What documents do I need to provide for a Medicaid undue-hardship request if they’re asking for my most recent tax return? – North Carolina

Short Answer

In North Carolina, when a county Department of Social Services (DSS) requests the most recent tax return for a Medicaid undue-hardship request, it typically needs the complete return (all pages and schedules) plus supporting income documents that match what the return reports. DSS usually uses the return to verify income sources, filing status, and whether other resources or support may be available. If the return is not available, DSS often accepts alternative proof (such as IRS transcripts and current income statements), but the request should be addressed quickly because undue-hardship requests can have short documentation deadlines.

Understanding the Problem

Under North Carolina Medicaid rules, when a Medicaid applicant or recipient asks the county Department of Social Services (DSS) to waive a transfer-penalty period due to undue hardship, DSS can require proof that supports the hardship claim. The decision point is narrow: what documents must be provided when DSS specifically requests the most recent tax return as part of the undue-hardship submission. The focus is on what to gather so the return can be reviewed and the packet can be completed for DSS.

Apply the Law

North Carolina law requires DSS to tell the individual what information and documentation is needed to decide an undue-hardship waiver request, and the individual must provide documentation showing (1) the penalty would deprive the person of needed medical care or basic necessities, (2) no alternative income or resources are available to cover those needs, and (3) a good-faith effort is being made to recover the transferred asset or its value. A recent tax return is commonly requested because it helps DSS verify income sources and identify financial relationships or resources that may affect whether “no alternative income or resources” exists.

Key Requirements

Proof of hardship impact: Documents showing the penalty would risk health/life or deprive the person of necessities (medical care, food, shelter, utilities).
Proof of no alternative income/resources: Financial records showing what income/resources exist (and what does not), including items reflected on the tax return.
Proof of good-faith recovery efforts: Records showing reasonable steps to recover the transferred asset or its fair market value (for example, communications, demand letters, or legal steps taken).

What the Statutes Say

N.C. Gen. Stat. § 108A-58.2 (Waiver of transfer of assets penalty due to undue hardship) – Requires DSS to request specific documentation and sets what must be shown to obtain an undue-hardship waiver, including short time periods to submit requested documentation.
N.C. Gen. Stat. § 108A-55.3 (Proof of North Carolina residency) – Lists acceptable residency proofs, including tax records showing a North Carolina address, which is one reason DSS may request a tax return in a Medicaid case.

Analysis

Apply the Rule to the Facts: Here, the undue-hardship submission is being prepared and DSS is asking for the most recent tax return so the packet can be reviewed before filing. Because the hardship waiver requires proof of (1) the hardship risk, (2) lack of alternative income/resources, and (3) good-faith recovery efforts, the tax return usually functions as a “roadmap” for DSS to confirm income sources and to compare the return to bank deposits, benefit statements, and other financial records. Providing the complete return and matching backup documents helps avoid delays and follow-up requests.

Process & Timing

Who files: The Medicaid applicant/recipient (or an authorized representative). Where: The county Department of Social Services (DSS) handling the Medicaid case in North Carolina. What: The undue-hardship waiver request plus the documents DSS lists in its written notice. When: Follow the deadline in DSS’s notice; undue-hardship documentation requests can have short turnaround times.
Tax-return package to gather: Provide the most recent federal return in full (Form 1040 plus all schedules and attachments). If filed jointly, include the full joint return. If not filed, gather proof of non-filing and alternative income verification (see below).
Common supporting documents that usually go with the tax return: (a) W-2s and/or 1099s that match the return; (b) Social Security benefit statements (SSA-1099) if applicable; (c) pension/retirement 1099-R forms if applicable; (d) recent paystubs if wages continue after the tax year; (e) bank statements that cover the period DSS requests (often recent months) to show current cash flow; (f) proof of major deductions or expenses that relate to necessities (for example, medical bills, insurance premiums, rent/mortgage, utilities) when those expenses help show hardship.

Exceptions & Pitfalls

Only sending the first two pages of the 1040: DSS often needs schedules (Schedule 1, 2, 3; Schedule C/E; capital gains; etc.) to verify income sources and deductions. Sending an incomplete return commonly triggers a second request.
No return filed: If no return was filed for the most recent year, DSS may still require proof of income and a reason for non-filing. An IRS “tax return transcript” or “verification of non-filing” letter, plus current benefit statements and bank records, often helps fill the gap. (Tax issues should be handled with a tax attorney or CPA.)
Mismatch between the return and current finances: If income has dropped since the tax year (for example, job loss or reduced hours), include current proof (recent paystubs, termination letter, updated benefit award letters) so DSS does not assume the tax-year income still exists.
Joint return complications: A joint return can show income that belongs to a spouse or another filer. If that income is not actually available to meet the applicant’s needs, the packet should include documents clarifying who receives and controls the income (for example, separate account statements or benefit letters).
Leaving out recovery-effort proof: The undue-hardship standard includes showing good-faith efforts to recover the transferred asset or its value. Financial documents alone may not be enough without records of those efforts.

For additional context on timing issues when documents are requested, see what happens if the requested tax return cannot be submitted right away.

Conclusion

In North Carolina, when DSS requests the most recent tax return for a Medicaid undue-hardship waiver, the safest approach is to provide the complete return (all pages, schedules, and attachments) plus the income documents that support what the return reports (W-2s/1099s/benefit statements) and current financial records that show whether any alternative income or resources exist. The next step is to submit the requested tax-return package to the county DSS by the deadline stated in DSS’s documentation notice.

Talk to a Guardianship Attorney

If dealing with a Medicaid undue-hardship submission and DSS is requesting a tax return and related financial records, our firm has experienced attorneys who can help organize the documentation, spot missing items, and keep the submission on track with DSS timelines. Call us today at (919) 341-7055.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.