Consider Subsidy When Screening Section 8 Applicants

Make sure you take into account the Section 8 subsidy in determining a Section 8 voucher holder’s ability to pay rent. If your site requires applicants to have a minimum income level, don’t let this policy improperly reject voucher holders who don’t meet your site’s minimum income criteria. You could be violating tax credit rules barring discrimination against those applicants. The IRS forbids owners from refusing to rent to a Section 8 voucher holder solely because of that person’s status as one [IRC §42(h)(6)(B)(iv)]. In other words, rejecting an applicant merely because he or she doesn’t meet a certain minimum level of income may have the effect of discriminating against Section 8 voucher holders.

To properly consider Section 8 subsidies when screening for the ability to pay rent, calculate the minimum income needed to pay the rent based on the actual amount that the applicant would have to pay after the subsidy, rather than the entire rent on the unit. The only purpose of a minimum income requirement is to screen out those individuals who can’t afford the rent. If a large portion of the rent is subsidized, then you only need to consider whether the applicant can afford his or her portion of the rent.

Example: Suppose your site has a minimum monthly income requirement of three times the monthly rent payment. For applicants without any rent subsidies, a household would need a minimum income of $1,500 a month to qualify for a unit with a rent of $500. But suppose you’re screening an applicant with a Section 8 voucher that pays $350 of the $500 rent. In that case, the applicant would have to pay you only $150 a month because HUD pays the rest. In that case, to meet the requirement of a minimum income of three times the rent payment, an applicant with a certificate or voucher has to earn only $450 a month to qualify, not the full $1,500 a month required to pay the entire $500 rent.

For those Section 8 applicants who fail to meet minimum income calculated this way, make sure you document the minimum income calculation, as well as any other reasons for rejecting them, such as a bad reference or a poor credit rating, in writing. This way, you’ll later be able to show a state or IRS auditor that the applicant wasn’t rejected because he was a Section 8 voucher holder, but because he couldn’t afford his portion of the rent after taking into account any subsidies.