Disability Payments- Calculating & Verifying Income

Some applicants and residents of affordable housing properties receive disability payments. These payments may be short-term (temporary) or long-term. Disability payments are intended to offset a reduction in wages for individuals who cannot work due to illness or injury.

According to HUD regulations, the full amount of disability payments must be counted as income (HUD Handbook 4350.3, Exhibit 5-1). There may be no deduction for any premiums or payroll deductions that the household member may have made toward the cost of the insurance.

Lump sum payments are generally considered assets. This may not be the case in the event of a lump sum disability payment. HUD 4350.3, par. 5-6(Q)(4) states “lump sum payments caused by delays in processing periodic payments for unemployment or welfare assistance are included as income.” HUD specifically excludes lump sum payments due to deferred periodic payments for SSI or social security, but since the HUD language noted above only mentions unemployment or welfare, it is not clear that processing delays for disability should be counted as income. Due to this lack of clarity, I recommend discussing this with your Contract Administrator or HFA before deciding whether to count the lump sum payment as an asset or income.

With regard to short-term disability, which may last less than a year, the HUD guidance found at 4350.3, par. 5-5(A)(1) should be followed. This requires that income that may terminate be annualized, as if it will last the entire year. If the disability actually does end before the end of the 12-month certification year, for properties where the family’s rent is based on income, an interim recertification may be conducted.

Verification of Disability Payments

While checks or automatic bank deposit records will show the amount of disability that is being received, such verifications may not show the gross amount of the benefit. For this reason, a written verification of the disability payment from the insurer or agency that makes the payments is a better form of verification. A copy of the household member’s disability benefit notification letter from the insurer or agency is also acceptable.

Finally, HUD and Rural Development managers should remember that the cost of disability insurance is not an allowable medical expense. This insurance does not cover medical care or pay for medical expenses. The premiums also are not permitted for purposes of a disability assistance deduction.