HUD Redefines 'Annual Income'
March 30, 2009, marked the date that the U.S. Department of Housing and Urban Development's (HUD's) new rule on annual income was initially due to go into effect, changing the way that HUD and tax credit sites are expected to calculate annual income. In the final rule, Refinement of Income and Rent Determination in Public and Assisted Housing Programs, HUD amended 24 CFR Part 5 as follows:
Annual income is now defined as all amounts, monetary or not, which: (1) go to, or on behalf of, the family head or spouse (even if temporarily absent) or to any other family member; and (2) are based on actual income being received from a source outside the family during the 12-month period prior to the admission, reexamination, or recertification effective date.
The rule also states that, “instead of using anticipated income, owners and management agents will use actual past income and will have the discretion to use projected future income under certain circumstances in order to calculate annual income.”
This is a significant change in how tax credit sites verify eligibility, says housing expert A.J. Johnson. Site managers will need to change their employment verification forms, policies, procedures, and internal rules and regulations, he says. For instance, third-party verification of income is no longer required prior to using other verification methods. “Based on a strict reading of this regulation, we can take information from the resident, such as pay stubs with current information.”
Johnson points out that the rule is likely to raise some areas of concern for tax credit managers. Take, for instance, anticipated raises. Let's say that you're considering an applicant who is currently $30 below the income limit, but in three weeks, you know that this person will be getting a raise. Based on the new rule, the applicant still qualifies since you will be using his current income and projecting it forward for 12 months.
Another confusing element is that site managers are given the option of using current income and projecting it forward or looking at the income from the past 12 months. “It appears to say that looking at past income is only an option if you can't determine the current income because it's cyclical or seasonal,” he says. “I think the intent here is to use current income and project it forward. But if you cannot get adequate information, you can look at the income for the past 12 months.”
Johnson adds that HUD is expected to issue a change to HUD Handbook 4350.3, which may offer additional clarification.
EDITOR'S NOTE: At press time, HUD announced that it was seeking further public comment on whether to delay the final rule's effective date by 60 days. We will provide you with an update on the status in next month's issue.
A.J. Johnson: President, A.J. Johnson Consulting Services, Inc.; (757) 259-9920; http://www.ajjcs.net.