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Child Care Assistance Program Policy Manual Issued 10/2022 Annualizing self-employment income 6.15.6 In order to provide the most accurate information about each method, you may request families submit additional verification of self-employment income. A special letter verification request may be used with the following sample language: There are two options used to calculate self-employment income: • Taxable self-employment income as determined from a federal tax return that has been filed with the IRS for the most recent year, with certain expenses not allowed to reduce income. To use this method, you must have filed a tax return for the most recent tax year and must submit it, including schedules. • 50% of current gross self-employment income. To use this method, you must provide documentation of current gross self-employment income that is reflective of expected future income, such as business ledgers-. Contact the CCAP agency for more information and to discuss your options. To determine the self-employment income method: • Typically, families choose the method of calculation. • The 50% of gross income method must be used if taxes have not been filed for the most recent year (see Chapter 7.9 (Income verification) or if tax forms from the most recent year are not the most accurate assessment of annual ongoing income available to the family. • If the family provides the verification to calculate self-employment income using only one method, calculate income using the method the verification provided supports. • If a family provides verification for and meets income and authorized activity eligibility requirements under both methods but does not respond to an agency’s attempts to have the family choose a method, the agency must choose the method that results in the lowest copay. To improve case management: • DHS recommends workers explain the self-employment income determination method used and why it was used to the family. • DHS recommends to case noting the method used and calculation for each self-employment business. Changing self-employment income calculation methods Once self-employment income has been calculated, the amount counted continues at the same level until redetermination. Families may change the method of self-employment income calculation at redetermination and at any time within the 12 month eligibility period when the current income calculation does not provide the most accurate assessment of annual ongoing income available to the family. See Chapter 8.1.12 (Changes in Income or Expenses). They must meet verification requirements of the chosen method when changing methods. See Chapter 7.9 (Income verification). Changing self-employment income calculation methods may impact the amount of care that can be authorized. See Chapter 9.1.1.1 (Authorizing Care – Self-employment) for information about calculating the amount of care that can be authorized for self-employment and Chapter 9.12 (Authorization Changes During the 12-Month