In this installment of “Compliance Corner,” we answer two common questions about calculating income for residents of Low Income Housing Tax Credit (LIHTC)-financed homes.
Question No. 1: On a recent tenant file review, I was asked to obtain a copy of an applicant’s child support income for the past 12 months. If we are anticipating income for the next 12 months, why would I look at what they have received in the past?
Answer: In our calculations, we must count alimony or child support amounts awarded by the court, unless the applicant certifies that payments are not being made and that he or she has taken all reasonable legal actions to collect amounts due. This is also true if the court-ordered amount is higher than what is actually received by the custodial parent or applicant.
The commonly accepted rule in the Low Income Housing Tax Credit (LIHTC) industry is to always anticipate income for the upcoming 12 months, regardless of the income type. However, there are a few instances where historical information might provide more accurate data to anticipate what will happen in the future. An example would be the comparison of employment income verifications versus child support income verifications.
When we review employment verification, we are looking at information provided to us by the applicant’s employer. The employer verifies the applicant’s year-to-date income information, how much the applicant will make per hour, how many hours per week they will work, and if there will be any additional forms of income (Ex: tip income, bonuses, raises, etc.). With the information the employer provides, we can accurately anticipate how much the applicant (or other adult household member) will earn in the upcoming 12 months.
Child support income is a little harder to anticipate because the child support enforcement agency verifying the income has no control over how much the non-custodial parent will pay for the upcoming 12 months. In order to obtain a thorough overview of the child support income, verify the court-ordered amount through a third party and obtain a report from the child support enforcement agency that reflects what the non-custodial parent has paid in the previous 12 months. Because the court cannot verify that the parent will pay the full court-ordered amount, we can compare the court-ordered amount to the amount the custodial parent or applicant actually receives. This is also known as the “look back” method. After performing the necessary calculations, you are allowed to use the lower of the two amounts for the certification.
As a reminder, in some instances, child support income could be paid to the custodial parent or applicant through a social services agency, and the income may be included in the family’s monthly assistance check. Furthermore, the child support income may be designated in different ways. In some states, these payments are not identified separately from the assistance grant. In this instance, it is important to determine which portion is child support and not to count it twice. In other states, the payment may be listed as child support or as “pass-through” payments. These amounts must be counted as annual income.
The “look back” method is only allowed for select few types of income. You should always refer to your state agency’s compliance manual or a compliance expert for further guidance on the topic if you are unsure what the preferred method is for verifying a specific type of income in your state.
Question No. 2: I was recently asked on a tenant file review to provide child support affidavits for all children in the household. Why would I need to do this if both parents are living in the home?
Answer: In order to fully understand the LIHTC requirements, let’s take a moment to review the compliance regulations regarding the use of child support affidavits or paternity affidavits (if applicable). Alimony or child support that is court-ordered or supported by a written agreement should be included in income unless the recipient certifies that the funds were not received and reasonable efforts have been made to collect the amount due, including filing with courts or agencies responsible for enforcing payments.
When no documentation of child support stipulated in a divorce decree or separation is available, self-certification by a tenant is sufficient documentation to show that a tenant is not receiving child support payments and is consistent with LIHTC documentation requirements. In addition to specifying that a tenant is not receiving any child support payments, an annual signed, sworn self-certification should indicate whether the tenant will be seeking or expects to receive child support payments within the next 12 months.
If the tenant possesses a child support agreement but is not presently receiving any child support payments, the tenant should include an explanation of this and all supporting documentation. (Ex: a divorce decree or court documents.) Also, the self-certification should indicate that the tenant would notify the owner of any changes in the status of child support. In instances where both paternal parents reside in a unit with their children, a paternity affidavit may be used in lieu of child support affidavits.
It is not always clear to an outside auditor who the paternal parents of children living in the household are. The most common area of confusion is when a household has multiple members with different last names. Even though you may have firsthand knowledge of a household’s composition, it may be unclear to someone with little or no knowledge of the family’s composition.
It is important to keep in mind that the file you are constructing needs to be able to stand on its own during an audit. The only way to affirm child support income status of all children in a household is to obtain a child support affidavit for each child in the household, or if applicable, have the paternal parents (if living together in the unit) complete a paternity affidavit.
Your state agency’s monitoring procedure may require you to obtain documentation, other than the statement described above, to support a tenant’s annual certification of child support payments. The state agency’s compliance manual should be referenced for further guidance. In some cases, a specific form may need to be used.
If you have questions regarding this topic or any other compliance needs, please contact the Travois Asset Management team at firstname.lastname@example.org or 816-994-8970. We are more than happy to help!