Article | Basics 4: "Back to School" - Student StatusFeb 02, 2022
In the first and second articles in our Tax Credit Basics series, we discussed the importance of having a full “toolbox” of regulatory information at our fingertips. This powerfully assists us in effectively managing compliance at tax credit properties. Suggestions were made as to various handbooks and other specific documents to have on hand or on our computers. The third article used one of those tools, the HUD Handbook 4350.3, to gather information on the crucial topic of how income is calculated to determine tax credit eligibility for households. In this article, we will discuss rules relating to students in tax credit housing. This includes both how student status affects eligibility and how student assistance is counted as income. For this discussion, the 8823 Guide, especially Chapters 17, provides a useful explanation of the tax code.
Student Status and Eligibility
Question for your HFA | Do unborn children qualify as non-students?
Note: the IRS has unofficially indicated “yes” at several industry conferences when asked this question, but this is not in writing.
It is also important to realize that the code defines a “full-time” student as a person who attended “full-time” as defined by the school they attend. Also, if they are “full-time” for any part of five months of a calendar year, they are considered students for purposes of the student rules for the rest of the calendar year, even after finishing school. Therefore, a person who was a full-time student as defined by their school from January until May 2nd is considered a student for tax credit purposes until January 1st of the following year.
Exception 1. “Receiving assistance under Title IV of the Social Security Act.”
Questions for HFA | What constitutes the “welfare” exception in your state?
Note: the program that has replaced federal welfare in most states is named after the federal law, Temporary Aid for Needy Families (TANF), but a state may give it a different name.
Exception 2. “Was previously under the care and placement responsibility of the State agency responsible for administering a plan under part B or part E of title IV of the Social Security Act.”
This refers to former foster children or adults. A few states put a limit on how long in the past a foster could have been in the system and qualify. However, the law puts no time restrictions on this, so strictly speaking former foster members are legally non-students for life if the IRS were to monitor compliance in an audit.
Exception 3. “Enrolled in a job training program receiving assistance under the Job Training Partnership Act or under other similar Federal, State or local laws.”
This is not a reference to just any job training program. An examination of its mission statement demonstrates that the Job Training Partnership Act (JTPA) was designed to provide training to help persons who face serious barriers to employment enter the workforce. As the JTPA is no longer in existence, a state may designate what they consider to be “similar” programs. HUD has indicated that Workforce Investment Act programs have replaced JTPA (HUD 4350.3 Exhibit 5-1 16(f)), and so these federally-funded programs clearly qualify. Other state and local programs may as well.
Question for your HFA | Are there any specific state or local programs in the state that have been determined to be JTPA-similar?
The final two exceptions are for households made up “entirely by full-time students if such students are any of the following.” IRS officials have often indicated informally but publicly, that any person or combination of persons who meets the exceptions qualifies a household, even if other members do not. At least the “single parent” section of the IRS sample student form, Exhibit-17-1-student-status-verification - in the 8823 Guide indicates ‘yes”, but opinions on the actual wording of the Code differ. Some HFAs require that, for households meeting the following exceptions, every member must individually meet one of the exceptions.
Exception 4. “Single parents and their children and such parents are not dependents (as defined in IRC §152…) of another individual and such children are not dependents (as so defined) of another individual other than a parent of such children.”
Exception 5. “Married and file a joint return.”
Questions for your HFA | Must married students be “filing” a joint return, or simply be “entitled” to do so? Does one person who is entitled to file a joint return qualify the household, even if there are other non-married household members?
Student Financial Assistance as Income
Other Program Student Rules
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There is a very good chance that the topic of this post is covered in an online on-demand course at Costello University.
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