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Minnesota Department of Human Services Child Care Assistance Program (CCAP) Policy Manual
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6.15.6 Annualizing Self-Employment Income

ISSUE DATE: 08/2016

To annualize self-employment income and determine income eligibility, do the following:

1. Determine gross self-employment receipts. Gross self-employment receipts includes receipts for all income from whatever source derived related to the business. This may include, but it not limited to, the sale of products, receipts from services provided, commissions, rent, fees collected, or any other income related to the self-employment business.

2. Determine the operating expenses.

3. Subtract the operating expenses from the gross self-employment receipts to determine the gross earned income.

4. Any negative self-employment income must be included in the determination of annual income, resulting in a reduction in total annual income.

NOTE: You must annualize self-employment income BEFORE you determine the number of hours to authorize. For information on determining the number of hours to authorize, see Chapter 9.15.1 (Authorized Hours – Self-Employment).

Allow operating expenses that are allowed by the Internal Revenue Service (IRS), unless specifically prohibited. The following expenses are NOT allowed.

· Purchases of capital assets.

· Payments on the principal of loans for capital assets.

· Depreciation.

· Amortization.

· The cost of building an inventory, until the time of the sale.

· Transportation costs exceeding the amount allowed by the Internal Revenue Service for use of a personal car (See IRS Standard Mileage Rate website for current mileage rate).

· Transportation costs between home and the place of employment.

· Wages and salaries paid to and other employment deductions made for members of a family for whom an employer is legally responsible, provided family income is only counted once.

· Monthly expenses for each roomer greater than the flat rate deduction listed in the Combined Manual issued by the Department of Human Services.

· Monthly expenses for each boarder greater than the flat rate deduction listed in the Combined Manual issued by the Department of Human Services.

· Monthly expenses for each roomer-boarder greater than the flat rate deduction listed in the Combined Manual issued by the Department of Human Services.

· Annual expenses greater than 2 % of the estimated market value on a county tax assessment form as a deduction for upkeep and repair against rental income.

· Federal, state and local income taxes.

· The employer’s own share of FICA.

· Money set aside for the self-employed person’s own retirement.

Receipts are budgeted in the month received. See Chapter 7.9 (Income Verification).

Expenses are budgeted against receipts in the month paid except:

· Purchase of inventory must be deducted at the time payment is received for the sale.

· Expenses paid at least annually, but less often than monthly must be prorated forward over the period in which they are intended to cover (cannot exceed 12 months). Examples of this would be unemployment taxes or insurances.

LEGAL AUTHORITY

Minnesota Statutes 119B.09
Minnesota Rules 3400.0170
Minnesota Statutes 119B.011

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