5164-3 VERIFICATION OF SELF-EMPLOYMENT INCOME AND EXPENSES
Each self-employed individual is required to provide verification of self-employment business income and expenses. Verification may include records showing the history of income and expenses, or documentation for what is expected to be received and spent in the future. Whatever is provided must clearly identify business expenses as allowable costs of doing business. If the individual lacks acceptable verification of an allowable expense, or if the expense is not identifiable, the expense is not allowed as a cost of doing business.
Following are possible means of verification:
5164-3 A. SELF-EMPLOYMENT BUSINESS RECORDS
The self-employed person’s business records are the best and preferred method of verification. Self-employment has no “employer” verification. The self-employed person is the employer, and thus, business records maintained by the individual are acceptable verification.
The self-employed person has primary responsibility to tabulate the income and expense types and amounts in an organized manner. Acceptable business records range from informal personal records, such as a listing of receipts for business income and costs of doing business, to professionally prepared documents such as financial statements. A business plan or the self-employed individual’s statement may be used to verify anticipated income and expenses that are not verifiable by other sources.
The record must show sufficient information to determine when income was received and costs incurred and if the costs are allowable. Individual receipts for income and costs may be requested if additional information is needed or any of the items listed are questionable.
5164-3 B. TAX FORMS
Income tax documents provide acceptable documentation of self-employment income and expenses. Such forms include: Form 1040 Individual Income Tax Return, Schedule C Profit or Loss from Business, Schedule E Supplemental Income and Loss, Schedule F Profit or Loss from Farming, Form 1065 Partnership Return of Income including Schedule K-1 Partner’s Share of Income, and Form 1120-S, Income Tax Return for an S-Corporation including Schedule K-1 Shareholder’s Share of Income.
Some costs of doing business allowed by the IRS, such as depreciation, are not allowable costs of doing business under Medicaid policy. When using tax forms as verification, review the claimed expenses, noting which are allowed under program rules.
5164-3 C. THIRD PARTY CONTACTS
Written documentation from a third party verifying the self-employed person’s income or expenses is acceptable. This may include verification from city or borough offices, taxicab stand owners, parent companies, fish processors/canneries, and Department of Fish and Game.
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MC #33 (10/06)