Calculating Income When There is a Combination of Employment & Unemployment
Managers of affordable housing properties are often unsure of how to calculate an applicant’s income when it is expected that the applicant will receive income from both employment and unemployment.
Information contained in HUD Handbook 4350.3, Change 3 provides guidance on how such calculations should be made. Ironically, much of the confusion on this issue is also the result of guidance in the same Handbook. Paragraph 5-5.A.1 states “Income that may not last for a full 12 months (e.g., unemployment compensation), should be calculated assuming current circumstances will last a full 12 months.” Based on this language, many managers believe that no matter what, unemployment compensation must be annualized. However, that is only the case when there is no indication that the present circumstances of the household (i.e., the unemployment), will change. Paragraph 5-5.A.2. indicates that if changes are expected during the year, that information should be used to determine the total anticipated income for the year. The handbook goes on to show various examples of how such a calculation would be accomplished. Following is an example (not in the Handbook) that may assist managers in their understanding of how to do this calculation:
>An applicant is currently receiving unemployment compensation of $300 per week, and based on the award letter in from the Department of Labor, ten weeks of benefits remain. Normally, this income would be calculated based on a full year, or $300 times 52 weeks for a total income of $15,600. However, this applicant has a job offer for a job that will start in the third week after move-in, paying $500 per week. So, in this case, unemployment will only be received for two weeks after move-in, at which point employment income will begin. Based on this, the proper calculation of income is as follows:
*Unemployment: $300 times two weeks = $600;
*Employment: $500 times 50 weeks = $25,000;
*$25,000 plus $600 = $25,600.
$25,600 is the anticipated income for the upcoming year and is the amount that should be shown on the certification.
While the method outlined here should be used in all cases for tax credit properties, properties with HUD or Rural Development rental assistance have an option. Those properties may use the method shown here, or annualize the unemployment compensation for a full year, and then perform an interim recertification when the household circumstances change. Even for these properties however, the first method shown is preferred, since it eliminates the need for an interim.