SI 00820: Earned Income
TN 48 (11-08)
A. Introduction
Acceptable evidence of NESE, in order of priority, is listed in SI 00820.220B.1. through SI 00820.220B.4., SI 00820.220C.1. describes situations in which verification is not required.
B. Policy
1. Detailed Earnings Query (DEQY)
The DEQY is evidence of NESE (if it agrees with the individual's allegation of NESE signed statement or recorded on a DROC). There is also the possibility that the DEQY reflects self-employment tax returns that the Title XVI recipient, deemor or payee fraudulently filed in order to obtain the earned income tax credit. (For information and instructions on Processing of Fraudulently Filed SE Tax Returns for the Purposes of Claiming the EITC See RS 01804.525).
2. Federal Income Tax Return
The Federal income tax return contains evidence of NESE in the following schedules:
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Schedule SE
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Net earnings — Section A, line 4 or Section B, line 4.C.
NOTE: If line 4 or 4.C. shows a positive amount of less than $400, then line 3 is used, even if the amount on line 3 is greater than $400. For example, line 3 shows $410 and line 4/4.C. shows $378. Line 3 should be used because no tax was due.
Net loss — Section A, line 3 or Section B, line 4.C.
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Schedule C— Line entitled “Net Profit or Loss.”
Schedule C-EZ— Line entitled “Net Profit.”
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Schedule F— Line entitled “Net Profit or Loss.”
NOTE: If the net profit/loss on Schedule SE differs from the net profit/loss on Schedule F, and that difference is due to a deduction on Schedule SE of Conservation Reserve Program payments received by a farmer who also receives social security retirement or disability benefits, do not use the NESE amount from Schedule F. Use the NESE amount from Schedule SE.
3. Business Records
Business records are acceptable evidence of NESE.
4. Individual's Allegation
The individual's allegation of NESE signed or recorded on a DROC is acceptable evidence of NESE if no other evidence can be obtained.
C. Procedure
1. When to Verify
Verify NESE per SI 00820.220C.2. whenever self-employment is alleged or otherwise indicated, unless the individual:
alleges income that makes him or her clearly ineligible for SSI; or
alleges starting a new business, and that he or she was not self-employed in the prior taxable year; or
has applied for or is receiving title II benefits and alleges NESE that are the same as NESE on the SSA earnings record; or
is being denied SSI for reasons other than income.
2. How to Verify
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Priority Order
Attempt to secure the evidence in the order shown in SI 00820.220B.
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NESE of Less Than $400
Do not apply the 7.65 percent deduction in determining chargeable NESE if the NESE amount after the deduction would be less than $400.
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DEQY
Do not apply the 7.65 percent deduction to NESE amounts on the DEQY.
NOTE: The amounts posted already reflect the .9235 adjustment.
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Business Records
Assume that any deductions taken on business records are allowable per IRS, absent evidence to the contrary.
Do not apply the 7.65 percent deduction in determining chargeable NESE in any amount for taxable years beginning after 1989, unless you have evidence that a tax return was filed and Social Security taxes were paid on the NESE.
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Schedule C, C-EZ, or F
Do not apply the 7.65 percent deduction in determining chargeable NESE in any amount for taxable years beginning after 1989, unless you have evidence that Social Security taxes were paid on the NESE.
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Individual's Allegation
Do not apply the 7.65 percent deduction to the alleged amount of NESE in determining the chargeable NESE in any amount for tax years beginning after 1989 unless you have evidence that Social Security taxes were paid on the NESE.
3. Period for Which Verification Is Required
Follow the chart below when verification is required per SI 00820.220C.1.
|
SITUATION |
VERIFICATION PERIOD |
|---|---|
|
Initial Claim |
Verify NESE for the prior taxable year. NOTE: Accept the individual's allegation signed or recorded on a DROC that self-employment terminated if:
Document the individual's self employment earnings allegation and/or verification using the ISEI screen and include remarks to document the source and alleged amounts. |
|
Redetermination or Review of Income |
Verify all unverified NESE through the prior taxable year. (See SI 02305.096 for development of NESE questions on redetermination forms.) NOTE: The adjudicator may postpone (i.e., control for later action) verification of NESE for the immediately preceding taxable year if a copy of the Federal income tax return is not yet available and he or she expects to receive it in the near future. If the only pending issue is verification of NESE, the redetermination may be cleared and the case controlled for later verification of NESE. For example:
|
D. References
RS 01804.335, Title II development when no tax return filed,
SI 00601.110, Failure to cooperate,
SM 00345.900, DEQY.