How to Determine Household Size for Income Eligibility
Correctly determining the size of each low-income household at your site is essential because the income limits you must use to check household eligibility are organized by household size. If you use the wrong limits to certify a household, you’ll make mistakes that will put the owner’s tax credits at risk.
Although determining a household’s size sounds straightforward, it’s not as simple as counting the number of people who occupy a unit. The HUD Handbook spells out the rules you must follow for determining household size for income eligibility [Handbook 4350.3, par. 3-6(E)]. These rules say to exclude certain occupants as household members. And they even require you to count certain people who aren’t occupants as household members.
We’ll give you the rundown on whom you must count—and whom you mustn’t count—as members of your low-income households. This way, you can use the correct income limits and avoid costly certification mistakes that could jeopardize the owner’s tax credits.
Don’t Risk Using Wrong Income Limits
HUD determines what income amounts are included in a household’s gross income and who qualifies as a household member. In February, HUD issued the FY 2015 Multifamily Tax Subsidy Projects (MTSP) income limits.
These are the income limits used to determine qualification levels and maximum rental rates for LIHTC sites. The income limits for MTSPs are based on the Section 8 limits that incorporate the HUD hold harmless policy.
The column down the left-hand side of the income limit tables identifies the state and area within each state. From left to right, the columns identify the income limits based on household size (one to eight persons). The tables identify the income limits at the 50 percent and 60 percent of area median gross income (AMGI) levels needed to satisfy the minimum set-aside requirements under the Internal Revenue Code. The percentage of AMGI that applies to your site depends on your site owner’s agreement with your state housing agency.
For example, suppose you need to use the 50 percent limits for your low-income households. You would look at the row labeled 50 percent or very low income. You would then move along the row until you reach the column for the appropriate household size (for instance, a four-person household). That figure is the correct income limit to use for determining the eligibility of a four-person household at your site.
If you use the four-person income limit for a household that has three members, you might accept unqualified households because the limit you’re using to determine eligibility is too high. And if you use the four-person income limit for a household that actually has five members, you might make your job that much harder by turning away qualified households.
Who’s Part of Household?
According to HUD, you must count:
People who live in unit. HUD says that, as a general rule, you must include “all persons living in the unit” when determining household size for establishing income eligibility [Handbook 4350.3, par. 3-6(E)(3)]. The exceptions to this general rule are the following people even if they live in the unit:
> Live-in aides. Although live-in aides normally occupy a unit full-time, don’t count them as part of a household. Live-in aides live with elderly or disabled household members to provide care. They’re allowed to occupy the unit as long as:
- They’re essential to the care and well-being of a household member;
- They’re not obligated for the support of the member; and
- Their only reason for living in the unit is to provide necessary supportive services [HUD Handbook 4350.3, par. 3-6(E)(3)(a)(1)].
If someone called an “aide” doesn’t meet this three-part test, the person doesn’t qualify as a live-in aide and can’t live in the unit without being counted as a household member.
> Guests. Guests are people who are “temporarily staying in a unit with the consent of the tenant or another member of the household who has express or implied authority to consent on behalf of the tenant. A guest is a temporary visitor of the tenant’s and should not be confused with an unauthorized occupant. Additionally, a guest is not a party to the lease agreement [Handbook 4350.3, Glossary]. Don’t include these people when determining household size.
Certain people who don’t live in unit. When determining family size for income limits, you must count certain people as part of a household who aren’t living in the unit [HUD Handbook 4350.3, par. 3-6(E)(4)]. These are:
> Children temporarily in foster homes. If a child is temporarily absent because she was placed in a foster home, she still counts as a household member.
> Children in joint custody who spend most of the time in the unit. If a child is in a joint custody arrangement, count the child as a household member if he spends 50 percent or more of his time living in the unit.
> Children away at school. Children who go away to school but return to the unit during breaks count as household members.
> Unborn children. If an applicant or household member is pregnant, count her unborn child as a household member.
> Children who are being adopted. If a household is in the process of adopting a child, count that child as a household member.
> Household members in hospital, rehab, or nursing home. If a household member is temporarily confined to a hospital or a rehabilitation facility, continue to count that person as a member [Handbook 4350.3, par. 3-6(E)(4)(g)]. If the member gets permanently confined to a hospital or nursing home, the household must decide whether you should continue counting that person as a member [Handbook 4350.3, par. 3-6(E)(4)(h)].
> Other household members who you believe are temporarily absent. If you learn that a household member will temporarily live away from her unit, continue to count her as a member. This often happens when a household member’s job or role in the armed forces requires her to leave.
Counting Foster Children and Adults
Before Change 4 was implemented in the HUD Handbook, HUD said you mustn’t count foster children and adults as members of the household with which they live. However, since Change 4, now only live-in aides and guests are excluded when determining family size for income limits. It’s also important to make sure that income and assets for foster children and foster adults are counted appropriately. The following is how HUD defines foster children and adults:
Foster children. These children are in the legal guardianship or custody of a state, county, or private adoption or foster care agency, yet are cared for by foster parents in their own homes, under some kind of short-term or long-term foster care arrangement with the custodial agency. These children will generally remain in foster care until they are reunited with their parents, or until their parents voluntarily consent to their adoption by another family, or until the court involuntarily terminates or severs the parental right of their biological parents, so that they can become available to be adopted by another family. Therefore, the parental rights of the parents of these children may or may not have been terminated or severed, and the children may or may not be legally available for adoption.
Foster adults. A foster adult is usually an adult with a disability who is unrelated to the tenant family and who is unable to live alone.
With Change 4, HUD removed foster children and foster adults from the list of people to exclude when determining family size for income. If a household contains both parents and three minors of which two of the minors are foster children, prior to Change 4, this would have been considered a three-person household when determining income limits. Since Change 4, this is now a five-person household when determining income limits.
It’s important to note that even though foster children and foster adults are now considered household members when determining family size, income received for the care of foster children and foster adults is still not counted. According to HUD, payments received by the family for the care of foster children or foster adults are not counted. This rule applies only to payments made through the official foster care relationships with local welfare agencies [HUD Handbook 4350.3, par. 5-3(A)(3)(g)].
While payments made for the care of foster children and adults are not counted, earned and unearned income for foster children and adults may be included in annual income. Any employment income earned from a foster child who is under 18 years old is excluded from annual income. Any employment income earned from a foster adult who is at least 18 years old is included in annual income [HUD Handbook 4350.3, Figure 5-2].
In addition, any unearned income received by or on behalf of a foster child or adult is included in annual income. This would include benefits such as Social Security and any income earned from an asset owned by the foster child or foster adult. Remember that this doesn’t include payments for the care of foster children or foster adults through official agencies.