Adult Medicaid Manual MA-2250 INCOME

VII. COUNTABLE EARNED INCOME

A. Definitions

1. Regular employment – Employed on a full-or part-time basis, may be permanent or temporary; includes seasonal work.

2. Self-Employment –Working in a business enterprise or trade controlled by oneself, e.g., produce sales, farming, craft sales, babysitting in one's own home.

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(VII.A.)

3. Wages/salary - Compensation paid regularly for services rendered.

4. Commissions - percentage of money made on sales and given in pay.

5. Adjusted gross income – Self employment income minus allowable operational expenses. This is the countable amount that is used when budgeting.

6. Tips - Gratuities or sums of money given voluntarily for services rendered.

B. Base Period

1. Applications

a. Prospective

(1) Unless there is a change, the base period for verifying income for the certification period is the calendar month prior to the month of application. Income is converted to a monthly amount using the conversion chart in IV.

(2) Earned incomes with a different base period will have the base period listed in IV. above.

b. Retroactive

Verify actual income for the month(s) of retroactive need except for certain incomes listed in IV.above. Refer to MA-2370, Retroactive Coverage.

2. Redeterminations

Unless there is a change, the base period for computing income for a subsequent certification period is the calendar month prior to the month of the redetermination interview. The base period can:

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(VII.B.2.)

a. Never be earlier than the 4th month of the current certification period, and

b. Never go beyond the first month of the certification period for which you are determining eligibility.

C. Wages

1. Include in wages:

a. Employment earnings, countable tips, pay for seasonal work, pay received for babysitting, domestic employment, and earnings from commission sales.

b. Income received by an a/r participating in the Job Training Partnership Act (JTPA) program, including Job Corps or the National Civilian Community Corps program which is part of Americorps. This may include salaries, bonuses, student pay, living allowances, incentive payments, and stipends for service or a payment received as an alternative to an educational award.

c. Earnings from the Title V Program for adults age 55 or older (through U.S. Department of Labor).

d. Annual leave pay when subject to tax deductions.

e. Sick pay for the first six months after work stops due to disability or illness.

f. Earnings from work performed in a sheltered workshop or work activities center.

g. Employee voluntary payroll deductions to purchase cafeteria plan benefits.

Pay stubs that appear to show voluntary payroll deductions may actually show how funds from a salary reduction agreement or contributions from an employer have been provided. Verification from the employer may be required.

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(VII.C.1.)

h. Cash received from an employer under a cafeteria plan in lieu of benefits. This is different from a reimbursement for a qualified benefit. Refer to VI. above.

i. In kind compensation or support and maintenance, (payment of bills and expenses) provided to owners of small incorporated businesses, pastors and ministers, or agriculture workers.

j. Earnings received by shareholders as employees of a corporation.

k. Count any tips received by an employee in the course of employment by any one employer if the tips total $20 or more in a calendar month.

2. Responsibility of the A/R

Unless the a/r is mentally or physically incapable or requests assistance, he must provide verification of income.

3. Applications - Refer to Section IV. above for base period.

a. If the a/r states that no member of the budget unit is employed, discuss work history for the last 6 months. Explore possibility of unemployment insurance benefits by completing an online verification inquiry with the Employment Security Commission (ESC).

b. Ask for names of former employers. Contact them for any information on current employment. Do not pend the application for the information from the former employers.

c. If the applicant or other members of the budget unit have wages, request verification using the DMA-5097, Request for Information. Refer to MA-2303, Verification Requirements for Applications, for procedure.

4. Redeterminations - Refer to Section IV. for base period.

a. Ask the recipient if he or any member of the b.u. is employed.

b. If the recipient or other members of the budget unit have wages, request verification using the DMA-5097, Request for Information. Allow 12 calendar days for the verification to be returned.

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(VII.C.4.)

c. If verification is provided by the deadline, complete redetermination.

d. If verification is not provided by the deadline, send a timely notice to propose termination.

(2) If verification is received during the timely notice period, complete the redetermination. Send another timely notice if there is a change in benefits or deductible.

5. Verification Sources

a. Wage stubs/verification forms, or

b. Contact with current/former employers.

D. Self-Employment

1. An individual is self-employed when he is working in his own business, trade or profession rather than working for an employer.

2. To determine if the individual is self-employed, evaluate the individual’s work situation. If an employer is withholding Social Security and income taxes, the individual is not self-employed. A self-employed individual generally exercises control over how the business will be conducted, not just the end product. Also a self-employed individual usually incurs operational expenses related to conducting his business or work activity.

3. The a/r or financially responsible person must be actively involved in the business operation on a day to day basis. The information reported on Internal Revenue Services form Schedule E, Supplemental Income and Loss, should be checked to determine whether the individual is actively engaged in the business. If the income is listed as Non-passive Income (#27k), the individual is actively engaged in the business. If it is listed as Passive Income (#27h), he is not actively engaged in the business.

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(VII.D.)

4. Consider the following when determining the existence of a trade or business:

a. The good faith intention of making a profit or producing income,

b. Continuity of operations, repetition of transactions, or regularity of activities,

c. Regular occupation,

d. Soliciting business by advertisement, etc.

5. A single factor is not sufficient upon which to determine the existence of a trade or business.

Example:

Mrs. Bell reports at a redetermination that she began babysitting for her grandchild while her daughter is working. Sometimes she has the child at her home, but as a general rule, she goes to her daughter’s home because the child’s toys and other items are there. She does not baby-sit for anyone else. She receives about $20.00 a week from her daughter. Although some individuals are self employed as caregivers, Mrs. Bell is not advertising as a provider of daycare services, nor does she intend to produce income. Mrs. Bell is not self-employed. The money she receives for babysitting would be budgeted as wages since an employer/employee relationship exists. (This is the general rule when the child care services are performed in the home of the child’s parent).

6. The following is an overview of the possible types of business arrangements encountered with a/r’s who have income other than regular wages. Some, but not all of these are treated as self-employment income for Medicaid purposes.

a. Sole Proprietorship

(1) An individual who owns and operates his trade or business activity alone. No formal legal action is required to establish this type of activity. All profit and loss belong to the individual.

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(VII.D.6.a.)

(2) Adjusted gross income is calculated by subtracting the operational expenses from the gross receipts of the business in the base period. Any salary or disbursements made to the individual from his business are disregarded in calculating adjusted self-employment income.

7. Partnership

A partnership is the association of two or more individuals in a trade or business. The countable gross earned self-employment also includes any profit or loss in a partnership. Partnerships are required by the IRS to file a Form 1065 Partnership Return of Income which shows the income and expenses of the partnership, as well as the assets and liabilities. If the partners do not file the required tax forms, they are still treated as partners for the purposes of determining countable gross self-employment income.

Self-employment also includes any distributive share (profit at the end of the year after salaries are paid), whether or not distributed, of income from a trade or business carried on by a partnership. Count profit from a partnership or corporation as distributable income even if the a/r states it is not available.

a. General – Each partner jointly owns; income received is self-employment.

b. Limited – Owned by one or more general partners and one or more limited partners. Income to a general partner is self-employment. Income to a limited partner is unearned income. (Reported on Schedule K-1 from the partnership and Schedule E on the individual tax return).

c. Limited Liability Partnership – It is like a general partnership except partners are granted limited liability. Income to a general partner is self- employment.

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(VII.D.)

8. Corporations

a. A corporation is a distinct legal entity formed by individuals but having separate legal status from the individuals. The owners must file Articles of Incorporation with the Secretary of State. The Articles specify the type of corporation and the ownership agreement between the owners. Corporations are enduring legal business entities with lives that extend beyond the illness or even death of their owners.

b. An incorporated business whose stock is not publicly traded on the stock market is referred to as a “closely held corporation.” This is applicable to most small incorporated businesses in which the stockholders are also working in the business. A Professional Association (PA) is a corporation. The profits of the corporation are taxable income to the corporation and not to the individual stockholders unless the profits are distributed as dividends. If the income the a/r draws from the business does not appear reasonable or sufficient to meet his living needs, explore the possibility that funds are being used from the business accounts to pay personal expenses, and if so, budget as countable unearned income.

c. Information about Corporations and Limited Liability Companies registered in North Carolina may be found at the following website: www.secretary.state.nc.us/. You will need the name of the business to access. On the home page, scroll down and select the bulleted item, “Search by Corporate Name”. Enter the business name. When the next page is displayed, click on the business name to view the profile. Select “View Document Findings” to get more details.

(1) C Corporation

This is the more common type of corporation. An a/r or financially responsible person who works for a corporation for a salary is not self employed even if he is the primary stockholder in the corporation. Treat the salary as wages, and treat the distribution of profits from ownership of the corporation’s stock as unearned income, unless profits are distributed as dividends.

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(VII.D.8.c.)

(2) S Corporation

Some small businesses incorporate as an S Corporation. This is a special tax status, which operates the same as a partnership in that the income is taxed at the individual level and there are no corporate taxes. The income is budgeted as self employment and also includes any profit or loss of the corporation. Income from an S Corporation paid to a corporate director as fees is also budgeted as self-employment income.

(3) Limited Liability Company (LLC) Also known as Limited Liability Corporation.

(a) Limited Liability Company is a legal form of a business structure with corporation and partnership qualities. Members are protected from liabilities for acts and debts of the company, and have the tax advantages of a partnership, (no double taxation). A Limited Liability Company uses IRS Form 1065 and Schedule E, unless it chooses to be taxed as a corporation using IRS Form 8832.

(b) Limited Liability Companies can elect to be taxed as a Sole Proprietor, Partnership, Corporation, or an S-Corporation, providing much flexibility. LLC’s can lose their tax advantage without the partnership structure. Treat income based on the Limited Liability Company’s election.

(c) Limited Liability Companies are organized with a document called the “Article of Organization” or the “Rules of Organization.” Additionally it is common to have an operating agreement privately specified by the members. See website above for verifying information about an LLC.

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(VII.)

E. Verification of Self-Employment Income/Operational Expenses

1. Attempt to verify self-employment income in the following order:

a. Use the federal income tax return from the most recent tax year or the most recent year’s quarterly income tax statements if available. Do not use tax return or quarterly tax statements unless at least some of the months included on the tax return or quarterly statements are included in the base period. This is true even if the a/r states there has been no change in his average earnings. If some of the months from the base period are represented in the tax document, you may project income from the tax documents for the entire base period if the a/r states there has been no change in the business earnings. Use another source for the months in the base period in which there has been a change in earnings.

Example: Mr. Roberts applies for Medicaid on 4/20/07. He has been self-employed as a car mechanic for the past five years. The base period for his self-employment income is 04/06-03/07. He provides his 2006 tax return documents to verify his income and states that there have been no changes in his income or expenses. The tax return from 2006 indicates yearly gross earnings of $36,000. The monthly average gross income for 04/06-03/07 is $3,000. His total allowable operational expenses from 2006 which were verified by receipts provided, total $5,100. Divide $5,100 (total yearly operational expenses) by 12 months. The average monthly operational expense is $450.00. Subtract the average monthly operational expenses from the average monthly gross income. $3,000 minus $450 equals $2,550.00. $2,550.00 is the monthly adjusted gross income to budget for the entire ongoing certification period.

b. Business accounting records or statements from an outside accountant.

c. Ledger books or bookkeeping records, including those maintained by the a/r or an employee, either paper or in software programs such as Quicken.

d. Information from banks, Production Credit Associations, farm agents, suppliers, purchasers or customers of the business.

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(VII.E.1.)

e. Signed allegation of self-employment if no other evidence can be obtained and the a/r has not been informed of the requirement to keep business records. Give the a/r the DMA-5043, Verification Form for Self Employment Income and Expenses, and explain to a/r how to use the form. At the next application or review the a/r will be required to provide self employment income records in order for eligibility to be established.

2. Base Period for Self-Employment Income – Applications and Redeterminations

The base period is the twelve months prior to the month of application or review. (Refer to a. above for using prior year tax return for base period) If a/r or financially responsible person has been self employed less than twelve months, use income from all of the months since self-employment began.

3. Base Period for Self-Employment Income -Retroactive Medicaid

Always use monthly income computed from the base period (not actual income) for a/r or financially responsible person who has self-employment income when determining eligibility for retroactive Medicaid.

4. Base Period for Operational Expenses

a. Verify operational expenses for the previous calendar year if using federal tax returns, or quarterly tax statements for base period.

b. Verify operational expenses for the twelve months or number of months individual has been self-employed prior to the application or redetermination interview (same months as used for income base period).

c. Convert operational expenses to a monthly amount.

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(VII.E.)

5. Allowable Operational Expenses

a. Only deduct operational expenses which have been verified as paid and business related.

Allowable operational expenses include but are not limited to:

(1) Taxes required to operate the business (only the percentage that can be claimed as a business expense),

(2) License and permit fees,

(3) Interest portion of mortgage (principal not allowed),

(4) Rent payments,

(5) Insurance on stock, personal and real property,

(6) Labor costs and employee benefits such as Worker's Compensation and Social Security,

(7) Maintenance of real and personal property,

(8) Utility costs paid by the a/r,

(9) Products required to operate the business,

(10) Interest payments on loans for equipment, etc., necessary for producing the income,

(11) Business related transportation costs.

(12) Food costs of self-employed baby sitters provided to children that they care for in the babysitter’s own home. Use a/r's records of food costs.

6. Verification of Operational Expenses

Attempt to verify operational expenses in the following order.

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(VII.E.6.)

a. Most recent Federal income tax return/ previous year’s quarterly tax statements. The tax documents must show the itemized operational expenses being deducted.

Some operational expenses allowed for tax deductions are not allowable for self-employment budgeting for Medicaid. Do not allow depreciation as an operational expense.

b. Business records such as ledger sheets, receipts files, accounting records, including those maintained regularly by the a/r or financially responsible person on paper or in software programs such as Quicken.

c. Information obtained from contact with suppliers, landlords, banks or purchasers of goods or services provided.

d. Signed allegation if no other evidence can be obtained and the a/r has not been informed of the requirement to keep business records. Give the a/r the DMA-5043, Verification Form for Self Employment Income and Expenses, and explain to a/r how to use the form. At the next application or review the a/r will be required to provide self employment/operational expense records in order for eligibility to be established.

7. Withdrawals for Personal Use

Be sure to ask about any cash or in-kind items the self-employed a/r or financially responsible person may have withdrawn from their business for personal use. These must not be allowed as part of the operational expenses.

When an a/r alleges (or you discover) that cash or in-kind items (e.g., food, fuel) are withdrawn from a business for personal use:

a. Ask if the withdrawals were properly accounted for. Were they deducted on tax returns or on business records in determining cost of goods sold? Accept a/r’s allegation that the cost of goods sold were deducted on his business records. If they were deducted, then they were properly accounted for.

b. If they were not deducted, ask the a/r to estimate the value. Deduct this amount from operational expenses.

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(VII.E.)

8. Disagreements

If records disagree, attempt to resolve the difference. If unable to resolve, use records which verify the lower income amount.

9. Calculating Adjusted Gross Self-Employment Income

a. If the a/r states there has been no change in the business earnings in the past year, budget projected income from the base period.

(1) If using the prior year federal tax return document or most recent year’s quarterly tax statements, divide the total earnings from self-employment equally among the months in the tax period to determine the average monthly gross earnings from self-employment.

If not using a federal tax return or prior year’s quarterly tax statements, use a/r’s business records, bookkeeping records, or other verification to determine the average monthly gross income for the prior 12 months or number of months the individual has been self-employed.

(2) Subtract the allowable operational expenses paid in the months of the base period from gross income received in same months of the base period. Divide this amount by 12 or the total number of months the individual(s) was self-employed to determine the countable adjustable gross monthly income.

b. If the a/r states there has been a change in income and the method in a. above would not be accurate, apply the Gross-Net Ratio.

(1) Determine the ratio between the net profit and gross receipts for last year from a/r’s federal tax return or business records (i.e., net profit of $1,200 for $6,000 gross receipts or 20%).

(2) Determine the actual gross receipts for the current taxable year thus far from the a/r’s records and project it for the remainder of the year (i.e., $4,000 in current year's receipts for the first 6 months gives an assumed gross of $8,000 for the entire year).

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(VII.E.9.b.)

(3) Apply the gross-net ratio (i.e., 20% of $8,000 is $1,600) to the gross receipts projected for the year to obtain an estimate of net profit.

(4) Prorate the net profit equally into the 12 months of the taxable year.

10. Projecting Partial Years Profit for Whole Year

When the b.u. is engaged in a new business, have the individual supply a profit and loss statement or other business records for the taxable year to date so a net profit can be derived. Project for the year and prorate to a monthly amount.

11. If the business is to be continued but no profit is realized due to circumstances beyond the control of the a/r. Do not consider the property value in resources.

a. Flag the case for review of income when the income begins again.

b. Discuss with the a/r his plans for meeting living expenses. Determine what income is available from other sources.

12. Business being discontinued

a. Application Processing

Show as reserve the remaining portion of the current year's total available net business income.

b. During the Certification Period

Include in reserve net proceeds still available from the dissolution of the business.

13. Net Loss from Self-Employment

A Medicaid individual, a member of a Medicaid couple, a Medicaid individual's ineligible spouse or one of two ineligible parents may incur a verified net loss during the tax year being used for base period income. Deduct the verified net loss from any other earned income in the budget, regardless of which individual incurred the loss.

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(VII.E.13.)

a. Do not use the loss to offset other earned income until it can be accurately established (usually not prior to the close of a/r's taxable year).

Example: Mr. Tyler applies for Medicaid on 2/10/07. He has been self-employed for the past five years. He provides his federal tax return for tax year 2006. During 2006 Mr. Tyler had a net loss of $2,400. Divide his total yearly net loss by number of months in the tax year. Mr. Tyler’s average monthly net loss is $200. ($2,400 divided by 12) Mr. Tyler is married and his wife is employed. He provides her base period wages from January 2007. Her monthly gross wages for January are $750. The average monthly net loss of $200 is subtracted from his wife’s monthly gross wages, leaving $550 of countable gross income to budget.

b. Do not reduce total earnings below zero when deducting the net loss from other earnings.

c. Never subtract any amount of a net loss from unearned income.

F. Farm Income

Farm income is self-employment from production of crops or livestock. Income from a farm which is leased to another individual is counted as rental income.

1. Base Period - Applications and Redeterminations

The base period is 12 months prior to the month of application or review, or number of months the a/r or financially responsible person has been a self-employed farmer.

a. If earnings have been fairly constant and change is not anticipated, estimate current annual income based upon the federal tax return filed for the most recent year or most recent year’s quarterly tax statements. If there are no tax records use business records for the previous 12 months to verify gross income. Subtract allowable operational expenses from gross income to determine the countable adjusted gross income.

b. If the a/r states there has not been a significant change, use gross-net ratio based upon prior year's earnings.

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(VII.F.)

2. Base Period for Retroactive Medicaid

For farm income, always use monthly countable adjusted gross income computed from the base period (not actual income) when determining eligibility for retroactive Medicaid.

3. Consider all income received from the sale of farm products such as:

a. Crops,

b. Livestock such as beef, poultry, etc.,

c. Livestock products such as milk, eggs, etc

d. Proceeds from the Soil Bank,

e. Cash rent, or

f. Other sources of farm income such as insurance payments for damaged crops.

4. Base Period for Operational Expenses

a. Verify operational expenses for the previous calendar year if using federal tax return to determine income, or

b. When using prior year’s quarterly tax statements to verify earnings, use the same quarters when verifying operational expenses.

c. Verify operational expenses for the twelve months prior to the application or redetermination interview or number of months the a/r or financially responsible person has been self-employed.

d. Convert operational expenses to a monthly amount.

e. Only deduct expenses which have been paid and are business related.

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(VII.F.)

5. Allowable operational expenses include but are not limited to:

a. Fertilizer, insecticides, seed, crop insurance,

b. Livestock maintenance,

c. Interest portion of mortgage (principal not allowed),

d. Rent payments,

e. Taxes on farm property or equipment,

f. Building and equipment maintenance/insurance,

g. Interest payments on debts or loans directly related to producing the income such as interest on loans for seed and fertilizer,

h. Labor, or

i. Verified costs of transportation related only to the farm operation.

6. Verification sources for income and operational expenses:

Refer to Self-Employment in VII. above.

7. Disagreements

If records disagree, attempt to resolve the difference. If unable to resolve, use records which verify the lower amount.

8. Computation

a. If the a/r states there has been no change in the business earnings in the past year, budget projected income from the base period.

b. If a federal tax return or prior year’s quarterly tax statements are not available, use a/r’s business records to verify base period gross income. Subtract the total allowable operational expenses paid (use same base period as used for income) from gross income received in base period. Divide by 12 (or the number of months used in base period) to determine the countable adjusted gross monthly income.

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(VII.F.8.)

c. If the a/r states there has been a change in income and the method in a. above would not be accurate, apply the Gross-Net Ratio.

(1) Determine the ratio between the net profit and gross receipts for last year from the a/r’s tax return or business records (i.e., net profit of $1,200 for $6,000 gross receipts or 20%).

(2) Determine the actual gross receipts for the current taxable year thus far from the a/r’s records and project it for the remainder of the year (i.e., $4,000 in current year's receipts for the first 6 months gives an assumed gross of $8,000 for the entire year).

(3) Apply the gross-net ratio (i.e., 20% of $8,000 is $1,600) to the gross receipts projected for the year to obtain an estimate of net profit.

(4) Prorate the net profit equally into the 12 months of the taxable year.

d. Projecting Partial Years Profit for Whole Year

When the b.u. is engaged in a new business, have the individual supply a profit and loss statement or other business records for the taxable year to date so a net profit can be derived. Project for the year and prorate to a monthly amount.

9. Farm Operation Being Discontinued

a. Application

When processing the application, show as a resource the remaining portion of the current year's total available adjusted gross business income.

b. During the Certification Period

Include in reserve net proceeds still available from the dissolution of the farm business.

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(VII.)

G. Tobacco Transition Payment Program (Tobacco Buyout)

1. Effective October 22, 2004, the Tobacco Transition Payment Program (TTPP) eliminated the tobacco quota or allotment system, calculating the value of lost quota and began providing compensation in the form of cash installment payments to both tobacco quota owners and tobacco quota growers. Eligible quota owners and quota growers who applied for the program receive annual installment payments over a 10 year period. Payments are distributed during the first few months of each calendar year.

2. In October 2005, after the first installment payment was made, tobacco quota owners/growers were permitted to enter into an assignment or successor-in-interest contract with an approved financial institution and receive cash payment in exchange for the balance of the annual installment payments.

3. Determine if the balance of the tobacco allotment contract can be sold to an approved financial institution for a lump sum cash payment. The list of approved financial institutions can be found at www.fsa.usda.gov.

a. Once the balance of the allotment contract is verified as salable to an approved financial institution for a lump sum payment, the total allotment contract amount is counted as a resource to the tobacco quota grower. Refer to MA-2230, Financial Resources.

b. When the balance of the allotment contract is verified as non-salable to an approved financial institution for a lump sum payment:

(1) The annual payments received by the tobacco quota grower (those who rent the land) are counted as annual self-employment income in each year of receipt.

(2) The annual payments received by the tobacco quota owner are counted as annual unearned income in each year of receipt. Refer to VIII. below.

c. When the balance of the allotment contract has been sold to an approved financial institution by a tobacco quota grower (those who rent the land), for a lump sum payment, the lump sum payment is counted as self-employment income in the transaction year.

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(VII.G.)

4. The Commodity Credit Corporation, CCC-960, “Tobacco Transaction Payment Notification of Contract Approval and Appeal Rights” does not apply the maximum discount rate to contracts with family members, transfers upon death of a tobacco quota grower or owner, individuals who entered into an assignment or successor-in-interest contract prior to 10/22/2004, and one year contracts made with “Tobacco Transaction Payment Notification of Approval and Appeal Rights” CCC approved financial institutions.

5. For an assignment contract made with a third party in exchange for other property, the property obtained is a conversion of a resource in the month the contract is completed, and becomes the new resource as of the first moment of the month following the assignment month. Refer to MA-2240, Transfer of Assets, as a sanction may apply.

6. Evaluate all assignment contracts made with other third parties for a potential transfer of asset. Refer to MA-2240, Transfer of Assets.

H. Supplemental Payments in Excess of State Maximum Rates for Foster Care Payments

Payments made to parent(s) or responsible adult(s) as foster parents that exceed the State maximum rates for Foster Care Payments must be budgeted as income. The foster parents cannot be employees of a child care facility.

1. Verify and document all foster care payments received.

2. Subtract the state maximum rate for foster care board payments from total foster care payments received.

3. If there is any excess money remaining after subtracting the state maximum rate for foster care board payments, divide that excess amount by two to determine how much income to apply to the foster parents. Divide the excess amount by the number of foster children to determine how much income to deem to each child.

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(VII.)

I. Supplemental Payments made to Child Care Workers from the Child Care Wages Project

1. The Child Care Wages Project provides education-based salary supplements to low paid teachers, directors and family child care providers working with children between the ages of 0-5 years old. The Child Care Wages Project is offered statewide in North Carolina as a funding collaboration between local Smart Start Partnerships and the Division of Child Development. Currently, 63 North Carolina counties have chosen to participate in the Child Care Wages Project. The participating counties can be verified by accessing the Child Care Services Association website at www.childcareservices.org.

2. Each participant who meets the requirements for the Child Care Wages Project and remains eligible will receive a check from Child Care Services Association in the seventh month after the completion of his/her six month commitment period.

3. Once approved for the award, participants who remain in the same child care program do not need to reapply in order to receive future installments. The salary supplement is earned income. Participants will receive an IRS-1099 form at the end of the year if they received $600 or more from Child Care Services Association during the calendar year.

4. The recipients that are approved for the Child Care Wages Project will receive a letter stating their approval to participate in the project. The recipient should report this approval to participate as a change in income within ten calendar days of receipt of the approval letter. The case should be flagged to review in the month after the six month commitment period ends. Earnings cannot be budgeted until the recipient receives the first supplemental check. Since this income is received after the time period it supplements, it can only be budgeted prospectively based on the amount of the first supplement received. The six month supplemental payment is divided by six to determine the countable monthly income to budget. Refer to V. for budgeting procedures.

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(VII.)

J. Royalties, (Also see VIII. FF. below)

1. Royalties include compensation paid to the owner for the use of property, usually copyrighted material (e.g., books, music, and art) or natural resources (e.g., minerals, oil, gravel or timber). Royalty compensation may be expressed as a percentage of receipts from using the property or as an amount per unit produced. Royalties are earned income when they are received:

a. As part of a trade or business, or

b. By an individual in connection with any publication of his/her work.

2. Verify that payments received meet the definition of royalty by examining the agreement between the parties involved or documents in the a/r or financially responsible person’s possession. Some documents concerning royalty payments will provide both a gross and a net payment amount. When the difference between the gross and the net figures is due to income taxes withheld or windfall profit tax deductions, use the gross figure when determining amount of income to budget. If the agreement or documents are unclear, unavailable, or informal, contact the company or source of the payment.

3. Include in the case record copies of documents and/or information provided by the payment source including the reason the royalty is being received, amount(s) including the type of tax(es) if any, which are being deducted, and the frequency of receipt of payments.