Does HUD Use Gross or Net Income to Calculate Rent?

The U.S. Department of Housing and Urban Development (HUD) employs a precise methodology to determine a household’s financial capacity for its housing assistance programs. This calculation is fundamental for establishing eligibility and setting the amount of rent participants are required to pay. The process is not a straightforward application of gross or net income as commonly understood in personal finance. Instead, it involves a detailed assessment that considers various income sources, specific exclusions, and allowable deductions.

HUD’s Approach to Income

HUD utilizes two primary income definitions to manage its housing assistance programs: Annual Income and Adjusted Annual Income. Annual Income represents the anticipated total income from all sources for all household members over a 12-month period. While this initial calculation begins broadly, it is not a pure “gross” income because certain types of income are specifically excluded by regulation.

From this Annual Income, specific deductions are applied to arrive at the Adjusted Annual Income. This Adjusted Annual Income is the final figure used to determine a household’s eligibility for assistance and to calculate their portion of the rent. HUD’s approach is a hybrid model, combining a comprehensive income assessment with mandated exclusions and deductions.

Income Included in Annual Income

HUD’s determination of Annual Income includes a wide array of financial receipts. This includes the full amount of wages, salaries, tips, commissions, and bonuses before any payroll deductions are made. For individuals operating a business, net income (gross receipts minus ordinary and necessary business expenses, including depreciation) is included.

Regular periodic payments such as Social Security benefits, Supplemental Security Income (SSI), disability payments, unemployment compensation, and welfare assistance are also counted. Recurring lottery winnings, pensions, annuities, and income from investments like interest and dividends are included. Regular contributions or gifts from outside the household are counted. Child support and alimony payments received by household members also contribute to Annual Income. If a household’s net family assets exceed $50,000, the greater of the actual income derived from these assets or an imputed income based on HUD’s published passbook savings rate is included.

Income Excluded from Annual Income

While many income sources are included, HUD specifically excludes certain types of income from the Annual Income calculation. Income earned by children under 18 is excluded. Foster care payments are also not included in the calculation.

Lump-sum additions to family assets, such as inheritances, one-time insurance payments, or capital gains from property sales, are excluded. The income of a live-in aide is not counted towards the household’s income. Certain student financial aid, specific deferred periodic payments from Social Security or SSI benefits, and refunds from federal programs like the Earned Income Tax Credit are also excluded. Payments received specifically for or in reimbursement of medical expenses for any family member are not considered income. Temporary, non-recurring, or sporadic income, including gifts, are also excluded.

Calculating Adjusted Annual Income

After determining Annual Income, specific deductions are applied to arrive at the Adjusted Annual Income. One common deduction is the dependent deduction, which is $480 for each dependent. A dependent is defined as a person under 18, a full-time student, or a person with a disability who is not the head of household or spouse. This amount is subject to annual adjustments by HUD.

Households with an elderly or disabled member may qualify for an additional deduction. If the head, spouse, or co-head of the household is at least 62 years old or is disabled, a deduction of $525 is applied to their Annual Income. This deduction is also adjusted annually. For elderly or disabled families, unreimbursed medical expenses that exceed 10% of their Annual Income can be deducted.

Unreimbursed childcare expenses are deductible if necessary to enable a family member to work, seek employment, or further their education. The amount deducted is capped by employment income if care enables employment. These deductions directly reduce the Annual Income, resulting in the Adjusted Annual Income figure.

Income Reporting and Verification

Program participants have specific responsibilities regarding income reporting and verification to housing authorities. Households are typically required to report their income and household composition annually through a process known as recertification. This annual process usually begins with a notification. Beyond annual recertification, participants must also report significant changes in income or household composition on an interim basis.

Reporting methods include completing specific forms provided by the housing authority or utilizing online portals. To ensure accuracy, housing authorities verify reported information through various means, with the consent of the household. A primary tool for this is HUD’s Enterprise Income Verification (EIV) system, a web-based system that provides access to employment and income data. EIV obtains wage and unemployment compensation data from the U.S. Department of Health and Human Services (HHS) and Social Security and Supplemental Security Income (SSI) data from the Social Security Administration (SSA). The EIV system is used to confirm reported income sources and amounts, detect unreported income, and ensure participants are not receiving assistance from multiple HUD programs.