How to Certify Income of Dependents in Tax Credit Households

April 29, 2013

Certifying a household that includes dependents—most often children under age 18 or full-time students—isn’t complicated. But if you don’t know the specific rules on counting a dependent’s annual income, it’s easy to make mistakes. And one mistake can lead to an incorrect decision on whether a household meets income limits. Here’s an overview on how to calculate a dependent’s income correctly.

Who’s a Dependent?

To calculate dependents’ income correctly, you need to first determine which household members are dependents. The IRS says you have to follow HUD’s income rules when certifying a household at a tax credit site. So turn to the HUD Handbook, which spells out all the definitions, rules, and information you need to calculate the income of household members. The HUD Handbook defines a dependent as a household member who isn’t the head of the household, the co-head, a spouse, a live-in aide, a foster child or foster adult, and who’s either:

Under age 18;
A full-time student; or
Disabled [HUD Handbook 4350.3, par. 5-6(A)(3)].

How to Count Income

If a household includes a dependent who has income, follow these rules to decide what income to count:

Under 18 years of age. If a dependent is under age 18, the rule is simple. Count all unearned income. This typically includes payments a dependent gets for Social Security disability, child support payments, or welfare payments. Don’t count any earned income, which typically includes income from a summer, part-time, or on-campus job.

Full-time student. If a dependent is a full-time student, count all unearned income, except the full amount of any student financial aid. (This includes scholarships, grants, fellowships, work-study, and any other student financial assistance—regardless of what the assistance is actually used for.) If the student is age 18 or over, count only the first $480 of the dependent’s earned income. Don’t count earned income above the first $480 [HUD Handbook 4350.3, par. 5-6(a)(3)(d)].

To be full-time under the rules, a student must carry a subject load considered full-time under the school’s standards. You’ll need to verify student status and the amount of any financial aid that the student gets.

Some students might not think the money they earn in part-time jobs after class counts as income. So to make sure you get students to tell you about jobs that they might not think count as income, be specific with your questions. Don’t just ask them whether they have any income. Ask about income from part-time jobs during the school year and full-time jobs during school breaks.

Disabled. Unless the disabled dependent is under age 18 or a full-time student, count all the dependent’s income as you would any household member’s. This means you must count all sources of earned and unearned income that you would count for other adult household members. But if the disabled dependent is also under age 18 or a full-time student, treat his or her income as described above.

> Common Sources of Earned and Unearned Income

Here are some of the most common sources of earned and unearned income you’re likely to encounter when certifying dependent applicants at your tax credit site.

EARNED INCOME

Summer job income (such as camp counselor)
Part-time job income (such as newspaper delivery route)
On-campus job income (such as dining hall server)

UNEARNED INCOME

Social Security disability payments
Child support payments
Welfare program payments

Topics

Certification