I cannot tell you what the state Medicaid system uses as your income, however, as you have pointed out, Gross and Net are very different.
For tax purposes, your gross income is your total income from your business before any deductions at all are considered. Your Net Profit/Revenue/Income are all calculated the same....by deducting your expenses from your gross income. You are taxed on your Net Income, not your Gross income. If you have Gross earnings of $100,000, but have expenses of $105,000, you are not taxed on this income as the IRS considers you to have no taxable self-employment income, instead you have a loss. Social Security and Medicare also use your net earnings to determine your taxable amount.
Basically, your income as far as the federal government is concerned is your net income.
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