5164-3 VERIFICATION OF SELF-EMPLOYMENT INCOME AND EXPENSES
Written or verbal verification of self-employment income and expenses is required. 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. Written verification is preferred and includes tax returns or business records. If written verification of self-employment income and expenses is not readily available, verbal verification is acceptable. Verbal verification can be received from collateral contacts or the self-employed individual. Verification of expenses, whether verbal or in writing, must contain enough information for the caseworker to determine allowable expenses. If an expense is not identifiable, the expense is not allowed as a cost of doing business. If the information received is questionable, additional clarification and verification must be sought. Administrative Procedures Manual section 105-1 C provides policy on when information is considered questionable.
The method by which an individual’s net self-employment income was determined should be fully documented in the case file so that anyone reviewing the information will be able to determine how the amount was calculated.
Following are possible means of verification:
5164-3 A. SELF-EMPLOYMENT BUSINESS RECORDS
The self-employed person’s written 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. If written business records are not maintained or readily available, such as during a telephone interview, the statement of the self-employed person or collateral contact may be used.
The verification used must include sufficient information to determine when income was received and costs incurred and if the costs are allowable. The caseworker should document the information including detail of the type of expense, the amount of the expense and whether it is allowable. Individual receipts for income and costs may be requested if additional information is needed or any of the items listed are questionable.
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 or verbal statements from a third party verifying the self-employed person’s income or expenses are 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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