Article | One "HOT" Topic - HOTMA | Part 4 | Income Redefined

This is the third in a multi-part series discussing the new HUD HOTMA Final Rule.

Note: FAQs 1 - 14 were covered in the earlier articles in this series. 

FAQ 15 | What is the new definition of income?

Answer | Annual household income includes all amounts, not specifically excluded in the HOTMA Rule, received from all sources by each member of the family who is 18 years of age or older or is the head of household or spouse of the head of household, plus unearned income by or on behalf of each dependent who is under 18 years of age. This has remained essentially the same as in the past, although the focus of the regulation is on exclusions to income. 

FAQ 16 | Where is the list of income inclusions?

Answer | As the focus is on what is excluded (see the bolded statement in FAQ 15) and all other income is counted, the new regulation does not list inclusions but rather focuses on the exclusions. 

FAQ 17 | So what has changed?

Answer | The changes mostly surround the exceptions (income that is not counted). Annual income does not include the following:

1. Any imputed income on an asset when net family assets total $50,000 or less and no actual income from the net family assets can be determined [see the last post in this article series for more on this issue].
2. The following types of trust distributions:
   • For an irrevocable trust or a revocable trust outside the control of the family or household excluded from the definition of net family assets, as defined by HOTMA:
     • Distributions of the principal or corpus of the trust; and
     • Distributions of income from the trust when the distributions are used to pay the costs of health and medical care expenses for a minor.
   • For a revocable trust under the control of the family or household, any distributions from the trust; except that any actual income earned by the trust, regardless of whether it is distributed, shall be considered income to the family at the time it is received by the trust.
3. Earned income of children under 18 years of age.
4. Payments received for the care of foster children or foster adults, or State or Tribal kinship or guardianship care payments.
5. Insurance payments and settlements for personal or property losses, including but not limited to payments through health insurance, motor vehicle insurance, and workers’ compensation.
6. Amounts received by the family that are specifically for, or in reimbursement of, the cost of health and medical care expenses for any family member.
7. Any amounts recovered in any civil action or settlement based on a claim of malpractice, negligence, or other breaches of duty owed to a family member arising out of law, that resulted in a member of the family becoming disabled.
8. Income of a live-in aide, foster child, or foster adult as defined in HUD regulations.
9. Student Financial Assistance
   • Any assistance that section 479B of the Higher Education Act of 1965 requires to be excluded from a family’s income; and
   • Student financial assistance for tuition, books, and supplies (including supplies and equipment to support students with learning disabilities or other disabilities), room and board, and other fees required and charged to a student by an institution of higher education (as defined under Section 102 of the Higher Education Act of 1965 and, for a student who is not the head of household or spouse, the reasonable and actual costs of housing while attending the institution of higher education and not residing in an assisted unit.
     • Student financial assistance, for purposes of the above, means a grant or scholarship received from—
       1. The Federal government.
       2. A State, Tribe, or local government.
       3. A private foundation registered as a 501(c) nonprofit.
       4. A business entity (such as a corporation, general partnership, limited liability company, limited partnership, joint venture, business trust, public benefit corporation, or nonprofit entity).
       5. An institution of higher education.
     • Student financial assistance does not include
       1. Any assistance that section 479B of the Higher Education Act of 1965 requires be excluded from a family’s income.
       2. Financial support is provided to the student in the form of a fee for services performed (e.g., a work study or teaching fellowship that 479B of the Higher Education Act of 1965 does not require to be excluded from a family’s income).
       3. Gifts, including gifts from family or friends.
       4. Any amount of the scholarship or grant that, either by itself or in combination with assistance excluded under these rules, exceeds the actual covered costs of the student. The actual covered costs of the student are the actual costs of tuition, books and supplies (including supplies and equipment to support students with learning disabilities or other disabilities), room and board, or other fees required and charged to a student by the education institution, and, for a student who is not the head of household or spouse, the reasonable and actual costs of housing while attending the institution of higher education and not residing in an assisted unit. This calculation is described further in paragraph (b)(9)(ii)(E) of this section.
     • Student financial assistance must be:
       • Expressly for tuition, books, room, and board, or other fees required and charged to a student by the education institution.
       • Expressly to assist a student with the costs of higher education, or
       • Expressly to assist a student who is not the head of household or spouse with the reasonable and actual costs of housing while attending the education institution and not residing in an assisted unit.
     • Student financial assistance may be paid directly to the student or to the educational institution on the student’s behalf. Student financial assistance paid to the student must be verified by the responsible entity as student financial assistance consistent with these rules.
   • When the student is also receiving assistance that 479B of the Higher Education Act of 1965 requires to be excluded from a family’s income, the amount of student financial assistance is determined as follows:
     • If the amount of assistance excluded under 479B of the Higher Education Act of 1965  is equal to or exceeds the actual covered costs listed above, none of the assistance is considered student financial assistance excluded from income under this paragraph (b)(9)(ii)(E).If the amount of assistance excluded under paragraph (b)(9)(i) of this section is less than the actual covered costs under paragraph (b)(9)(ii)(B)(4) of this section, the amount of assistance described in paragraph (b)(9)(ii) of this section that is considered student financial assistance excluded under this paragraph is the lower of:
       • the total amount of student financial assistance received, or
       • the amount by which the actual covered costs exceeds the assistance excluded under the Higher Education Act fo 1965.
10. Income and distributions from any Coverdell education savings account under section 530 of the Internal Revenue Code of 1986 or any qualified tuition program under section 529 of such Code; and income earned by government contributions to, and distributions from, “baby bond” accounts created, authorized, or funded by Federal, State, or local government.
11. The special pay to a family member serving in the Armed Forces who is exposed to hostile fire.
12. 1. Amounts received by a person with a disability that are disregarded for a limited time for purposes of Supplemental Security Income eligibility and benefits because they are set aside for use under a Plan to Attain Self-Sufficiency (PASS).
    2. Amounts received by a participant in other publicly assisted programs which are specifically for or in reimbursement of out-of-pocket expenses incurred (e.g., special equipment, clothing, transportation, child care, etc.) and which are made solely to allow participation in a specific program;
    3. Amounts received under a resident service stipend not to exceed $200 per month. A resident service stipend is a modest amount received by a resident for performing a service for the PHA or owner, on a part-time basis, that enhances the quality of life in the development.
    4. Incremental earnings and benefits resulting to any family member from participation in training programs funded by HUD or in qualifying Federal, State, Tribal, or local employment training programs (including training programs not affiliated with a local government) and training of a family member as resident management staff. Amounts excluded by this provision must be received under employment training programs with clearly defined goals and objectives and are excluded only for the period during which the family member participates in the employment training program unless those amounts are excluded under section 479B of the Higher Education Act of 1965.
13. Reparation payments paid by a foreign government pursuant to claims filed under the laws of that government by persons who were persecuted during the Nazi era.
14. Earned income of dependent full-time students in excess of the dependent deduction.
15. Adoption assistance payments for a child in excess of the amount of the deduction for a dependent.
16. Deferred periodic amounts from Supplemental Security Income and Social Security benefits that are received in a lump sum amount or in prospective monthly amounts, or any deferred Department of Veterans Affairs disability benefits that are received in a lump sum amount or in prospective monthly amounts.
17. Payments related to aid and attendance under VA benefit rules to veterans in need of regular aid and attendance.
18. Amounts received by the family in the form of refunds or rebates under State or local law for property taxes paid on the dwelling unit.
19. Payments made by or authorized by a State Medicaid agency (including through a managed care entity) or other State or Federal agency to a family to enable a family member who has a disability to reside in the family’s assisted unit. Authorized payments may include payments to a member of the assisted family through the State Medicaid agency (including through a managed care entity) or other State or Federal agency for caregiving services the family member provides to enable a family member who has a disability to reside in the family’s assisted unit.
20. Loan proceeds (the net amount disbursed by a lender to or on behalf of a borrower, under the terms of a loan agreement) received by the family or a third party (e.g., proceeds received by the family from a private loan to enable attendance at an educational institution or to finance the purchase of a car).
21. Payments received by Tribal members as a result of claims relating to the mismanagement of assets held in trust by the United States, to the extent such payments are also excluded from gross income under the Internal Revenue Code or other Federal law.
22. Amounts that HUD is required by Federal statute to exclude from consideration as income for purposes of determining eligibility or benefits under a category of assistance programs that includes assistance under any program to which the exclusions in this section apply. HUD will publish a notice in the Federal Register to identify the benefits that qualify for this exclusion. Updates will be published when necessary. As this list is not included in the regulation, feel free to check out HUD's most recent list, included in #17, provided as a document with this blog post HERE. Note that some of the provisions have changed with HOTMA, most notably, student financial assistance.
23. Replacement housing “gap” payments made in accordance with the Uniform Relocation Act that offset increased out-of-pocket costs of displaced persons that move from one federally subsidized housing unit to another Federally subsidized housing unit. Such replacement housing “gap” payments are not excluded from annual income if the increased cost of rent and utilities is subsequently reduced or eliminated, and the displaced person retains or continues to receive the replacement housing “gap” payments.
24. Nonrecurring income, which is income that will not be repeated in the coming year based on information provided by the family. Income received as an independent contractor, day laborer, or seasonal worker is not excluded from income under this paragraph, even if the source, date, or amount of the income varies. Nonrecurring income includes:
    1. Payments from the U.S. Census Bureau for employment (relating to the decennial census or the American Community Survey) lasting no longer than 180 days and not culminating in permanent employment.
    2. Direct Federal or State payments intended for economic stimulus or recovery.
    3. Amounts directly received by the family as a result of State refundable tax credits or State tax refunds at the time they are received.
    4. Amounts directly received by the family as a result of Federal refundable tax credits and Federal tax refunds at the time they are received.
    5. Gifts for holidays, birthdays, or other significant life events or milestones (e.g., wedding gifts, baby showers, anniversaries).
    6. Non-monetary, in-kind donations, such as food, clothing, or toiletries, received from a food bank or similar organization.
    7. Lump-sum additions to net family assets, including but not limited to lottery or other contest winnings.
25. Civil rights settlements or judgments, including settlements or judgments for back pay.
26. Income received from any account under a retirement plan recognized as such by the Internal Revenue Service, including individual retirement arrangements (IRAs), employer retirement plans, and retirement plans for self-employed individuals; except that any distribution of periodic payments from such accounts shall be income at the time they are received by the family.
27. Income earned on amounts placed in a family’s Family Self Sufficiency Account.
28. Gross income a family member receives through self-employment or operation of a business; except that the following shall be considered income to a family member:
    1. Net income from the operation of a business or profession. Expenditures for business expansion or amortization of capital indebtedness shall not be used as deductions in determining net income. An allowance for depreciation of assets used in a business or profession may be deducted, based on straight-line depreciation, as provided in Internal Revenue Service regulations; and
    2. Any withdrawal of cash or assets from the operation of a business or profession will be included in income, except to the extent the withdrawal is reimbursement of cash or assets invested in the operation by the family.

FAQ 18 | That is a lot! I want to focus on the changes. What has stayed the same?

Answer | Please note that this list may not be all-inclusive. Whether some were formerly covered in the regulation may be debatable. For instance, older provisions may be rearranged and embedded in new sections.

Earned income of children under 18 years of age (#2 above) continues to be an exemption. Payments for the care of Fosters (3) are excluded, as before, but clarifications that this includes kinship arrangements has been added. Also, HOTMA continues to exclude amounts received by the family that are specifically for, or in reimbursement of, the cost of health and medical care expenses for any household member (6). The income of a live-in assistant (8) continues to be excluded, but notice that the way we treat income from foster children and adults has changed in that same provision. Military hostile fire pay (11) has not changed, and neither has the resident service stipend (12(3)). Both the earned income of adult dependent full-time students (14) and adoption assistance payments (15) that are in excess of the dependent deduction continue to be excluded, although the old $480 amount of the dependent deduction will change after HOTMA's first year. Deferred social security and VA benefits (16) also continue to be excluded. Details have been added, but the underlying provision excludes amounts received to enable a family member who has a disability to reside in the family’s assisted unit (19). Amounts excluded by federal law is a list that is not provided in the HOTMA regulation, but the actual exclusions will be the same as is currently true and change with changes of law (22). Under the new category "Nonrecurring income" (24) gifts (5) and lump-sum additions to assets (7) also are still excluded.  

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