Self-employed persons must verify their income. The verification that applicants or recipients submit depends on whether they have filed a federal tax return that reflects their self-employment income.
Once a person files a federal tax return, obtain a copy of his or her tax return, and use the gross self-employment income to calculate the client's income. This rule applies regardless of whether the client works for an employer or themselves. You may consult this chart to determine how to locate gross tax information on the federal tax return.
Not filed taxes
When a person's tax return does not reflect the self-employment income, you must use the available business records to document the self-employment income. Obtain the most recent 12 months of income verification available.
If the client began their self-employment in the last year, they must provide income verification from when self-employment began until the present month.
- For those working for themselves, this verification consists of up to the most recent 12 months of business records.
- For those working for an employer, use verification of the person's gross pay amounts from the most recent 12 months.
Substantial Change Exception
The only exception occurs when a person's situation has substantially changed. Use the income verification that best predicts the client's current or future income when a person experiences a substantial change.
Jaslene, a hairstylist, applies for Child Care benefits on August 28, 2018. She is seeking Child Care for her seven-year-old daughter Ava. Jaslene graduated from cosmetology school in July. She began working at Directions Hair Salon on August 5, 2018. You interview Jaslene on September 3. Her clients pay her in cash. She receives payment based on the service she provides and a percentage of any merchandise she sells. She must pay booth rent and replace any supplies she uses while cutting hair. What verification should you ask Jaslene to provide?
Jaslene must provide her business records from August 05, 2018 until August 31, 2018. Jaslene has not had time to file her income taxes since she began her employment. These records show what her income is in her first month.
Griffin, aged 40, applies for Child Care benefit for his son Memphis on April 18, 2018. Memphis is 8 years of age. Griffin has run a lawn care business every summer for the last 3 years. He uses his own mower and provides his own gasoline. He completed his 2016 and 2017 tax returns in April 2018. He reports he just begun mowing lawns this year, but he does not know if this year will be anything like his previous years. What verification should you ask Griffin to provide?
Griffin must give you his 2017 tax return and all relevant attachments. He does not yet know whether his income will be substantially different from what he received last year. Until he does, use his income from the previous tax year to anticipate this year's income. Explain that, if his income substantially changes from what he received last year, he can provide additional verification.
Devon works for a local construction company. He performs unskilled labor. He applies for Child Care on September 1 for his four-year-old daughter Amaya. You interview him the same day he applies. Devon receives a weekly check, but his employer does not withhold employment or FICA taxes from his checks. He does not report expenses. Devon began working for this company on May 25. He reports slight variations in his weekly pay from week-to-week, but it is mostly the same. What verification do you need from Devon?
You need verification of his weekly gross pay amounts from May 25 to September 1. Devon has not worked at this employer long enough to complete a tax return. You must use his available income records to calculate his countable self-employment income amount. In this instance, use a record of his gross pay amounts. The employer likely has a record of these payments, but if neither the employer nor Devon has a record, use the best available verification.