PM 08-03-01: Earned Income

Earned income is cash or in-kind benefits people receive in exchange for work or service, including employment and self-employment. Unless specifically identified as excluded income, earned income is taxable income and counted under MAGI budgeting. However certain deductions from gross pay are tax exempt.  For more information about allowable income deductions see PM 08-03-03.

The amount paid to a person for services provided as an employee, includes:

  • Advances
  • Back pay
  • Bonuses
  • Commissions
  • Paid time off, including sick pay
  • Military basic pay
  • Overtime pay
  • Severance pay
  • Sheltered Workshop or Work Activities Center payments
  • Work Study Income
Term Definition
Advances Amounts paid to the employee as an advance before the scheduled pay date.
Back Pay Amounts to make up the difference between what the employee was paid and what he or she should have been paid.
Bonus A bonus is given in addition to an employee's usual compensation.

Clergy Housing Allowance

*Excluded Income

The rental value of a home, including utilities or a designated housing allowance provided as part of the person's pay. The home or allowance must be provided as compensation for services as an ordained, licensed, or commissioned minister.

*A minister's housing allowance is excluded from gross income for income tax purposes and not counted under MAGI.

Commission Commissions are paid based on a percentage of sales made or a fixed amount per sale
Flex Income Credit An amount of money provided by the employer to purchase benefits such as life, health and disability insurance through the employer's offered plans.
Income In-kind (Bartering Income)

Any non-cash item including food, clothing, or shelter provided in return for labor or services rendered. This is also called bartering income.

Example: A plumber does repair work for a dentist in exchange for dental services. The value of the item or service received is the counted income amount.

new textMedicaid Waiver Payments

*Excluded income if qualifies as a 'difficulty of care payment'

Payments to individual care providers made under a state Medicaid Home and Community Based Services Waiver program under 1915(c) of the Social Security Act.

*Medicaid waiver payments are excluded from gross income for income tax purposes, and exempt under MAGI budgeting, when paid to an individual care provider for nonmedical support services provided to an eligible individual living in the individual care provider's home. This income is treated as 'difficulty of care' payments excludable under section 131 of the IRS code.

Example: Mary receives $300 per month under the MFTD waiver to provide some of the care for her 22 year old son, James, who she lives with. The worker enters the full $300 amount in the 'Total Non-Taxable Income Amount' field on the Employment - Pay Details screen in IES. The income is not counted for MAGI budgeting.

On Call, Standby or Non-work Pay Payment for duty that requires the employee to be available and able to report to duty if called.
Severance Pay Payment made by an employer to an employee whose employment is terminated independently of his wishes.
Sheltered Workshop or Work Activity Center Payment Payments for services performed by a person under a program designed to help him become self-sufficient. The payments can be received for services performed in a sheltered workshop or a work activity center.

Clients who receive tips from their work must report them as income. If tips are recorded on the client's wage stubs, use that amount as the amount of their tips.

If the amount of tips is not recorded on their wage stubs, ask the client to provide proof of the amount of their tips. If the client cannot provide the needed proof and no other proof is available, accept the client's statement about the amount of their tips.

Types of jobs that may earn tips are:

  • Restaurant wait staff,
  • Pizza delivery,
  • Dancer, and
  • Barber and salon staff.
Work Study income Federal Work-Study is part of the financial aid package that provides jobs for undergraduate and graduate students.