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Child Care Assistance Program Policy Manual Income verification Issued 08/2022 7.9

• When the taxable income method is chosen, verification must be an Internal Revenue Services (IRS) tax return, including all related schedules, that has been filed with the IRS for the most recent year. - From January 1 to the tax filing deadline of a given year, accept an IRS tax return that has been filed with the IRS for the previous tax year if taxes for the most recent year have not yet been filed. After the tax filing deadline, the family can only use the taxable income method if an IRS tax return has been filed for the most recent year, even if an extension has been granted.  For example, 2020 taxes can be accepted as verification until April 18, 2022 if 2021 taxes have not yet been filed. As of April 19, 2022, if 2021 taxes have not been filed, the family does not have the option to use the taxable income method. - See Chapter 6.15.6 (Annualizing Self-Employment Income) for more information about the taxable income method and when it can be used. • When the 50% of gross income method is chosen, verification must show current gross self-employment income. - The recommended standard for income verification is the most current 30 days of verification. When gross self-employment income fluctuates to the extent that the most current 30 days is not reflective of expected future income, use a reasonable period of time (for example, the last 3 months) to determine current income. A longer or shorter period of time can be used. The amount of time that is reasonable to use may vary for each situation based on factors like the seasonality of a self-employment business. - A family must verify self-employment income with documentation. Documentation must include a detailed record of self-employment income, such as:  Business ledgers (actual receipts not required)  Business income receipts  Spreadsheet  Accounting software program report or document showing income  Handwritten “books”  Most recent tax returns, including all related schedules  Business income receipts  Client statement that is signed and dated . - Expenses are not considered in this calculation and do not have to be verified. - See Chapter 6.15.6 (Annualizing Self-Employment Income) for more information about the 50% of gross income method. • Self-employment business income records must be kept separate from the family’s personal income records. • If business records and personal records are not separate, ask the family to separate income records and resubmit according to Child Care Assistance Program requirements. • If existing verification is insufficient to accurately predict self-employment income (for example in the start-up phase of self-employment), the family must choose the 50% of gross income method and a signed and dated client statement detailing estimated income may be used to verify self-employment income. When child care is authorized based on estimated income, inform the participant of possible overpayment if the estimated income used does not reflect the actual income earned. Contact your policy specialist before determining this type of overpayment. • If a self-employed person believes that they should not be subject to the higher minimum wage, the agency should work with the applicant or client to identify the correct applicable amount. If a self- employed person believes that they should not be subject to the higher minimum wage but verification is not available, accept a statement from the person that states that they are not subject to that amount and the reason why.

Note: If there are concerns about inconsistent information provided for self-employment, the agency may request the family provide additional verification to explain discrepancies. See Chapters 7.3 (Verification – Initial