S Corporation Profits
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This section includes information about income received from S Corporation profits.
Policy
S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates.
To qualify for S corporation status, the corporation has to meet all of the following requirements:
●Be a domestic corporation
●Have only allowable shareholders (i.e. may be persons, certain trusts, and estates and may not be partnerships, corporations or non-resident alien shareholders)
●Have no more than 100 shareholders
●Have only one class of stock
●Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).
S corporations are required to file IRS form 2553 when they elect to be classified as an S corporation. IRS form 1120-S has to be filed to report income, gains, losses, deductions and credits for any tax year when they have elected to be classified as an S corporation. IRS Schedule K-1 form has to be filed to report information regarding income, deductions, credits, and other items that pass through to the corporation’s shareholders. The IRS Schedule K-1 form provides information about the shareholder’s shares of the income from the corporation.
Profits from shares in an S Corporation are countable as unearned income.
Any other income received from an S Corporation is countable and considered earned income.
Countable income is used to determine an income budget. (See Income Budgeting to see how FAA determines the income budget.) FAA needs to know about income that is both countable and not countable to determine whether a budgetary unit’s income is exceeding their expenses. (See Income Eligibility for more information about how FAA uses countable and not countable income.)
Procedures
Request verification of the S Corporation Profits. For additional information on what may need to be requested, see the S Corporation Quality Tip.
When the participant is present, have them sign the Authority to Release Information (FAA‑1765A) form to contact any companies or businesses involved. The FAA-1765A can be faxed or emailed to the participant's employer when it is not possible to use the Application for Benefits (FAA-0001A) or the HEAplus Authority to Release signed statement.
Review all of the following line items from the IRS form 1120S:
●Gross Receipt or Sales – The total gross income the S Corporation is claiming before any allowable expense deductions.
●Ordinary Business Income – The total income the S Corporation profited after allowable expense deductions.
●Compensation of Officers – The income paid to an employee/shareholder of the S Corporation.
NOTE When the participant is a shareholder for the corporation, this income is considered wages for the participant and must be reviewed further for correct budgeting requirements. (See Wages and Salaries).
Verification
System interface and the case file(g) must be reviewed before verification is requested. No additional verification is needed when AZTECS interface or HEAplus hubs have verified the information.
The participant has the primary responsibility for providing verification. (See Participant Responsibilities – Providing Verification for additional policy.)
For NA, all of the following income is required to be verified before eligibility is determined:
●Reported on a new application, during the interview of a new application, or changes reported before the eligibility determination of a new application.
●Changes after an eligibility determination of a new application (e.g., a renewal application, mid approval contact, etc.) and any of the following apply:
The source of the income has changed.
The income is questionable(g) or unclear(g).
The reported income amount has changed by $51 or more.
The previous verification in the case file is more than 59 calendar days old.
For CA, all income is required to be verified before determining eligibility.
Examples of verification that can be used for S corporation profits include, and are not limited to, any of the following:
●Bank records
●Statements or collateral contact from the agency or payer providing the income
●Court records or court orders
●Current check reflecting gross income (Do not copy federal government checks)
●Federal or state tax forms when they include all of the following forms:
IRS form 2553
IRS form 1120-S
IRS form Schedule K-1
●Insurance policies
●Signed statement from the agency or payer providing the income
●Participant Statement verification when one of the following occur:
Obtaining documented or collateral contact verification may cause harm or undue hardship(g) for the participant.
When all of the following occur:
●Other attempts to obtain the verification have failed. This includes documented and collateral contact verification.
●The participant has requested assistance from FAA.
●The worker has evaluated the request for assistance and cannot obtain the verification from another acceptable source.
●The participant statement is not questionable(g).
AZTECS Keying Procedures
Key the OT Unearned Income Code in the INC TYPE field on UNIC.
Document the case file(g) thoroughly to support keyed codes, amounts, and frequencies. See the AZTECS Data Entry Guide for instructions on keying the AZTECS income screens.
NOTE Documentation must support determinations of eligibility and benefit level. Document in sufficient detail to ensure that any reviewer can assess whether the determination is reasonable and accurate. Include specific information regarding the reason the income is determined to be normal. (See Budgeting Income Documentation Requirements for additional information.)
Legal Authorities
7 CFR 760.1903(b)(4)
last revised 04/29/2024