AJJCS
Products News Help
Client Sign In

HOTMA Changes to Deductions and Expenses for HUD Properties

person A.J. Johnson today 11/11/2023

Introduction

The U.S. Department of Housing and Urban Development (HUD) has released Notice H 2013-10, which expands upon the Final Rule for implementing the Housing Opportunity Through Modernization Act (HOTMA). The publication of this guidance in September 2023 outlined a number of changes to the rules relating to HUD-permitted deductions and expenses.

Owners of HUD-assisted projects that determine rent based on adjusted income must consider mandatory deductions when determining a family’s annual adjusted income. Public Housing Agencies (PHAs) may also consider additional deductions to a family’s annual income if established by a written policy in the PHA’s Admissions or Continued Occupancy Policy (ACOP) or Administrative Plan.

Dependent Deduction

Effective January 1, 2024, the dependent deduction amount is - as it has been - $480. This amount will be adjusted annually, beginning in 2025, and applies to a family’s next annual or interim reexamination after the annual adjustment, whichever is sooner. Not later than September 1 of each year, HUD will publish an adjusted dependent deduction on its website. PHAs and owners will be required to implement the adjusted dependent deduction for all income reexaminations that are effective January 1 or later.

Elderly/Disabled Family Deduction

Effective January 1, 2024, the elderly/disabled family deduction increases from $400 to $525 and applies to a family’s next annual or interim reexamination, whichever is sooner. This deduction will also be adjusted annually based on an inflation factor.

Health & Medical/Disability Related Expenses

In one of the most controversial changes to the current rules, the HOTMA final rule establishes that the sum of unreimbursed health and medical care and reasonable attendant care and auxiliary expenses that exceed 10 percent of the family’s annual income can be deducted from annual income. The current threshold is 3 percent of annual income. This rule applies only to elderly or disabled families.

In order to claim the deduction for disability-related costs, the family must include a person with a disability, and the expenses must enable any member of the family (including the disabled member) to be employed.

Hardship Exemptions for Medical and Disability-Related Expenses

HUD received many comments on the proposed rule relating to hardship exemptions for unreimbursed health and medical care, attendant care, auxiliary apparatus expenses, and childcare expenses. The final rule has been revised to provide clarity to these exemptions and ease burdens on families experiencing financial hardship.

Medical/Disability Expenses

Current regulations permit the deduction of medical expenses from annual income for elderly households if the expenses (1) will not be reimbursed by insurance or another source; and (2) when combined with any disability assistance expenses are in excess of three percent of annual income.

  • The new regulation does not permit the deduction until the medical expenses exceed 10 percent of gross income.
  • This will clearly have a negative impact on many elderly/disabled households. To help ease this burden, the final rule provides two types of hardship exemptions to the ten percent threshold for health and medical care expenses (for elderly and disabled families) and reasonable attendant care and auxiliary apparatus expenses (for families that include a person with disabilities).
  • The first category ("phased in relief") is for families eligible for and taking the unreimbursed health and medical care expenses and reasonable attendant care and auxiliary apparatus expenses deduction in effect prior to this rule (i.e., the 3% rule).
  • The second category ("general relief") is for families that can demonstrate that the family’s health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses increased, or the family’s financial hardship is a result of a change in circumstances that would not otherwise trigger an interim reexamination.
    • HUD is adding this second category in the final rule in recognition that the change from the three percent threshold to the new ten percent threshold for unreimbursed health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses may result in financial hardship for families, including those families who were not receiving the deduction or may not even have been receiving housing assistance at the time the final rule goes into effect.
    • These families may receive temporary hardship relief if their health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses exceed five percent of the family’s income.
  • Under the first category (families taking the deduction based on the three percent rule), owners must deduct eligible expenses exceeding five percent of the family’s income for the first year, 7.5% for the second year, and 10% for the third year. It should be noted that the term "year" refers to the certification year - not the calendar year.
  • Under the second category, a family may qualify for hardship exemptions for health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses if the family can demonstrate that the expenses increased, or the family’s financial hardship is a result of a change in circumstances (as determined by the project owner).
    • For these families, the deduction will be for expenses in excess of five percent of family income for up to 90 days.
  • This may be extended for additional 90-day periods at the discretion of the owner, based on family circumstances.
    • Owners may also terminate the hardship exemption if it is determined that the family no longer needs the exemption.
  • Examples of circumstances constituting a financial hardship may include the following situations:
    •  The family is awaiting an eligibility determination for a federal, state, or local assistance program, such as a determination for unemployment compensation or disability benefits; The family’s income decreased because of a loss of employment, the
    death of a family member, or due to a natural or federal/state-declared
    • disaster; or
    •  Other circumstances as determined by the PHA/MFH Owner.

In some circumstances, families receiving the deduction under the first category may request relief under the second category of hardship relief.

  • During the second year of transition, the owner deducts expenses exceeding 7.5 percent of family income if relief is being obtained under the first category.
  • If the family can demonstrate that the health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses increased or the family’s financial hardship is a result of a change in circumstances, and not just due to the transition to the 7.5% threshold, the family may be granted relief under the second category.
  • In this case, expenses exceeding five percent of the family income will be deducted (instead of 7.5%). However, this relief will last only for 90 days (unless extended by the owner), and the family is no longer eligible for relief under the first category.
    • In other words, at the end of the relief period for the second category, the family will be subject to the regular health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses deduction threshold of ten percent, regardless of whether they fully transitioned to the ten percent threshold under the first category.

Child Care Expense Deduction

HUD regulations permit the deduction from annual income of any reasonable child-care expenses necessary to enable a family member to work or further their education. The expenses must be unreimbursed and must be for the care of a child age 12 and younger.

Childcare Deduction Hardship Relief

Under the final rule, property owners may extend a deduction for unreimbursed childcare expenses for 90 days, with extensions for additional 90-day periods if the family can demonstrate that they are unable to pay their rent due to loss of the childcare expense deduction, and the childcare expense is still necessary even though the family member is no longer employed or furthering his or her education. The following example illustrates how this relief could work:

  • A family that was claiming the childcare deduction no longer qualifies because the care is no longer necessary to enable a family member to work or go to school.
  • The family member who was employed had to leave their job in order to provide uncompensated care to an elderly friend who is very ill and lives across town.
  • The family may continue to claim the childcare deduction for 90 days, with 90-day extensions as approved by the owner.

Hardship Policy Requirements

Owners must establish policies on how they define what constitutes a hardship. Some factors to consider when determining if a family is unable to pay rent may include a determination that the rent, utility payment, and applicable expenses (child care or health/disability expenses) are more than 45 percent (for example) of the family’s adjusted income, or verifying whether the family has experienced unexpected expenses, such as large medical bills, that have impacted their ability to pay rent.

Owners are required to notify families of either approval or denial of hardship exemptions. Notices of hardship exemption approval must inform the family of the dates that the exemption will begin and expire and the requirement for the family to report if the circumstances that made the family eligible for relief are no longer applicable. Owners of hardship exemption denial must state the reason for the denial.

The 90-Day Extensions

Owners may extend hardship relief for as many 90-day periods as the hardship continues to affect the family. Policies for extensions of relief must be included in PHA Administrative Plans and Owner Tenant Selection Plans.

Owners must obtain third-party verification of the family’s inability to pay rent or must document in the file the reason that third-party verification was not available. Owners must attempt to obtain third-party verification prior to the end of the 90-day period.

In conclusion, the adjustments to HUD regulations as delineated in Notice H 2013-10 reflect a concerted effort to modernize and improve the process of determining adjusted income for HUD-assisted families. While the increase in the threshold for medical and disability deductions may initially pose challenges for elderly and disabled households, the provision of phased and general hardship exemptions showcases HUD's commitment to a compassionate transition. The annual adjustments to dependent and elderly/disabled family deductions, along with the specific provisions for hardship exemptions, are designed to ensure that the most vulnerable populations continue to receive the support they need. By establishing clear guidelines and relief procedures, HUD aims to provide equitable opportunities for housing while addressing the complexities of financial hardship. As these changes roll out, it will be crucial for public housing agencies, owners, and families to stay informed and engaged with the evolving landscape of housing assistance to navigate these changes successfully.

Latest Articles

A. J. Johnson to Provide Live Webinar on Assistance Animals in Multifamily Housing

A. J. Johnson will be conducting a one-hour webinar on January 24, 2024, on Assistance Animals in Multifamily Housing - Avoiding Fair Housing Violations. The Webinar will begin at 1:00 PM Eastern Time. Understanding Fair Housing Law concerning assistance animals is crucial for several reasons: Fair housing law ensures that individuals with disabilities have equal access to housing, preventing discrimination. Assistance animals are not pets but are necessary for the well-being of their owners. Landlords and housing providers must comply with these laws to avoid legal repercussions. Ignorance of the law is not a defense. The law clarifies the obligations of housing providers to make reasonable accommodations for assistance animals, even in pet-free housing. It promotes awareness and sensitivity towards the needs of individuals with disabilities, fostering a more inclusive and supportive community. Understanding these laws helps prevent misuse of the system by those who do not genuinely require assistance animals, ensuring resources and accommodations are available for those who truly need them. This one-hour live webinar will provide the information necessary for owners to comply with this complex area of fair housing law. It will cover the difference between service and support animals, how to verify the need for an assistance animal (including a detailed discussion of the "online verification services), and what types of animals are acceptable as assistance animals. There will be plenty of time for Q&A and at the end of the session, attendees will be more confident when dealing with requests for assistance animals. Those interested in participating in the Webinar may register on the A. J. Johnson Consulting Services website (www.ajjcs.net) under "Training.

Read full story

HUD HOTMA Rules Update Verification Requirements

Introduction The U.S. Department of Housing and Urban Development (HUD) has released Notice H 2013-10, which expands upon the Final Rule for implementing the Housing Opportunity Through Modernization Act (HOTMA). This final rule makes some changes to the way managers of HUD-assisted housing will verify eligibility-related information for HUD-assisted properties. Consent to Release Forms The final HOTMA rule changes the requirements relating to the signing of Authorization for Release of Information (Forms HUD-9886/9887). Under the final rule, all applicants age 18 and over must sign the consent form at admission and participants must sign the consent form no later than their next interim or regularly scheduled income reexamination. After an applicant or participant has signed and submitted a consent form on or after January 1, 2024, they do not need to sign and submit subsequent consent forms at the next interim or regularly scheduled income reexamination except under the following circumstances: When any person 18 years or older becomes a member of the family; When a member of the family turns 18 years of age; and As required by HUD or the PHA in administrative instructions. Executed consent forms will remain effective until the family is denied assistance, the assistance is terminated, or if the family provides written notification to the owner revoking consent. If a family leaves a HUD program, the assistance is terminated, and the signed consent forms will no longer be in effect. HUD is updating the form HUD-9886-A and 9887 to conform to the final rule. EIV Use The regulation reminds owners the EIV must be used to verify tenant employment and income at annual and streamlined reexaminations of family composition and income. However, Owners are no longer required to use EIV to verify tenant employment and income information during an interim reexamination. Owners have the discretion to use EIV reports at interim reexaminations, but such a policy must be stated in written EIV Policies & Procedures. Determination of Income Using Other Means-Tested Public Assistance (i.e., "Safe Harbor ) Owners may determine a family s annual income, including income from assets, before the application of any deductions based on income determinations made within the previous 12-month period, using income determinations from the following types of means-tested federal public assistance programs: Temporary Assistance for Needy Families ("TANF ); Medicaid; Supplemental Nutrition Assistance Program ("SNAP ); The Earned Income Tax Credit; The Low Income Housing Tax Credit; Special Supplemental Nutrition Program for Women, Infants, and Children; Supplemental Security Income (SSI); Other HUD-administered programs; Other means-tested forms of federal public assistance for which HUD has established a memorandum of understanding; and Other federal benefit determinations made by other means-tested federal programs that HUD determines to have comparable reliability and announces through a Federal Register notice. All means-tested verifications must utilize third-party verification. HUD clarifies in this notice that the verification will be considered acceptable if the documentation meets the criteria that the income determination was made within the 12 months before the receipt of the verification by the Owner. The safe harbor documentation will be considered acceptable if any of the following dates fall into the 12 months prior to the receipt of the documentation by the Owner: Income determination effective date; Program administrator s signature date; Family s signature date; Report effective date; or Other report-specific dates that verify the income determination date. Safe harbor verifications may only be used to determine gross annual income - not adjusted income. Verification Hierarchy HUD has developed a hierarchy that describes verification documentation from most acceptable to least acceptable, as follows: Upfront Income Verification (UIV), using HUD s EIV system; Upfront Income Verification using a non-EIV system (e.g., The Work Number, web-based state benefits, etc.); Written, third-party verification from the source, also known as "tenant-provided verification or EIV plus Self-Certification. Owners must use written, third-party verification when the income type is not available in EIV (e.g., self-employment, GoFundMe accounts, general public assistance, VA benefits, etc.); Examples are pay stubs, payroll summary reports, employer hire letters, SSA benefit letters, bank statements, child support payment stubs, welfare benefit letters, and unemployment monetary benefit notices. When pay stubs are used, a minimum of two consecutive pay stubs are required. However, for new income sources or when two pay stubs are not available, traditional, third-party verification or the best available information should be used. When verification of assets is required, owners are required to obtain a minimum of one statement that reflects the current balance of banking/financial accounts. Note that a six-month average balance for checking accounts is no longer required Written, third-party verification form directly from the income source; Oral Third-Party Verification; and Self-certification (not third-party verification). Owners and property managers should note that these requirements apply only to HUD projects. The Rural Development Service (RD) and Housing Finance Agencies (HFAs) have complete discretion concerning verification requirements and the procedures outlined here may not be acceptable to those agencies.

Read full story

HOTMA Makes Significant Changes to the Handling of Interim Reexaminations at HUD Properties

Introduction The U.S. Department of Housing and Urban Development (HUD) has released Notice H 2013-10, which expands upon the Final Rule for implementing the Housing Opportunity Through Modernization Act (HOTMA). This final rule makes significant changes to the way managers of HUD-assisted housing will process interim reexaminations. Basics of the Rule Change A family may request an interim determination of family income or composition because of any changes since the last determination. Project owners must conduct interims within a reasonable period of time after the family request or when the Owner becomes aware of a change in the family s adjusted income that must be processed in accordance with the final rule. While owners have some discretion in determining a "reasonable time, interim reexaminations should generally be conducted no more than 30 days after the owner becomes aware of the changes. Decreases in Adjusted Income A family may request an interim determination of income for any change in income or family composition. However, the owner may decline to conduct an interim if the owner estimates that the adjusted income will decrease by less than 10 percent of the annual adjusted income. If owners select a threshold lower than 10 percent, the lower percentage threshold must be included in the ACOP, Administrative Plan, or Tenant Selection Plan, as applicable. HUD has made some exceptions to the 10 percent threshold and applies a zero percent threshold in certain circumstances: (1) If there is a decrease in family size due to the death or permanent move-out from the assisted unit of a family member during the period since the family s last reexamination that results in a decrease in adjusted income of any amount. If there is no change in adjusted income as a result of the decrease in family size, then a non-interim transaction is processed instead of an interim reexamination. This zero percent threshold applies only to decreases in adjusted income due to a decrease in family size. If the move-out of the family member results in an increase in annual adjusted income, the owner will process the removal of the member as a non-interim transaction without making changes to the family s annual adjusted income. Owners are not permitted to establish a dollar-figure threshold amount instead of a percentage threshold. Owners may establish policies to round calculated percentage decreases up or down to the nearest unit (e.g., a calculated decrease of 9.5% may be rounded up to 10%). Increases in Adjusted Income Owners must conduct an interim reexamination of family income when the family s adjusted income increases by 10 percent or more, with the following exceptions: (1) owners may not consider any increases in earned income when determining whether to conduct an interim unless the family has previously received an interim reduction during the same reexamination cycle, and (2) owners may choose not to conduct an interim reexamination during the last three months of a certification period if a family reports an increase in income with three months of the next annual reexamination effective date. Note: Families who delay reporting income increases until the last three months of their certification period may be subject to retroactive rent increases. Owners may not establish a policy of conducting interim reexaminations for increases in annual adjusted income of less than 10 percent. When a family previously received an interim reexamination for a decrease in annual adjusted income during the same annual cycle, an owner has the discretion to consider or ignore a subsequent increase in earned income for the purpose of conducting an interim reexamination. When an increase in income of any size is reported by a family, it is a recommended best practice for the owner to note the reported increase in the tenant file. If a series of smaller reported increases in adjusted income result in a cumulative increase of 10 percent or more, an interim reexamination is required. Bottom Line Project owners must process interim reexaminations of family income or composition if there's a significant change since the last check. The interim should be done within 30 days of becoming aware of the change. Decreases in income warrant an interim if over 10%, with certain exceptions allowing a 0% threshold. For increases, an interim is required for a 10% rise in adjusted income unless a reduction has occurred in the same cycle. Owners should document all reported income changes, and cumulatively, a 10% increase triggers an interim reexamination.

Read full story

A. J. Johnson to Host Live Webinar on Interviewing Skills for Affordable Housing Managers

A. J. Johnson will be conducting a webinar on December 6, 2023, on Interviewing Skills for Affordable Housing Managers.  The Webinar will be held from 1:00 PM to 4:00 PM Eastern time. One of the most important skills any affordable housing manager can possess is the ability to interview applicants and residents and obtain the information required to determine eligibility - this is also one of the greatest weaknesses of most affordable housing managers. This training has been developed to address that weakness. This three-hour session focuses on the interview process and provides concepts and tools that will aid managers as they conduct their interviews. Techniques apply to all interview settings including initial eligibility interviews, interim certifications, and annual recertifications. The primary emphasis is on the initial eligibility interview since it is so critical to the housing process. The skills taught during this session will also assist managers in detecting fraud and dealing with third parties when resolving discrepancies. Those interested in participating in the Webinar may register on the A. J. Johnson Consulting Services website (www.ajjcs.net) under "Training Schedule.

Read full story

Want news delivered to your inbox?

Subscribe to our news articles to stay up to date.

We care about the protection of your data. Read our Privacy Policy.