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II. Treatment of Income (24 CFR 5.609)
C. Mandatory Earned Income Disregard from Annual Income (24 CFR 5.609)
Q1: Under the mandatory earned income exclusion, what is the definition of "previously unemployed"
A1: The definition of previously unemployed is found in 960.255(a), and is as follows: "includes a person who has earned, in the twelve months previous to employment, no more than would be received for 10 hours of work per week for 50 weeks at the established minimum wage." The established minimum wage means the federal minimum wage unless there is a higher state or local minimum wage.
Q2: Does the earned income exclusion apply to minors who turn 18?
A2: Yes, the earned income exclusion applies to anyone who meets the criteria outlined in 24 CFR 960.255. The test that must be applied in this case is whether the person meets one of the three qualifying factors and is there is new or increased earned income after the person turns 18. If yes, EID applies. If no, EID does not apply.
A 17-year old who has been making $1,500 per year while in high school, graduates and turns 18 years old and begins making $10,000 per year. This person will qualify for EID because he meets the qualifying factor of being previously unemployed and has experienced an increase in earned income.
Another example, a 17 year old (not a fulltime student) is making $12,000 per year, and turns 18 years old and is still making $12,000 per year. This person does not qualify for EID because she does not experience an increase in earned income nor does she meet one of the three qualifying factors.
Q3: At reexamination, if some members of a household have increases in their income, and those household members are not entitled to the disregard, how does this affect the rent at the second twelve-month exclusion and phase-in period?
A3: Any increases in income of family members who are not eligible for the earned income disregard will be considered in determining the family's rent.
Q4: At a family's last reexamination effective 1/1/2000, the family is receiving welfare assistance. When the family is reexamined for 1/1/2001, a member of the family has earnings after being previously unemployed for twelve months. This change occurred on 6/15/2000, but the family was not required to report it. Now it is being reported for the reexamination effective 1/1/2001. How is the earned income exclusion benefit processed?
A4: By not reporting the increase, the family has received the benefit for the 6 months prior to the reexamination. The family is entitled to 100 percent of the disregard of any incremental increase for the remaining six months. At the end of the six months, the family is then entitled to the 12 month 50% disregard of the incremental increase.
Q5: What should PHAs use as a guide in determining what constitutes a "qualifying" training or economic self-sufficiency program?
A5: An "economic self-sufficiency" program is defined at 24 CFR 5.603(b) as follows: "Any program designed to encourage, assist, train, or facilitate the economic independence of HUD-assisted families or to provide work for such families. These programs include programs for job training, employment counseling, work placement, basic skills training, education, English proficiency, workfare, financial or household management, apprenticeship, and any program necessary to ready a participant for work (including a substance abuse or mental health treatment program), or other work activities."
Q6: Is there a time limit on how long a resident can be unemployed to be eligible for the earned income exclusion?
A6: There is no maximum time limit on how long a resident can be unemployed. However, he/she must have been unemployed for at least the last 12 months, as unemployment is defined in the regulations.
Q7: Can a PHA exclude the income of a former welfare recipient who is now employed with PHDEP or other grant funds?
A7: Yes, provided the resident meets the definition of eligibility for a qualified family at the time the provision became effective.
Q8: An individual who was never previously employed obtains his or her first job, but is still receiving a regular monthly income benefit from welfare. Is this individual entitled to the income disregard?
A8: Yes, the individual is eligible for the earned income disregard based on the following criteria stated in 960.255(a)(iii):
"Whose annual income increases as a result of new employment or increased earnings of a family member, during or within six months after receiving assistance, benefits or services under any state program for Temporary Assistance to Needy Families funded under Part A of title IV of the Social Security Act, as determined by the PHA in consultation with the local agencies administering temporary assistance for needy families (TANF) and Welfare to Work (WTW) programs. The TANF program is not limited to monthly income maintenance, but also includes such benefits and services as one-time payments, wage subsidies and transportation assistance-provided that the total amount over a six-month period is at least $500."
Q9: Does the $500 minimum dollar requirement apply only when a family is seeking to qualify for the disregard on the basis of receipt of one-time TANF benefits or ancillary benefits such as transportation assistance, (and not to the receipt of monthly TANF income maintenance benefits?
A9: Yes, the minimum $500 requirement applies only to one-time benefits, wage subsidies, and transportation. A person receiving regular monthly income maintenance (cash assistance) during or within the six-month period since first receiving assistance is eligible for the disallowance even if the amount received is less than $500.
Q10: An individual is working but also receiving TANF benefits. If the individual's income increases, and as a result, the individual loses the TANF benefits, does the individual qualify for the income disallowance?
A10: Yes, the individual is eligible for the income disregard based on an increase in income as a result of new employment within six months of receiving TANF.
Q11: What happens if a family met the requirements for the previous 18-month income disregard and was processed by the PHA and scheduled to go into effect as of October 1, 1999, but the family was not eligible for the new income disregard at the time? Can this family still take advantage of the 18-month income disregard?
A11: If the family met the requirements at the time the previous 18-month disregard policy was in effect, it should be applied to determine the family's rent for the next 18 months.
A tenant began work in August 1999 after completion of a training program in June that qualified under PIH 98-2 for the old 18-month disregard. (She was not unemployed for the prior 12 months, nor did any member of the family receive benefits under the state TANF program in the prior 6 months.) She reported her earnings at the end of August and the PHA processed the paperwork for a rent increase beginning October 1, 1999. Since the tenant qualified for the 18-month disregard while it was in effect, she is entitled to receive the benefit of it. Her rent should not be increased due to earnings for 18 months. (Note: Beginning work after completion of a training program qualified a resident for the old 18-month disregard, but would not qualify a resident for the new earned income disregard.)
Q12: What rent policy should be applied if a family who completed a qualifying training program prior to October 1, 1999, did not have increased earnings until after October 1, 1999?
A12:The family's eligibility for the new earned income disregard must be based on one of the three criteria outlined in 960.255. Because the resident "completed" training prior to October 1, 1999, the resident would not be eligible for the new earned income disregard related to participation in a training program, as the increased earnings must occur "during" participation in an economic self-sufficiency or other training job. However, the tenant may still be eligible for the earned income disregard based on one of the other two criteria-previously unemployed for at least 12 months or receiving TANF within the last six months.
A tenant completed a qualifying training program in June, but did not start her new job until October. The tenant did not "qualify" for the 18-month disregard prior to October 1, 1999 because her employments began in October. Therefore, he eligibility for an income disregard is determined by whether she qualifies under the new disregard policy effective October 1, 1999. A 4-month lag between the completion of the training program and the start of employment means the tenant is not qualified for the new disregard based on participation in a training program. The tenant's eligibility depends on whether she had received benefits under a state TANF program in the prior 6 months or had been "unemployed" for the prior 12 month.
Q13: What rent policy applies to a family that is in the midst of receiving the old 18-month income disregard when the new disregard policy goes into effect as of October 1, 1999?
A13: The old 18-month income disregard continues to apply to the family.
As of October 1, 1999, a family has been receiving the benefit of the 18-month disregard for 7 months. Instead of applying the new disregard, the PHA should continue to give the family the benefit of the old disregard policy for an additional 11 months.
As of October 1, 1999, the family has been receiving the benefit of the old
18-month disregard for 13 months. Does it matter that the family had been receiving the benefit of the old disregard more than 12 months? No. The family continues to receive the benefit of the 100 percent disregard of any incremental increase in income for the next 5 months.
Q14: What rent policy should be applied if a PHA learns after October 1, 1999 that a tenant increased her income prior to October 1st under circumstances that qualify for the new disregard?
A14: The earned income disregard became effective October 1, 1999. Therefore, the tenant qualifies for the disregard effective October 1, 1999 whether or not income is reported on an interim or annual basis.
Q15: Would the income of a person who received TANF due to pregnancy leave or working for the school system be excluded in the same way as a person who is eligible for an income exclusion if she was receiving TANF within the past 6 months of receiving income?
A15: Yes, a person who experiences increases in income from new employment or increased earnings from existing employment during or within six months of receiving TANF benefits, regardless of the reason for the benefits.
Q16: What rent policy applies if a tenant's income increases under circumstances that would qualify for the new earned income disregard, but fails to report the increased income on an interim basis as required by the PHA?
A16: Even if the tenant fails to report changes in income as required by the PHA, the tenant still receives the benefit of the full-earned income disregard as illustrated in the example below.
A tenant begins work in October 1999 while receiving TANF benefits (which were later reduced). The PHA's policies require reporting of income changes within 10 days and interim rent changes. The tenant does not report her new job to the PHA until her regular reexamination in February 2000. If timely reporting of the increased income would have led the PHA to begin applying the income disregard as of December, 1999, the tenant should be in the same position as if the income had been reported timely. The 12 months of 100% disregard should count from December 1999, extending through November 2000. Beginning in December 2000, the rent should increase by 50% of what the increase would otherwise have been.
Q17: When does the earned income disallowance go into effect?
A17: The initial 12-month cumulative period begins on the date a member of a qualified household is first employed or first experiences an increase in annual income attributable to employment. However, for tracking and administrative purposes, PHAs can begin EID on the first day of the month following the effective date of employment. Additionally, at the onset of the 50% cumulative exclusion period and throughout, it is advisable for PHAs to conduct interim reexaminations to better ensure accuracy in income and rent determination.
Q18: Does the new disregard apply to a tenant who has income from both TANF and employment, beginning prior to October 1, 1999, but then experiences an increase in earnings from work after October 1, 1999?
A18: The new income disregard applies; tenants whose earnings increase while on TANF are eligible for a disregard of their increased income due to earnings.
A tenant has a 20-hour/week job for which she earns $550 per month (she did not receive the 18-month disregard) and receives $200/month in TANF benefits. Beginning November 1, 1999 the employer increase her hours to 35 per week with a slight pay increase for a total of $1000 per month and she stops receiving the TANF benefits. The new disregard applies to her increase in income due to earnings. Under the regulations, $250/month of the increase in earnings is excluded from her annual income to determine her rent, because that is her increase in income (as opposed to the increase in earnings). The annual income used to determine her rent is 12 times the previous $750/month of income. Her rent would remain what it was in October 1999 (assuming no other changes in income or family composition), because the October and prior rent was based on the previous gross income of $750/month.
Q19: Does a family receive the benefit of the income disregard if the family experiences a increase in earnings within six months of receiving a non-cash TANF benefit, such as a $600 payment to an auto shop for repairs to the tenant's car so she could start a new job?
A19: Yes, receipt of at least $500 in TANF benefits is sufficient to trigger the disregard. To verify which benefits are funded under the state's TANF program, contact your state or local welfare office.
Q20: In determining a family's eligibility for the income disregard, must the member of a household who gets a job or increased earnings be the same member of the household who received TANF benefits?
A20: Yes. Only members of a qualified family who are also TANF recipients can receive the disregard based on the qualifying factor related to new employment or an increase in income during or within six months of receipt of TANF.
Q21: EID is considered to be exclusively part of the income-based rent formula. As such, what happens when a family who has qualified for (and/or received the disallowance) chooses flat rent? Two scenarios are presented below.
Q21a: A family qualified for EID and had experienced several months of the full exclusion. Then, due to an income increase which is not affected by EID they elect to pay flat rent. Until that time the clock was ticking on their 48-month lifetime disallowance period. Now that they are paying flat rent, is the 48-month period suspended or does it continue?
A21a: The 48 month clock continues. As long as the employment continues, the fact that the family opts to pay a flat rent doesn't stop any clock--the 100% exclusion, 50% exclusion, or overall 48 months. The only difference is that the family opted to pay the flat rent over the income-based rent (which was calculated taking the exclusion amounts into account).
Q21b: A family has elected to pay flat rent. They have been paying flat rent for several months when a family member experiences an earned income increase which would qualify the family for EID. Would the 48-month period commence even though while on flat rent they are not experiencing the disallowance of income? Or would it begin only if they were paying income-based rent? Let's say later they choose to pay income-based. Would the 48-month period begin (1) retroactive to when they qualified, (2) at the onset of income-based rent, or (3) would they have to wait for another qualifying increase while on income-based rent to begin the disallowance?
A21b: If a family is paying the flat rent at the time a family member experiences an event that would qualify them for EID, unless the event happens to coincide with their annual reexamination (and annual choice of rent), the family cannot opt for the income-based rent. Therefore, they cannot take advantage of the EID and the 48-month clock does not begin. If the family later chooses to pay income-based rent, they would only qualify for the EID if another qualifying event occurred.
Q22: If a person loses welfare income due to a work-related sanction, is the person eligible for the income disregard if they obtain employment?
A22: The individual receives the benefit of the disregard when they go to work if the person received TANF benefits within the previous 6 months (including such benefits and services as one time payments, wage subsidies and transportation assistance that total at least $500 over a 6 month period). The purpose of the policy of not reducing a tenant's rent, when the tenant experiences a work-related sanction, is to reinforce the welfare agency's incentives for the tenant to obtain employment. If the individual obtains employment, the policy has achieved its intended result.
A family's $500/month TANF benefits were terminated in October 1999 due to failure cooperate with work requirements. Under the new imputed welfare income policy, the PHA kept the family's rent at the prior level of $125/month. While the family was still subject to the welfare sanction, in December 1999, the mother got a part-time job earning $700/month. Since the mother began employment within 6 months of receiving TANF benefits, she is entitled to the disregard of the difference between her earnings and her prior TANF income - or $200/month, in the determination of her annual income for 12 months, and the disregard of $100/month in the subsequent 12 months.
Q23: EID regulations state that the 48-month window of opportunity is a once in lifetime opportunity. If a household qualifies and the PHA opens their window of opportunity and the client moves out before the 48 months ends, do they lose the remainder of their window of opportunity? Or could they resume their unused months if they move to another PHA within the 48-month window of opportunity and again qualify for the EID after they are admitted
A23: Yes. Statutorily, the tenant is entitled to a lifetime limit of 48 months of the earned income exclusion. In this case, it would be the tenant's responsibility to inform the new PHA that the 48-month EID exclusion clock has been started. The PHA will then verify this information with the PHA where EID was previously processed.
Q24: Is a tenant eligible for the income disregard if she obtains a job 2 months after completion of the coursework portion of a vocational school program while she is receiving job search and counseling assistance from the program?
A24: Yes. Because she is still receiving services from the training program, she has started a job during the program and is entitled to the disregard.
Q25: If a PHA does not perform interim reexaminations and increases rents only at the family's annual reexamination, why does EID begin on the first day of the month following the increase in earnings?
A25: According to the regulation, the exclusion actually begins on the date the family is first employed or first experiences an increase in income attributable to employment. However, for administrative and tracking purposes, the PHA can begin the exclusion on the first of the month following the employment or increase in income. Note: If a person who qualifies for EID begins employment or experiences an increase in income and fails to report this change, the PHA will count this time against the family member's exclusion period.
Q26: Does "training" sufficient to trigger the income disregard includes community college when the tenant is not in a special vocational program?
A26: Yes, as long as it meet the definition of economic self sufficiency 5.603(a): "Any program designed to encourage, assist, train, or facilitate the economic independence of HUD-assisted families to provide work for such families. These programs for job training, employment counseling, work placement, basic skills training, education, English proficiency, workforce, financial or household management, apprenticeship, and any program necessary to ready a participant for work (including a substance abuse or mental health treatment program), or other work activities."
Q27: How should a PHA treat income earned in a sheltered workshop-type setting?
A27: A sheltered workshop could qualify as a training or economic self-sufficiency program if it met the definition of an economic self-sufficiency program at 24CFR5.603(b). Income earned in this setting therefore could trigger the mandatory disregard.
Q28: Are PHAs required to provide tenants with notice about the new mandatory income disregard policy?
A28: As part of the information given to tenants under the rent choice requirement, the PHA must explain the income disregard policy to the tenant and provide a written notice of the income-based rent as calculated by the PHA. The determination of the income-based rent must include the proper treatment of income under all applicable disregard policies.
Q29: Can a tenant who is informed he/she has a new job (that would qualify for the disregard) starting in a few weeks choose to pay the rent increase and have the equivalent funds place in an Individual Savings Account (ISA) instead of receiving the disregard?
A29: If the PHA offers a choice between the new optional ISA and the earned income disregard then the tenant has the option to request that the funds that would otherwise be disregarded be placed in the ISA on their behalf.
CFR 24 960.255(d) states "As an alternative to the disallowance of increases in income as a result of employment…a PHA may choose to provide for individual savings accounts for public housing residents who pay an income-based rent…"At the option of the family, the PHA must deposit in the ISA the amount that would have been included in tenant rent payable to the PHA as a result of the increased income that is disallowed…"
Q30: If a tenant who qualifies for the earned income disregard based on previous unemployment gets an increase in wages or salary in the 14th month after the disregard began to apply, does her rent increase?
A30: Yes, if the PHA policy calls for interim reporting of increases. The disregard that began when the rent increase from her new employment would have taken effect still applies. However, since it has been more than 12 months since the disregard took effect, the PHA should increase the rent by half the amount of what the new rent increase would have been, based on the change of earnings.
Q31: How many times in a 48-month period can a family qualify for the earned income exclusion?
A31: A family member can only receive a total of 12 months for 100 percent of the incremental increase disregard, and 12 months of the 50 percent disregard in his or her lifetime. The disregard only applies for a maximum of 4 years from the time it is first applied. Refer to 960.255(b)(3).
A tenant who qualified for the mandatory disregard based on previous unemployment works for 20 months and then is laid off. She received 12 months of the full disregard and 8 months of the 50 percent disregard. The resident is called back to work in the 30th month following initial employment. The resident is still entitled to the remaining four months of the 50 percent disregard.
Q32: A tenant received TANF benefits of $500 per month from March 1999-August 1999, and at this point the tenant reached the state's TANF time limit and benefits were terminated. The tenant got a job making $600/month for September through November 1999. At the end of November, the person quit that job and during the week before Christmas started a new job paying $1200/month. Is the tenant eligible for the disregard when she reports her new earnings in January 2000?
A32: Yes. The tenant qualifies for the income disregard because the individual received TANF benefits within the 6-month period prior to January 2000. In addition, in the 12 months prior to beginning her new job, she earned on $1,800, which is less that 500 hours at the federal minimum wage (currently $2,575) so she is considered to be "previously unemployed."
Q33: If a tenant who qualified for the disregard gets a job after paying a minimum rent, does her rent remain at the minimum rent level for another 12 months (and then increase to half of what the rent obligation would have been if all her income were considered?
A33: Yes, For example, if a tenant's only income for 12 months prior to getting a job was from child support, she would meet the eligibility for the disregard as "previously unemployed." If the amount of child support was sufficiently low (and remained unchanged) that the family was subject to the PHA's minimum rent of $50 per month, then her rent would remain at that level for 12 months after her job began. In months 13-24 after her employment began, her rent would be based on half her income (earnings plus her child support income).
Q34: If a tenant is eligible for the earned income disregard, can the disregarded amounts be used in determining the cap for the childcare expense deduction?
A34: In the case of childcare necessary to permit employment, the amount deducted shall not exceed the amount of employment income that is included in annual income; therefore, the disregarded amounts cannot be used in determining the cap for the childcare expense deduction. (See definition of child care expenses at 24 CFR 5.603.)
A resident is receiving the benefit of the new earned income disregard. Her salary is $9,000/year, however, only $3,000 of this amount is being included in annual income. The remaining $6,000 is being disregarded. Childcare expenses for her four-year-old daughter tot $3,640/year. The resident's childcare deduction is capped at $3,000 because this is the amount that is included in annual income.
Q35: Is a public housing tenant who received the first 18 month earned income disregard also entitled to the new earned income disregard?
A35: If a tenant meets the criteria for the new income disregard as outlined in 24 CFR 960.255, a PHA cannot deny a tenant the disregard based on receipt of the earlier 18-month exclusion.
Following is an example of an income disallowance used in the Public Housing Reform Act Training:
- Sandy has been unemployed for 25 months.
- Her monthly TANF income is $540.
- Sandy gets a job at the Chrysler plant, making $1,100 per month on 6/15/2000, and reports her employment immediately.
- Sandy qualifies for a 12-month income disallowance of $560($1,100-$540).
- Sandy's rent continues to be based on $540.
- Sandy is laid off on 9/15/00 and reports her layoff immediately.
- She has 9 months of full disallowance and 12 months of the 50% disallowance left.
- Sandy is called back to work on 1/15/2001, at her $1,100 month salary and she reports immediately.
- Sandy's rent is based on $540 until 10/15/2001 (the end of the 12-month full disallowance.
- Her rent is based on $820 from 10/15/2001 through 1014/2002 (base rent of $540 plus $280, which is 50% of the $560 disallowance.
- Sandy's rent is based on her full income beginning 10/15/2002.
Following is an example of an income disallowance and imputed welfare income:
- Meet Sandy's neighbor, John Hill.
- Like Sandy, John was receiving TANF income of $540 per month.
- On June 1, 2000, John was sanctioned $140/month for failure to comply with economic self-sufficiency requirements for 3 months.
- John's rent is unchanged. It continues to be based on $540, even though he is only receiving $400 for June through August.
- Sandy told John about her great new job, so he applied to the Chrysler plant.
- John 's rent is still based on his pre-sanctioned welfare income of $540.
- Like Sandy, he was laid off on 9/15/2000 and he reported this to the housing authority immediately.
- John is called back 1/15/2001 at his old salary of $1,000 and reports to the housing authority.
- He has 10 months of full disallowance left and 12 months of 50% disallowance.
- His rent will be based on his old welfare income of $540 through 11/15/2001 and based on $770 through 11152002 (base rent of $540 + $230, which is 50% of the $460 disallowance).
Q36: If a family was working, and then becomes unemployed, applies for TANF, receives TANF for one month and then becomes employed again, is the member entitled to the disregard.
A36: Yes. The regulation states that a person is eligible if they have experienced employment during or within 6 months after receiving TANF assistance. This person is eligible for EID.
Q37: A tenant goes to work making $300/month that equals $3,600. This tenant was previously receiving SSI and MFIP that added up to $7,000 per year. Would this tenant be eligible for the Earned Income Exclusion? Why or why not? In other words, does the tenant have to make more money employed than not employed to be eligible for the Earned Income Disallowance
A37: Because the family's annual income increased, the family would qualify for EID as long as the family met one of the three qualifying factors. Here is how you would calculate the exclusion:
The term "Qualifying Event" is used to mean the event that took place that triggered EID (new employment, increase in income during training program, etc.).
Pre Qualifying Event (Baseline Income):
Annual Income of family member = $7000 (SSI)
Post Qualifying Event:
Annual Income of family member = $10,600
Amount of Exclusion = $3600 ($10,600 - $7000*)
Pre Qualifying Event (Baseline Income):
Annual Income of family member = $7000 (SSI)
Reexamination (following completion of 12 month full exclusion):
Annual Income of family member = $11,000 ($7000=SSI, $4000=wages)
Amount of Exclusion = $2000 ($11,000 - $7000*= $4000 x 50%)
*Baseline income of $7000 is used to calculate the exclusion in both Year 1 and Year 2.
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