How Owning a Business or Trade Impacts Income Eligibility for Medicaid

Introduction

How does Medicaid treat income generated via one’s own business or trade? Does Medicaid count the income in its entirety towards Medicaid’s income limit? Can business or trade expenses be deducted from one’s income, lowering the amount of “countable” income.

Income generated from one’s business or trade is counted towards Medicaid’s income limit. It is considered self-employment income (a type of earned income). Based on the amount, it can push one over Medicaid’s income limit, resulting in income-ineligibility. However, business and trade expenses can be deducted from the income, effectively lowering the amount counted towards the limit. Additionally, if someone is over Medicaid’s income limit, a Medicaid planning strategy can be implemented, enabling one to become income-eligible, and hence, eligible for Medicaid.

While this article is relevant to both business and trade self-employment income, we use the term, “business” in lieu of using both terms in the remainder of the article. Furthermore, while not covered below, another important piece of Medicaid eligibility is Medicaid’s asset limit and how Medicaid treats business and trade assets. Learn more here.

Medicaid’s Income Limit

To be eligible for Medicaid, an applicant must have limited monthly income. While income limits vary by state, generally speaking, the income limits below are accurate for 2025. See income limits by state.

For unmarried seniors applying for Regular Medicaid, which relevant to this population, is often called Aged, Blind and Disabled Medicaid, the limit is usually either $967 / month or $1,304.17 / month. For married seniors, the income of both spouses, even if only one spouse is an applicant, is combined and calculated towards the income limit. This limit is generally $1,450 / month or $1,762.50 / month.

For unmarried seniors applying for Medicaid-funded nursing home care or Home and Community Based Services (HCBS) via a HCBS Medicaid Waiver, the income limit is generally $2,901 / month. For married couples, with both spouses as applicants, each spouse is usually allowed monthly income up to $2,901. If only one spouse is an applicant, the income limit of the applicant spouse is usually $2,901 / month, and the income of the non-applicant spouse is not counted towards the applicant’s income eligibility. Additionally, the non-applicant spouse may be entitled to a Spousal Income Allowance, formally called a Monthly Maintenance Needs Allowance (MMNA), from their applicant spouse.

How Business Income is Calculated for Medicaid Purposes

While income generated from one’s business is counted towards Medicaid’s income limit, it is the net earnings (also called net self-employment income) that is counted towards Medicaid’s income limit. Net earnings is the amount of income that remains after subtracting allowable deductions, like business expenses. Net earnings from self-employment is generally calculated for the current year based on the previous year’s income tax return. Given business income is not consistent month-to-month, the Medicaid agency must determine one’s average monthly income. This is done by taking one’s net annual income and dividing it by 12 months. The resulting figure is the amount of monthly income that is used to determine one’s income eligibility.

What About a New Business?

If the business was not operating the full year in the previous year, but is anticipated to operate the entirety of the current year, monthly net income can still be projected based on previous earnings (and deductions). This is done by taking last year’s income (minus allowable deductions) and dividing it by the number of months during which the business was operating.

If a new business has not been operating long enough to reasonably project net income using last year’s records, recent business records and a statement from the business owner about expected income and expenses can be used to project net monthly income. Additionally, if it is anticipated that business income and / or business expenses will significantly increase or decrease in the current year, a state may calculate monthly income based on anticipated income and / or expenses.

What About a Seasonal Business?

Income generated from a seasonal business, such as a summer or winter business operating 3 months of the year, is calculated differently based on the state. For instance, in New York and Mississippi, seasonal income is only applied to the months of seasonal self-employment. Therefore, if one has a seasonal snow removal business and it generated $7,500 (after allowable business deductions) over a 4-month period, one’s net income is $1,875 / month for each of those 4 months ($7,500 ÷ 4 = $1,875) . On the other hand, in other states, like West Virginia, if seasonal self-employment is intended to cover the entire year, the net earnings are divided by 12 months to calculate one’s net monthly income. Still other states, like Texas and Florida, will automatically apply seasonal income to the entire year.

Allowable Business Deductions for Income

Self-employment income may not be counted in its entirety towards Medicaid’s income limit. Medicaid allows certain deductions, or in other words, allows specific expenses to be subtracted from the income, effectively lowering the amount of “countable” income. While examples of allowable deductions follow, this list does not necessarily cover all allowable deductions. Furthermore, the deductions permitted may vary based on the state.

– Materials / Supplies / Tools
– Inventory
– Employee Wages / Benefits
– Interest on Business Loans. Note: The principal of one’s business loan is not an allowable deduction.
– Payment for Rental Space / Equipment
– Maintenance / Repair Costs
– Utility Expenses for the Business
– Business Taxes / Licenses / Permits
– Insurance Premiums Related to the Business (i.e., liability, fire, flood, theft, unemployment)
– Advertising Costs
– Vehicle Mileage (related to the business)

Some states, such as Illinois, permit federal, state, and local income taxes to be an allowable deduction, while other states, such as Utah and Montana, do not.

Required Documentation

The Medicaid agency will likely require documentation verifying one’s self-employment income and business expenses. This may include copies of the following:

To Verify Self-Employment Income
– Income Tax Return (Schedule C “Profit or Loss From Business (Sole Proprietorship)”, Schedule C-EV “Net Profit from Business (Sole Proprietorship)”, Schedule E “Supplemental Income and Loss”, or Schedule F “Profit or Loss From Farming”)
– Statements from One’s Business Bank Account (showing income deposited)
– Accounting Records
– Bookkeeping Records
– Signed Attestation of Income (if there are no other records)

To Verify Allowable Business Expenses
– Income Tax Return (Schedule C “Profit or Loss From Business (Sole Proprietorship)”, Schedule C-EV “Net Profit from Business (Sole Proprietorship)”, Schedule E “Supplemental Income and Loss”, or Schedule F “Profit or Loss From Farming”)
– Statements from One’s Business Bank Account (showing business expenses paid)
– Bills & Receipts

Medicaid Planning Strategies for Excess Business Income

If one’s business income, after deducting allowable expenses, pushes them over Medicaid’s income limit, there are Medicaid planning strategies available to assist one in meeting Medicaid’s income limit.

Qualified Income Trusts
Also called Miller Trusts, Qualified Income Trusts allow applicants for Institutional Medicaid (Nursing Home Medicaid) or a HCBS Waiver with “excess” income to still meet Medicaid’s income limit. Overly simplified, the Medicaid applicant (trust maker) puts their “excess” income into the trust, which must be irrevocable, meaning the trust cannot be altered or terminated. The Medicaid applicant must name a trustee, who must be someone other than themself, to manage the account and adhere to trust rules. For example, trust funds can only be paid out for certain expenses, such as the Medicaid beneficiary’s Personal Needs Allowance, a Spousal Income Allowance for the non-applicant spouse, or contributing towards the Medicaid beneficiary’s long-term care costs. Unfortunately, Miller Trusts are not permitted in all states.

Medically Needy Pathway
Also called “Spend Down” States, the Medically Needy Pathway to income-eligibility allows seniors to “spend down” their “excess” income on medical costs, such as physician appointments, nursing home care, and prescription drugs. Once one’s income has been “spent down” to the medically needy income limit in their state, they will be income-eligible for the remainder of the spend down period. The Medically Needy Pathway is not permitted in all states. Additionally, even in states that allow it, this pathway is not always extended to seniors, nor is it necessarily extended to all long-term care Medicaid programs. For example, a state might allow it to qualify for Regular Medicaid and Institutional Medicaid, but not Home and Community Based Services via a Medicaid Waiver.

Consult a Professional Medicaid Planner
For persons who are over Medicaid’s income limit, or think they are over the limit, it is highly advised they contact a Professional Medicaid Planner to discuss their specific situation. While the information contained in this article is generally true for most states, there are state-specific rules, and a state might deviate from the generalities of calculating self-employment income and allowable business deductions contained in this article. Medicaid Planners are aware of these rules. They are also skilled in assisting persons in lowering their countable income and implementing income reducing Medicaid planning strategies. Unfortunately, an unawareness of state-specific rules, or implementing a Medicaid planning strategy incorrectly, can result in Medicaid denial, when one otherwise might not be denied. Find a Certified Medicaid Planner.