Avoid Mistakes that Could Trigger Resident Exceeding Income Limits

When recertifying households, you, as the site tax credit manager, probably know that households that go over-income don’t cease to qualify as tax credit units. To continue receiving tax credits on a unit whose household goes over-income, you must follow the available unit rule. The rule requires you to rent the next available unit of comparable or smaller size in the building to a new, qualified low-income household.

But if you mistakenly count an item as income when you should count it as an asset or not count it at all, you may think that a household’s income is higher than it actually is. And you may follow the available unit rule unnecessarily.

You and your staff must know which items are not considered income, so that you can recertify low-income households correctly. We’ll tell you about five items that may seem like income, but are not considered income under the tax credit program. In some cases, you count these items as assets, and in other cases, you don’t count them at all. We’ll tell you the proper way to treat these items when recertifying households.

Five Items Not to Count as Income

Here are five common items you must not count as part of a household’s income under the tax credit program. Make sure your staff members are familiar with how to treat each item, so that you can avoid problems and keep the owner’s tax credits safe.

Section 8 subsidies. If you get a subsidy from your local public housing authority (PHA) for a low-income household that holds a Section 8 voucher or certificate, the tax credit law says that you must not count that subsidy as part of the household’s income. This is an exception to the HUD Handbook’s general rule that you must count subsidies as income.

For example, suppose a household holds a Section 8 voucher and occupies a low-income unit at your site. Their household’s monthly rent is $600. Because of their Section 8 assistance, the household pays you only $500 each month, and your local PHA sends you the remaining $100 as a monthly subsidy. Don’t count the $100 as part of the household’s income.

Some LIHTC providers have set “minimum income requirements” to ensure that the household has sufficient income to pay rent. You may require that Section 8 holders show adequate income to pay the out-of-pocket portion of rent, such as three times (or other reasonable multiplier commonly used in the local rental housing industry) the amount of tenant-paid rent, not including the subsidy amount paid by Section 8. Thus, many have set policies that provide they will count the amount of Section 8 assistance as income to determine whether the household meets the “minimum income requirements.” However, you can’t impose minimum income requirements that reflect the total rent for Section 8 participants.

Rent concessions. If you charge a low-income household less than the tax credit law allows, don’t count the difference as part of the household’s income. Under the law, after you calculate a unit’s gross rent, you must subtract its utility allowance to get the “maximum allowable rent.” This is the highest monthly rent you can actually charge a household.

Because the maximum allowable rent is restricted, it’s typically lower than the rent charged for comparable market-rate units at a tax credit site. But poor market conditions may sometimes lead you to charge low-income households less than the maximum allowable rent. You won’t violate the tax credit law by charging less than the maximum. But you must not count the difference between the maximum allowable rent and the lower rent you charge a household as part of that household’s income.

Lump-sum, delayed Social Security payments. If a household member gets a lump-sum, delayed Social Security payment, don’t count it as part of the household’s income [HUD Handbook 4350.3, par. 5-6 (Q)(2)]. It’s not uncommon for such payments to be delayed for months because of processing errors.

You must, however, count a household’s regular monthly Social Security payments as income [Handbook 4350.3, par. 5-6(I)]. Also, be aware that not counting lump-sum, delayed payments is an exception that applies only to Social Security benefits. If a low-income household at your site gets a lump-sum, delayed payment of unemployment, welfare, or other benefit, you must count the payment as part of the household’s income [Handbook 4350.3, par. 5-6(Q)(4)].

Inherited money. If a household member inherits money, don’t count the inheritance as part of the household’s income. HUD considers an inheritance to be a “lump sum” or “one-time” receipt, and requires you to count it as an asset [Handbook 4350.3, par. 5-6(Q)(1)]. But include any income that asset generates. Follow the Handbook’s income calculation rules.

Live-in aide’s income. If a low-income household at your site has a live-in aide in its unit, the Handbook says not to count as income any compensation the aide gets when you recertify the household [Handbook 4350.3, par. 3-6(E)(3)(a]. A live-in aide is a person who lives with one or more elderly, near-elderly, or disabled members and who is “essential to the care and well-being” of the member, is not “obligated for the support” of the member, and would not be living in the unit “except to provide the necessary supportive services” [Handbook 4350.3, Glossary].