How to Verify Disability Benefits for Annual Income Determinations

Suppose an applicant or a household member at your tax credit site tells you she has been in an automobile accident and will be on disability for a while. She has no idea when it will be possible for her to work again. In the case of the household member, if your site isn’t a 100 percent low-income housing tax credit site, you’ll need to verify her benefits to ensure that her household’s income hasn’t increased above 140 percent of the income limitation. If it has, you’ll know to rent your next available same or smaller sized unit (even if a market unit) in the same building to an LIHTC-eligible household in order to preserve the unit’s tax credit.

The HUD Handbook, which the tax credit law requires you to use to calculate household income, says you must get written verification of the disability benefits from the insurer that pays them to her. We’ll tell you what you need to know about disability benefits so you can include them in household income. And we’ll give you a Model Form: Disability Benefits Verification, which you can use to get the necessary verification for your household files.

Disability Benefits Basics

Disability benefits partially replace lost wages when employees are unable to work due to illness or injury. Workers' compensation includes a similar benefit. But it applies when employees are injured on the job, while disability benefits are paid when employees are injured at home or elsewhere outside the workplace. Employers may get short-term disability coverage for their employees from private insurance companies, or, in some states, they may participate in a statewide insurance fund.

Some employers also provide long-term disability coverage, typically under a separate policy. While short-term disability insurance typically pays benefits for a maximum period measured in weeks, long-term disability benefits may continue until an employee reaches retirement age.

Send Form to Get Verification

The Handbook says that disability benefits are income, which you must verify [Handbook 4350.3, par.5-4, exhibit 5-1]. To do this, ask the household member for the name and address of the insurer that’s paying the benefits. Before sending the form to the insurer, fill in the names and addresses of the insurer, the site manager, and the household member. Then fill in the household member’s date of birth and Social Security number. This makes it easier for the insurer’s staff to locate the information on the household member.

Ask the household member to sign the release portion of the form. This shows the insurer that the household member has consented to the release of confidential information to you.

If the insurer sends you a computer printout detailing the benefit information you asked for, instead of filling out the verification form, you can rely on the printout when calculating household income. Be sure to send the verification form even if you know from past experience that the insurer won’t fill it out. The form lets the insurer know what information you need. Also, the insurer isn’t likely to give you any information without a signed statement showing that the household member has agreed to the release of the information to you.

What Form Verifies

The following is the main information you’re asking the insurer to verify:

Payment amount. The form asks for the gross amount of the weekly or monthly payment. This information will then be used to calculate household income. If the household member receives benefits for a period of less than a year, you’ll have to annualize this information. In the next section, we’ll review how to perform these calculations.

Effective date. The form asks for the date on which the benefits began or will begin. Use this date to calculate the effective date for the change, if any, in the household’s assistance.

Duration. The form asks how many weeks the household member will be eligible for coverage. The law in many states requires employers to provide workers’ compensation coverage for only a specified number of weeks.

Annualize Disability Benefits

Even though short-term disability benefits are typically paid for less than a year, the Handbook requires you to calculate household income as if the member will get the payments for the entire year (that is, for 52 weeks) [Handbook 4350.3, par. 5-5(A)(1)]. To annualize weekly benefits, multiply the gross amount of the weekly payment shown on the returned verification form or printout by 52. If the payments are made monthly, multiply the gross amount by 12. Include the result of this calculation in household income.

For example, suppose the gross amount of Jonas Smith’s weekly short-term disability payment is $100. And he’s eligible to receive the payments for a maximum of 26 weeks. To annualize the payments, multiply Smith’s $100 gross weekly payment by 52 weeks, and include the resulting $5,200 in household income.

Lump-Sum Payments

If household members receive lump-sum workers’ compensation payments that don’t represent overdue installment payments, it isn’t necessary to verify with the insurer. For example, workers’ compensation policies may provide for lump-sum payments to employees who have suffered certain kinds of permanent injuries. In that case, HUD says, the payment is counted as a household asset, but only to the extent that it’s deposited in a household checking or savings account [Handbook 4350.3, par. 5-7(G)(3)(a)(5)]. As a result, this kind of lump-sum payment must be verified through the financial institution, not the insurer.