Use Correct Forms to Get Additional Information About Household Income

When certifying and recertifying low-income households at your tax credit site, you may encounter situations that require you to use special forms to get more information about household income. Sometimes, you’ll need to get household members to complete and sign these forms. At other times, you’ll need to send the forms to a third party. For example, if you discover that a household member gets disability income, you must get the agency providing benefits to sign a special form to verify this income. Whatever the situation, it’s important that you handle it properly by using the right form to get the information you need.

Not using the right forms may lead to two possible compliance issues. You won’t have the right documentation to prove to your state housing agency and the IRS that a household meets the tax credit program’s income-eligibility requirements. And you may miscalculate a household’s income. If this happens, you may either mistakenly turn away a household that you think isn’t income-eligible or mistakenly lease a low-income unit to a household that’s over-income. If your state housing agency discovers your mistake, the owner of your site will risk losing credits for the unit. And if you need to count the unit to meet your site’s minimum set-aside, all the owner’s credits may be in jeopardy.

With so much at stake, it’s essential that you and any staff members who conduct certifications and recertifications know how to recognize situations that call for special forms. We’ll tell you about two situations where you’ll need to give household members special forms to complete and sign and three situations where you’ll need to get third parties to complete and sign special forms. And we’ll tell you the right forms to use in each situation.

When Household Members Must Complete and Sign Special Forms

Here are two situations that may arise during certification or recertification where you’ll need to get household members to complete and sign special forms.

Situation #1: Household’s Assets Total Less than $5,000

If a household’s net assets total less than $5,000, you can avoid the administrative burden of verifying these assets. Revenue Procedure 94-65 allows the use of a tenant-signed affidavit to verify assets if the household total net value is lower than $5,000.

Form required. Have the household head sign a “less than $5,000” affidavit. Ask your state housing agency whether it has its own affidavit form that you must use.

It’s important to note there is a section in Revenue Procedure 94-65 that explains this form may not be used to verify assets “if a reasonable person in the Owner’s position would conclude that the tenant’s income is higher than the tenant’s represented annual income.” If a tenant/applicant clearly misrepresents her income, third-party verifications of all assets are required.

The National Council of State Housing Agencies (NCSHA) recommends that agencies adopt a form that asks a household head that claims less than $5,000 in household assets to:

• Swear that the household’s net assets total less than $5,000;
• Say whether the household sold any assets for less than fair market value within the past two years; and
• Specify the cash value of, and annual income from, each asset (including assets sold for less than fair market value within the past two years) or say that the household currently doesn’t have any assets.

Make sure the household head signs the affidavit under penalty of perjury and in the presence of a notary public. Also, check with your state housing agency to see if it requires any documentation other than the affidavit.

Although you may not have to include the household’s assets if they total less than $5,000, you must still include any income from these assets [HUD Handbook 4350.3, par. 5-7 (E)]. Effective February 2015, the new imputed rate of interest on cumulative assets to be used for all households with over $5,000 in assets is 0.06 percent. However, households whose assets do not exceed $5,000 will continue to count the actual income from their assets. The form should provide a space to list the cash value, the interest rate, and the income for each asset. To calculate actual income from assets, multiply the balance by the interest rate to derive the asset income for all assets listed. You should then add up the income from each asset.

Also, remember that this form may be used to satisfy the verification requirements for the LIHTC program only. If your site gets assistance through another federal program, such as Section 8, you can’t use the affidavit. Instead, you must get verifications for all the household’s assets [Handbook 4350.3, par. 5-12].

Situation #2: Household Member Gets No Income

If a household member tells you that she has no income, you’re required to take an extra step—even if you know that other members of the household have income.

Form required. Get all adult household members who claim that they have no income to sign a “zero income certification” form. Ask your state housing agency whether it has a special certification form you must use.

The zero income certification should do the following:

List possible sources of income. The certification should spell out the various possible sources of income a household member could have, as listed in the HUD Handbook [Handbook 4350.3, exh. 5-1]. This includes income from operating a business, interest or dividends from assets, and death benefits.

Require household member to swear she doesn’t expect her income to change. The household member should swear on the certification that she expects no change in her financial status or employment status during the next 12 months, which is the length of a household’s certification year.

Say how the member’s household expects to pay for the unit. Finally, the certification should require the household member to state how her household will get the funds to pay for rent and other necessities. For instance, another household member may use her income to pay the rent. Or a generous relative who isn’t a household member may have arranged to pay the rent.

The household member should sign the certification under penalty of perjury and in the presence of a notary public. For more information about dealing with household members who get no income, see “Take Four Steps if Household Members Claim No Income,” Insider, February 2012.

When Third Parties Must Complete and Sign Special Forms

Here are three situations that may arise during certification or recertification when you’ll need to get third parties to complete and sign special forms.

Situation #1: Household Member Is Away in the Military

Income from the head of household, spouse, or co-head must be counted even if that person is deployed or temporarily absent for active military duty [Handbook 4350.3, par. 5-16(B)(3)(b)]. All other household members who are deployed must be removed from the household while deployed, and their income must not be counted [Handbook 4350.3, par. 5-16(B)(3)].

However, if the spouse or dependent of the person on active military duty resides in the unit, then that person’s income must be counted in full even if the military member isn’t the head or spouse of the head of the family [Handbook 4350.3, par. 5-16(B)(3)(a)]. For example, suppose Jim and Amber’s son Lieutenant Bob is away in Afghanistan. Bob’s wife Susan resides with Jim and Amber. Bob’s income is therefore counted, even though Bob is not considered a household member.

When counting the income of a household member who’s in the military, you must include any income the member gets that’s related to his military service, such as monthly base pay, clothing allowance, and hazardous duty pay [Handbook 4350.3, app. 4, §(2)(a)(1)(b)].

You should exclude from annual income special pay received by a household member serving in the Armed Services who is exposed to hostile fire [HUD Handbook 4350.3, par. 5-6(C)]. This is incentive pay for duty under hostile fire to a military person assigned or deployed to a combat zone. This income is exempt.

Form required. If a household member gets income from the military, you’ll need to verify it by sending the military a “military pay verification” form. Check your state housing agency’s compliance manual for its form. If your state housing agency doesn’t have a special form, ask the agency what you should use. We’ve provided a Model Form: Use Form to Verify Military Pay as an example of such a form.

Situation #2: Household Member Gets Disability Income

Say a household member tells you she’s stopped working because she’s disabled, and she’s not sure when she’ll return to work. Ask the member whether she gets disability income. If she does, you must verify the member’s disability income.

Form required. To verify disability income, send the agency or insurer that’s providing the benefits a “disability income verification” form. The Handbook says that disability benefits are income, which you must verify [Handbook 4350.3, par.5-4, exhibit 5-1]. To do this, ask the household member for the name and address of the insurer that’s paying the benefits. Before sending the form to the insurer, fill in the names and addresses of the insurer, the site manager, and the household member. Then fill in the household member’s date of birth and Social Security number. This makes it easier for the insurer’s staff to locate the information on the household member.

If the insurer sends you a computer printout detailing the benefit information you asked for, instead of filling out the verification form, you can rely on the printout when calculating household income. Be sure to send the verification form even if you know from past experience that the insurer won’t fill it out. The form lets the insurer know what information you need. Also, the insurer isn’t likely to give you any information without a signed statement showing that the household member has agreed to the release of the information to you.

For more information about verifying disability benefits, see “How to Verify Disability Benefits for Annual Income Determinations,” Insider, October 2013.

Situation #3: Household Member Is Unemployed

If you learn that a household member is unemployed, you must find out whether the member gets unemployment compensation. If he does, you must include the compensation as part of the household’s income.

Form required. To verify the income, send a “verification of unemployment benefits” form to the unemployment agency to complete. Ask your state housing agency for a copy of the form you must use. If your state agency doesn’t have such a form, you can adapt our Model Form: Use Form to Verify Unemployment Compensation.

Your verification form, like ours, should ask the unemployment agency for the following information:

• The household member’s weekly benefits;
• The household member’s potential benefits;
• The date the household member’s benefits will end, if known; and
• Whether the household member may be entitled to an extension of his benefits.