Follow Six Dos & Don’ts When Dealing with Section 8 Applicants and Residents

The Section 8 Housing Choice Voucher program is the federal government’s major program for helping very low-income families, the elderly, and the disabled afford decent, safe, and sanitary housing in the private market. Since housing assistance is provided on behalf of the family or individual, participants are able to find their own housing, and participants are free to choose any housing that meets the requirements of the program and not limited to units located in subsidized housing projects.

Housing Choice Vouchers are administered by local public housing agencies (PHAs) that receive federal funds from the U.S. Department of Housing and Urban Development (HUD) to administer the voucher program. A family that is issued a housing voucher is responsible for finding a suitable housing unit of the family’s choice where the owner agrees to rent under the program. A housing subsidy is paid to the owner directly by the PHA on behalf of the participating family. The family then pays the difference between the actual rent charged by the owner and the amount subsidized by the program.

Eligibility for a housing voucher is determined by the PHA based on the total annual gross income and family size and is limited to U.S. citizens and specified categories of noncitizens who have eligible immigration status. This is one difference between HUD and tax credit programs. Where HUD programs require documentation of citizenship for subsidy, the tax credit program has no requirement that a resident be a legal resident of the United States. However, a tax credit site owner may elect to establish such a citizenship criteria as part of its resident selection plan as long as the criteria is applied uniformly. Thus, if a site owner or manager elects to require that all residents be legal residents of the United States, all applicants for housing must be asked to provide proof of resident status.

Also, in general, with the Section 8 program, the family’s income may not exceed 50 percent of the median income for the county or metropolitan area in which the family chooses to live. By law, a PHA must provide 75 percent of its voucher to applicants whose incomes don’t exceed 30 percent of the area median income. Median income levels are published by HUD and vary by location.

Many tax credit managers get into trouble when handling applicants and residents who hold Section 8 vouchers. For instance, some managers dangerously assume that because an applicant holds a Section 8 voucher, she’s automatically eligible for the tax credit program. And other managers don’t realize that rejecting applicants because they hold Section 8 vouchers violates the tax credit law. We’ll go over six Dos & Don’ts that will help you and your staff handle these issues and avoid problems at your tax credit site.

DO Take Section 8 Subsidy into Account When Determining Applicants’ Ability to Pay Rent

Make sure you take applicants’ Section 8 subsidies into account when determining their ability to pay the rent. To do this, calculate how much rent the applicant’s share will be after the subsidy and the minimum income he’ll need to pay that share.

Remember—the only purpose of having a minimum income requirement is to screen out applicants who can’t afford your rent. So if a large part of the rent is subsidized, you only need to consider whether the applicant can afford to pay her part.

DON'T Turn Away Applicants Because They Hold Section 8 Vouchers

The tax credit law bars owners and managers from turning away applicants because they hold Section 8 vouchers. Although many tax credit managers know this, some managers still believe it’s okay to limit the number of Section 8 residents they rent to at any time, to reduce the potential administrative burdens. Although it may be legal to limit the number of Section 8 residents at a conventional site, you can’t do this at a tax credit site.

If your state housing agency discovers that you rejected applicants because they held Section 8 vouchers, it must report you to the IRS for noncompliance. Also, your state or local fair housing law may ban discrimination based on an applicant’s source of income. If that’s the case, an applicant could accuse you of violating this ban if she believes you rejected her because part of her rent would be paid by federal subsidy.

DO Document Reasons for Rejecting Section 8 Applicants

If a Section 8 applicant doesn’t meet your site’s minimum income requirements or has bad references or a poor credit rating, you may reject the applicant for any of these reasons. But you must make sure your files back up your reason for rejecting him. Otherwise you might have trouble countering a claim that you rejected the applicant because he held a Section 8 voucher.

To do this, make sure your leasing staff always documents the reasons why they reject applicants who hold Section 8 vouchers. They should write the reasons for a rejection either on each application or on a separate memo. If they use a separate memo, they should attach it to the application.

DON'T Assume Section 8 Applicants Are Tax-Credit Eligible

Don’t assume that an applicant who has a Section 8 voucher is automatically eligible to occupy a low-income unit at your tax credit site. This is a common assumption tax credit managers make. In some cases, households eligible for Section 8 vouchers may have household income above your tax credit housing income limits. For example, some of your tax credit units may have to rent to households at 40 percent of area median gross income (AMGI), but a voucher holder may be at 50 percent of AMGI.

Or a voucher holder whose income met your tax credit income limits when he received his voucher two years ago may now have income that exceeds the limit. Once a person is accepted into the Section 8 program, he may stay eligible for Section 8 assistance even if his income later increases to above 50 percent of AMGI. Voucher holders’ eligibility for assistance is based on their ability to pay the local fair market rent, a factor that isn’t considered in determining tax credit eligibility. Therefore, if you assume a voucher holder is automatically eligible, you could rent to an over-income household, resulting in an ineligible unit and possible tax credit recapture.

DO Certify Section 8 Residents as You Would Other Low-Income Residents

Don’t treat residents who hold Section 8 vouchers differently than your other low-income residents when certifying their households. This means checking sources of income and assets, contacting references, and running your credit checks. Apply the HUD Handbook’s rules on calculating income just as strictly when certifying Section 8 residents.

If you choose to rely on income information from the local PHA, try to get a copy of the household’s income certification form. Check the date to ensure that the form is dated within 90 days of the effective date of your tax credit certification. If the form is dated within 90 days of the effective date of your tax credit certification, you may rely on the household’s “annual income” as it appears on the form.

DON'T Count Subsidies as Part of Household Income

When you rent to a Section 8 resident, the local PHA contributes part of the household rent in the form of a subsidy. Although this benefits the household by reducing its rent payments, tax credit rules bar you from counting PHA subsidies as part of household income. If you do count the subsidy, you could make certification errors or even reject qualified applicants.

For example, say the rent for a low-income unit at your tax credit site is $700 per month. A Section 8 household pays you $600, and the PHA sends you a check each month for $100 to make up the difference. If you incorrectly count the $100 monthly subsidy as income, you might mistakenly believe that the household earns too much to be eligible for your low-income units. Don’t count that $100 as a part of the household income.