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Child Care Assistance Program Policy Manual Issued 10/2022 Annualizing self-employment income 6.15.6 1. Determine gross income from the appropriate tax forms. 2. Determine the allowable expenses. Review the list below for expenses that are not allowed. 3. Subtract the allowable expenses from the gross income. The result is the counted self-employment income. Allow expenses that are also allowed by Internal Revenue Code except for the following: • Net losses carried over into additional tax years. Only allow net losses in the original year in which it occurred. • Depreciation. • Federal, state and local income taxes. • Money set aside for the self-employed person’s own retirement. • Any amount that exceeds the payment a household receives from a boarder for meals. See Chapter 6.6.5 (Self-employment income) for information about boarders. Follow guidance in the CCAP Self-employment Guide (SIR login required) when entering self-employment income calculated using the taxable income method in MEC2. Note: for a new business in operation for less than 12 months, convert the calculated self-employment income to an annual amount. Self-employment businesses that calculate to a loss When the taxable income method is chosen, the self-employment income may calculate to a loss. If a self- employment business calculates to a loss after the calculation is completed and the family has more than one self-employment business, the negative income from one self-employment business may offset the self- employment income from another business(es). Follow guidance in the CCAP Self-employment Guide (SIR login required) when entering income for self- employment businesses that calculate to a loss in MEC2. 50% of gross income method To calculate self-employment income using the 50% of gross income method, use 50% of the current gross income as the counted self-employment income amount. Gross income is earned income before taxes and deductions. Expenses are not used in this calculation method. If the income provided is not already for a full year, convert the calculated self-employment income to an annual amount. Follow guidance in the CCAP Self-employment Guide (SIR login required) when entering self-employment income calculated using the 50% of gross income method in MEC2. Agency responsibility and calculation methods Agencies are encouraged to provide the family information about both calculation methods, including the impact on the family’s income eligibility, copayment, ability to meet minimum work requirements and maximum number of hours of care that can be authorized. You may use The Child Care Assistance Program and self- employment: Questions and answers for families (DHS-8274A) (PDF) and the Minnesota Child Care Assistance Program - Calculation of self-employment income (DHS-8242) (PDF) form to help determine this information.