph (C)(3) of this rule) from the annual gross receipts. The amount of the gross annual self-employment earnings shall then be distributed into all months of the taxable year.

(E) Distributing monthly income from self-employment earnings.

(1) The CDJFS must determine the countable monthly income of a self-employed individual based on an estimate of the individual’s gross earnings.

(2) Whenever possible, the CDJFS must secure a copy of the self-employed individual’s previous year’s tax return. The income listed on the previous year’s tax return should be used to estimate the expected earnings for the current and future months.

(3) Unless the individual contests the determination of expected income, the estimate of income for the current taxable year shall be based on the previous year’s tax return. The individual’s gross monthly income should be determined to be one-twelfth of the gross earnings as shown on the tax return for the preceding year. The applicable earned income disregards must subsequently be applied to determine eligibility and level of benefits. This method of estimating the self-employed individual’s income should be applicable in situations in which the individual has been self-employed for some time, his gross earnings from self-employment have remained fairly constant (as evidenced by tax returns from previous years) and there is no anticipated change in circumstances.

(4) If the individual contests the estimate of his or her income from self-employment based solely on information on the previous year’s tax return, the individual must provide a projected estimate of his or her gross earnings for the current taxable year, based upon his or her current business records to support his or her contention.

(a) When the individual can estimate their gross earnings for the current taxable year based on current business records, the CDJFS shall accept the individual’s best estimate. Using the individual’s best estimate of income for the current taxable year, the CDJFS shall allocate one-twelfth of the gross annual income equally into each month of the taxable year. The CDJFS shall subsequently use the one-twelfth figure as the individual’s gross monthly income to which all applicable earned income disregards are applied to arrive at the countable monthly income that shall be compared to the payment standard in the determination of eligibility.

(b) If the individual contests the CDJFS’ estimate of his income from self-employment (based solely on information on his previous year’s tax return) but does not provide a projected estimate of gross earnings for the taxable year based on current business records to support his or her contention, the CDJFS shall project his or her earnings based on the gross earnings listed on his or her previous year’s tax return.

(5) In the event that the individual does not have a tax return from the previous year because the business is a new one, (or because the individual’s records have been destroyed or are unavailable and all attempts to recover the records have been exhausted) the CDJFS shall project an estimate of the individual’s countable annual income based on the individual’s current business records. The CDJFS shall base its decision on the individual’s business records for the current year unless the individual contests this determination and provides a reasonable explanation as to why the current business records do not reflect the income (and expenses) that he expects to receive in the future. If the individual contests the determination by providing a reasonable explanation as to why the CDJFS projection is not satisfactory and provides a written estimate of his projected annual income and expenses, the CDJFS shall use the individual’s written estimate on which to base the eligibility determination. The CDJFS shall determine that one-twelfth of the projected gross earnings shall be allocated as the individual’s gross monthly income.

(6) In some situations the previous year’s tax return of a self-employed individual is not representative of the expected earnings/income for the current year. There are some situations in which it will be difficult to project future earnings from the individual’s self-employment. Projecting income will be especially difficult in these situations on a monthly basis because the allowable expenses may be higher or even exceed the gross receipts, for a particular month. The previous year’s tax return or current business records may not be considered to be accurate indicators of the individual’s expected earnings for a variety of reasons.

(a) The business may be a new one for which there is no previous year’s tax return;

(b) The individual may not have record keeping expertise;

(d) The individual may not have the time, ability, or assistance necessary to develop the necessary data from his records; or

(e) There are other circumstances as explained by the individual, which preclude the use of the previous year’s tax return or business records as an accurate means of projecting future income.

(7) In the absence of both the previous year’s tax return and current business records, the CDJFS shall require the individual to provide a written best estimate of his or her projected annual income and expenses. The CDJFS shall then determine that one-twelfth of the projected annual income (less expenses) shall be allocated as the individual’s gross monthly income.

(F) When income is received from room and board (or board only), a standard operating expense equal to the zero income level food stamp coupon allotment for the number of boarders in the household is deducted from total income. The remainder is gross earned income.

(G) The National and Community Service Trust Act of 1993 (NCSTA) establishes educational opportunities for individuals who participate in national service programs. Participants could qualify for a living allowance, basic health insurance, child care services or a child care allowance, aid and services for disabled individuals, and a national service educational award.

(1) The monthly living allowance received by participants (including minor parents who are specified relatives in an OWF assistance group) under NCSTA shall be treated as earned income, with appropriate earned income disregards applied.

(2) The basic health insurance, child care services or the child care allowance, aid and services, and the national service educational award shall be treated as complementary payments and services to the extent that the funds are used to meet the expenses necessary for participation in a NCSTA program.

(H) Earned income may be treated specially under certain case situations. The case situations and their special treatment are listed in paragraphs (h)(1) and (h)(2) of this rule.

(1) Earned income of an individual included in the assistance group as a dependent child is excluded (not deducted) in determining eligibility provided the following occur:

(a) If the individual is enrolled in and physically attending a full-time (as certified by the school or institute attended) program of study or training leading to a certificate, diploma, or degree.

(b) If the individual is enrolled in and physically attending at least part time (as certified by the school or institute attended) a program of study or training leading to a certificate, diploma, or degree and is regularly employed in or available for and actually seeking part-time employment.

(c) If the individual is enrolled in and physically attending at least part time (as certified by the school or institute attended) a program of study or training leading to a certificate, diploma, or degree and is precluded from full-time attendance or part-time employment because of a verified physical handicap.

(d) “Full-time attendance” and “part-time attendance” are defined as follows:

(i) In a secondary school, “full-time” is the completion of four carnegie units per year. A “carnegie unit” is a measure of counting course credits in secondary education. The completion of one hundred twenty clock hours per year for an individual course equals one carnegie unit. “Part-time” is the completion of two carnegie units per school year.

(ii) In a college or university, “full-time” is generally twelve semester or eighteen quarter hours and “part-time” is considered to be anything less than eighteen quarter hours or twelve semester hours.

(iii) In a technical school in a program with shop practice, “full-time” is thirty clock hours per week. With no shop practice, “full-time” is twenty-five clock hours per week. “Part-time,” without shop practice, is twelve hours per week. With shop practice, “part-time” is fifteen hours per week.

(iv) In a secondary education program of cooperative training or in apprenticeship training, “full-time attendance” is thirty clock hours per week, or six clock hours per day.

(v) In a vocational school, required attendance varies from eighteen to twenty-two and one-half hours per week.

(2) Workforce Investment Act of 1998 earnings received by a dependent child who is not a full-time student are exempt from consideration as income in the one hundred eighty-five per cent and one hundred per cent need tests for six months within a twelve-calendar-month period.

Effective: 01/01/2006

R.C. 119.032 review dates: 10/14/2005 and 01/01/2011

Promulgated Under: 111.15

Statutory Authority: 5111.01

Rule Amplifies: 5111.01 and 5111.019

Prior Effective Dates: 8/1/75, 7/1/76, 11/1/76, 5/14/77, 12/31/77, 10/26/78, 4/5/79, 9/21/79, 2/3/80, 10/1/81, 5/1/82, 12/1/82, 12/10/82, 12/29/82, 1/13/83, 3/1/84, 10/1/84 (Emer.), 12/27/84, 1/2/86, 8/1/86 (Emer.), 10/3/86, 10/1/87, 1/1/89 (Emer.), 4/1/89, 7/1/89 (Emer.), 9/23/89, 1/1/90, 3/2/90, 4/1/90, 9/1/90 (Emer.), 5/1/91, 11/1/94, 3/1/95, 10/30/95, 10/31/97 (Emer.), 1/26/98