How to Calculate Correct Income for Adults and Dependents

How you calculate the income of a low-income household member depends on whether that member is an “adult” or a “dependent,” as defined by HUD. But the difference between the two isn’t as obvious as you might think. The HUD Handbook specifically defines these terms, and you must follow those definitions.

We’ll tell you what the HUD Handbook says about who’s considered an adult and a dependent when it comes to certifying and recertifying household income. And we’ll tell you how to calculate the incomes of both types of household members correctly. This will help you avoid costly certification mistakes that could put the owner’s tax credits at risk.

Adults

A person qualifies as an adult household member if he’s:

• 18 or older and not disabled or a full-time student; or
• An “emancipated minor.”

An emancipated minor is a person who’s under age 18 but is allowed to lease a low-income unit under your state or local landlord-tenant law. In most states, minors don’t have the capacity to enter into contracts until they reach the age of majority, usually 18 years of age or older. However, this doesn’t mean that minors may not make contracts at all. Rather, the law is designed to protect minors by discouraging other parties from entering into contracts with them. Accordingly, contracts with minors may or may not be binding, depending on the circumstances.

Typically, contracts with minors are “voidable” at the option of the minor, but binding on the adult. This generally means that minors can back out of their contracts with other parties, but the other parties are bound by those agreements. However, there are certain exceptions. Since certain transactions provide significant benefits to minors, the law considers those transactions to be binding on them. Typical exceptions to a minor’s right to avoid his contract obligations include:

• Contracts for necessities such as food, lodging, and medical services; and
• Statutory exceptions including insurance contracts and student loans.

Most people would agree that housing is a necessity, but minors often evade lease responsibilities by claiming that they were runaways when they signed the leases. Since they had the option of returning to the homes and support of their parents, housing wasn’t a necessity for them. Many courts have dismissed lawsuits for back rent and damage to units when presented with this argument.

However, courts also hold minors legally responsible if they’re “emancipated.” Emancipated minors are minors who are legally treated the same as adults. Once emancipated, the minor may enter into any contract as an adult. The circumstances in which minors can become emancipated vary from state to state. Emancipated minors include those who are:

• Legally married;
• Serving in the armed forces; or
• Legally emancipated through the courts.

What to count. Count all income (earned and unearned) of your adult household members—even the income of any members who are temporarily absent from your site.

In situations involving emancipated minors, be sure to include the income of minor heads, co-heads, or spouses in household income [HUD Handbook 4350.3, par. 5-6(A)(2)]. This is an exception to HUD’s usual policy that the earned income of household members under the age of 18 isn’t counted in household income. However, in some instances, households may include emancipated minors who aren’t the head, co-head, or a spouse of either. In these cases, the ordinary rule applies. The earned income of dependent emancipated minors isn’t counted in household income [Handbook 4350.3, par. 5-6(A)(2)].

Exception: If a household member is temporarily absent because she’s on active military duty, and she’s not the head, co-head, or spouse, you mustn’t count her income [HUD Handbook 4350.3, par. 5-6(B)(3)].

If a household member gets permanently confined to a hospital or rehab center, the household must tell you whether it wants you to continue counting the confined person as a household member. As long as you count that person as a member, you must include his income [HUD Handbook 4350.3, par. 5-6(D)(1).

If a household’s head, co-head, or spouse gets permanently confined, that person can no longer be named as the head, co-head, or spouse, even if you continue counting that person as a household member [ HUD Handbook 4350.3, par. 5-6(D)(1)].

Dependents

HUD defines “dependents” as household members who aren’t the head, co-head, or spouse [Handbook 4350.3, par. 5-6(A)(3)], and who are:

• Under 18 years old;
• 18 or older and disabled; or
• 18 or older and full-time students.

What to count. Some income received on behalf of household dependents is counted and some isn’t. Earned income of minors (household members under 18) isn’t counted [HUD Handbook 4350.2, par. 5-6(A)(3)(a)]. Benefits or other unearned income of minors is counted. Count the unearned income (for instance, income from assets) of your dependent household members, following the Handbook’s rules. But don’t count any earned income that dependents make.

Exception: Although full-time students who are 18 years of age or older are considered as dependents, a small amount of their earned income will be counted. Count only earned income up to a maximum of $480 per year for full-time students, age 18 or older, who are not the head of the household or spouse or co-head [HUD Handbook 4350.3, par. 5-6(A)(3)(d)]. If the income is less than $480 annually, count all the income. If the annual income exceeds $480, count $480 and exclude the amount that exceeds $480.

The income of full-time students 18 years of age or older who are members of the household but away at school is counted the same as the income for other full-time students [HUD Handbook 4350.3, par. 5-6(a)(3)(e)]. The income of minors who are members of the household but away at school is counted as the income for other minors [HUD Handbook 4350.3, par. 5-6(A)(3)(e)].

All income of a full-time student, 18 years of age or older, is counted if that person is the head of the household, spouse, or co-head [HUD Handbook 4350.3, par. 5-6(A)(3)(f)].

It’s also important to note that when more than one household member shares custody of a child and both families live in a LIHTC property, only one household at a time can claim the dependent. The household that counts the dependent also counts the unearned income of the child. The other household cannot claim the dependent or unearned income of the child [HUD Handbook 4350.3, par. 5-6(A)(3)(c)].

Nonmembers

If someone is neither an adult nor a dependent member of a low-income household, don’t count any of that person’s income. It doesn’t matter if that person was considered a household member at the household’s initial certification or at any of the household’s annual recertifications. People who aren’t considered household members and whose income you therefore mustn’t count include:

• Live-in aides;
• Guests;
• Household members who get permanently confined to a hospital or a nursing home—but only if the household tells you to stop counting them; and
• Household members’ children who are in joint custody arrangements and spend less than 50 percent of their time in the unit.