Is Area Median Income (AMI) Before or After Taxes?
Learn if Area Median Income (AMI) uses gross or net income and how to accurately compare your earnings for eligibility.
Area Median Income (AMI) serves as a financial benchmark in programs addressing housing affordability and assistance. Many individuals wonder if AMI calculations use gross income (before taxes) or net income (after taxes and deductions). Understanding this distinction and other key aspects of AMI helps individuals determine eligibility for support.
Understanding Area Median Income (AMI)
Area Median Income (AMI) represents the midpoint of income for a specific metropolitan area or non-metropolitan county, adjusted for different household sizes. The Department of Housing and Urban Development (HUD) annually determines these figures using data from sources like the U.S. Census Bureau’s American Community Survey (ACS) and other economic indicators.
AMI establishes eligibility for federal, state, and local programs, including affordable housing initiatives, rental assistance, and grants. Programs like the Housing Choice Voucher program and Low-Income Housing Tax Credit (LIHTC) properties use AMI to set income limits for residents. This allows agencies and housing providers to identify households that qualify for assistance based on their financial need relative to their local area.
Income Considered for AMI
The income used for AMI calculations is gross income. This means income is considered before any deductions, including federal, state, and local income taxes, and common payroll deductions like 401(k) contributions, health insurance premiums, and Social Security and Medicare taxes.
For AMI purposes, various types of income are included in the gross income calculation. These encompass wages and salaries, self-employment income, Social Security benefits, disability payments, pensions, and unemployment benefits. Regular contributions from other sources, such as recurring gifts or alimony, are also included. While most income sources are counted, certain specific types are excluded, such as some student financial aid, foster care payments, and specific non-recurring income or program-specific benefits.
Comparing Your Income to AMI
To determine eligibility for programs using AMI, individuals calculate their gross income for comparison against published AMI figures. For employed individuals, W-2 forms are useful. Box 1, “Wages, tips, other compensation,” reflects total taxable wages before most pre-tax deductions. Pay stubs also indicate gross pay before deductions.
Self-employed individuals calculate gross income using IRS Schedule C, “Profit or Loss from Business.” The “Income” section of Schedule C reports gross income from business activities before expenses. While gross income is the principle, programs may have variations in their specific income definitions. Some programs might start with adjusted gross income (AGI) from tax returns but require certain deductions to be added back. Always consult the specific program’s guidelines for accurate self-assessment.