Our Travois Asset Management team has decided to roll out a new series of blog posts called “Compliance Corner.” We want to keep clients informed with periodic updates about rules and regulation changes within the compliance industry, answers to frequently asked questions, and other asset management tips.
We are kicking off the series with information on the Social Security Administration’s Cost of Living Adjustment (COLA) for monthly Social Security and Supplemental Security Income (SSI) benefits. Social Security recently announced that benefits will increase 1.5 percent in 2014.
What does this mean for you? If you calculate income to qualify or certify tenants for your Low Income Housing Tax Credit (LIHTC) developments, you must include this increase for all recipients beginning on Jan. 1, 2014.
Let’s break it down for the different scenarios you may see:
1. For households already in place that receive these benefits, and where rent is calculated using adjusted gross income, a change of rent should be processed that will include the added COLA income effective Jan. 1, 2014. The rent should be adjusted accordingly.
2. For households who receive these benefits, and who pay a predetermined set rent, no action is required. The increase will be added at the next annual certification.
3. When calculating a household’s income from Social Security or SSI, please be sure to include the increase after it takes effect.
Here is an example: John moves into Unit A on Nov. 1, 2013 and he receives Social Security income. His monthly benefit amount is $750. Here is how we calculate his income for the next 12 months:
- First we need to calculate the benefit amount after the increase
- $750 x 1.5% = $11.25
- $750 + $11.25 = $761.25
- Next we need to calculate John’s benefits before the increase
- $750 x 2 (November and December) = $1,500.00
- Then calculate John’s benefits for the remainder of the year
- $761.25 x 10 = $7,612.50
- Finally we add John’s benefit amounts from before and after the increase
- $1,500 + $7,612.50 = $9,112.50
As you can see above, the calculation method for handling COLA increases is not difficult, but often times it is overlooked. Taking the extra time to run the COLA calculation for these types of benefits will prevent state auditors and investors from noting the violation in your files.
As always, if you have questions regarding this increase or any other income calculation questions, feel free to contact the Travois Asset Management team.