Business and Self-Employment Income

Many older adults still earn money from a business: a farm, a consulting practice, a small shop, a share in a family company or freelance work. When one of them applies for Long-Term Care Medicaid, the state has to decide how much of that money counts as income. The answer is usually the net earnings, after business expenses, not the gross receipts. But the way states measure net earnings, which tax deductions they accept and how they average uneven income can make a large difference. This guide explains the rules.

Figures change periodically. Double-check current amounts before relying on them.

Why business income matters

Income matters twice for Long-Term Care Medicaid:

1. For eligibility. Many states compare gross monthly income with an income cap, often the $2,982 a month special income limit in 2026. Other states use medically needy rules or their own limits. See 2026 figures.
2. After approval. A nursing home resident pays most of their monthly income toward care, called the patient liability. Business income is part of that. See Patient liability.

Gross vs. net

For a self-employed person, Medicaid generally counts net earnings from self-employment: gross receipts minus the ordinary and necessary expenses of the business. Under the SSI rules most states follow, net earnings are usually figured as they are for federal income tax purposes, from the person’s tax return.

The state would count about $1,500 a month, not $5,000.

Which deductions are allowed?

Under SSI rules, net earnings follow the federal tax figure, which means most ordinary business deductions are allowed. But some states, for Medicaid, do not allow every tax deduction. Watch for:

• Depreciation. Some states add back depreciation, since it is not a cash expense. Others accept it.
• Home office deductions. May be questioned.
• Personal expenses run through the business, such as a car used mainly for personal driving. These may be added back.
• Losses from prior years carried forward. Often not allowed.

Ask how your state treats these items, and keep records that show each expense was a real business cost.

Averaging uneven income

Business income is rarely steady. Farmers may earn most of their money at harvest; a consultant may have a big month and then nothing. Under SSI rules, net earnings from self-employment are figured on a taxable-year basis and spread evenly over the months of the year. Many Medicaid programs do the same: they divide annual net earnings by 12.

If the business has changed, for example because the owner has stopped working since entering care, the state may use a more current estimate rather than last year’s tax return. Provide the evidence: a letter from the accountant, current profit and loss statements or proof that the business has closed.

Business losses

If the business shows a net loss, the counted self-employment income is generally zero. In some states a business loss can offset other earned income, but generally not unearned income such as Social Security or a pension. A loss does not reduce countable unearned income.

Earned income exclusions

Under SSI income rules, earned income gets favorable treatment: after a general $20 exclusion (if not used against unearned income), the first $65 of earned income a month and half the rest are excluded. Some Medicaid groups use these SSI rules. But the special income limit used for nursing home and waiver care in many states looks at gross income, with no exclusions. Which method applies depends on the eligibility group.

Married couples

In most states, the income of the spouse at home is not counted toward the applicant’s eligibility. That is the “name on the check” rule: income paid in one spouse’s name belongs to that spouse.

So if the spouse at home runs the business and the income is reported in that spouse’s name, the business income usually belongs to that spouse. It may still be considered when figuring how much of the applicant’s income can be passed to the spouse at home as a maintenance allowance, since the allowance tops up the spouse’s own income. See Raising the spousal allowances.

When both spouses own the business, income is generally split according to ownership, often in half.

Partnership, LLC and corporate income

• Partnership or LLC: the person’s distributive share of net earnings usually counts as self-employment income, even if not all of it is paid out.
• S corporation: wages paid to the owner are earned income; distributions may be counted as unearned income or as a return on the investment. Rules vary.
• C corporation: wages are earned income; dividends are unearned income.

Business structures can create very different results. Bring the business’s returns to the application, along with any K-1s and the operating or partnership agreement, so the caseworker can see who owns what share.

When the owner enters a nursing home

Once the owner is in a nursing home, the business may be run by someone else. Income that continues to belong to the owner counts. If the owner sells or closes the business, the income stops, but the sale proceeds become a countable asset. See Owning a business.

A worked example

Harold, 80, owns a small landscaping business as a sole proprietor. Last year’s tax return shows:

• gross receipts $90,000;
• expenses $66,000, including $8,000 of depreciation;
• net profit $24,000.

He also receives $1,400 a month in Social Security. He has a stroke and enters a nursing home. His son keeps the business going.

His state counts net self-employment earnings and accepts depreciation. Harold’s monthly business income is $24,000 / 12 = $2,000. With Social Security, his gross income is $3,400, which is over the $2,982 cap. His state uses a Qualified Income Trust, so he sets one up. See Miller trusts.

If his state added back depreciation, his business income would be $32,000 / 12 = $2,667, raising his patient liability.

Records to gather

• personal and business tax returns, usually for the past two or three years;
• year-to-date profit and loss statements;
• business bank statements;
• partnership K-1s or corporate returns, if any;
• a statement from the person’s accountant about current earnings.

Common questions

Does my gross income count? Usually not. Net self-employment earnings count.

What if I had a great year last year but business is down? You can request that current figures be used and provide proof, such as recent profit-and-loss statements.

Is my business itself counted as an asset? Business property used in a trade or business is excluded from assets in most cases. See Owning a business.

Can I pay my children from the business to reduce my income? Only real wages for real work, at a fair rate. Payments that are disguised gifts can be treated as transfers.

Getting advice

Self-employment income takes judgment and records. A Certified Medicaid Planner (CMP), working with your accountant, can present the numbers the right way.

Self-employment income month by month

Because SSI figures self-employment income on a taxable-year basis, a person who earns $24,000 net in a year is treated as earning $2,000 every month, even if the money all arrived in two months. That can help in a slow month but hurt in a month when the person would otherwise be under a limit. Some states use the same annual averaging; others use a shorter look at recent months. Ask which method your state uses, and be ready with records for either.

Selling business equipment

Money from selling business equipment or inventory as part of normal operations is part of gross receipts. Money from selling off the business’s assets when closing is generally treated as converting an asset, not as income, though any amount kept becomes a countable resource the next month. Keep sales records that show which is which.

Family members on the payroll

Wages paid to a family member who really works in the business are a business expense. The state may look closely if the wages started or rose sharply near the time of the application, or if the family member does little work. Keep time records, pay a market wage and run payroll properly.

Reporting changes

Self-employment income can change quickly once the owner enters care. Report changes promptly: the business closing, a new manager taking a salary, a major contract ending or a sale. Underreported income can lead to an overpayment the state will try to recover. Overstated income means paying more toward care than necessary. Either way, current, documented figures protect the person. Ask the caseworker how changes should be reported and keep dated copies of everything you send.

Related guides

• Owning a business
• Rental income
• Patient liability
• 2026 figures

Last updated for 2026. General information only, not legal or financial advice. Medicaid Answers is a free educational resource published by Medicaid Answers Foundation.