Last updated 2026-07-11
TL;DR
Gross income is every household member's total annual income before any subtractions. Adjusted income takes that number and removes HUD-allowed deductions. Your rent share is set at 30% of adjusted income, not gross, so those deductions can lower what you pay each month. You qualify on gross income; you're subsidized on adjusted income.
Why does HUD use two different income numbers?
HUD wants your rent share to track what you can actually afford, so it runs two income calculations instead of one. Gross income gets you in the door. Adjusted income sets your rent. The gap between them is where the money is.
Here's the problem HUD is solving. A retired senior on a fixed Social Security check and a working adult with the same annual dollars are not in the same spot, because the senior might spend $3,000 a year on prescriptions and copays that the working adult never touches. The Housing Choice Voucher program tries to account for that with a two-step framework.
Step one is gross income. Add up every dollar flowing into the household. Step two is adjusted income. Take that gross figure and subtract the specific hardship deductions HUD has decided are fair to recognize. The subsidy math runs off adjusted income, so those deductions are worth real cash to the households that qualify.
The framework lives in 24 CFR Part 5, Subpart F, what HUD calls the "unified" income definition that applies across most of its rental-assistance programs. [1] The same rules cover vouchers, project-based Section 8, and public housing. That matters if you ever move between programs, because your income gets calculated the same way in all of them.
What counts as gross income under HUD rules?
HUD's gross income definition is wide on purpose. It pulls in almost every form of money or money-equivalent any household member receives. [1] Wages count. Benefits count. Support payments count. The major categories:
- Wages, salaries, tips, overtime, bonuses, and commissions from any job
- Net income from self-employment or a business (receipts minus ordinary business expenses)
- Social Security, SSI, and railroad retirement payments
- Disability and death benefits, annuities, and pension income
- Unemployment and workers' compensation
- Alimony and child support amounts actually received
- Regular contributions or gifts from people outside the household
- Net income from real estate (rent collected minus allowable operating costs)
- Interest, dividends, and net proceeds from assets when total assets exceed $5,000
Below $5,000 in total net assets, HUD counts only the actual income those assets produce. Once net assets cross $5,000, HUD imputes income at a rate it publishes each year called the HUD Passbook Savings Rate, even if the assets earn less than that in real life. [2] That imputation matters for households with savings accounts or small investment balances.
Some money is excluded from gross income entirely and never enters the math. Excluded items include the Earned Income Tax Credit, one-time gifts, lump-sum inheritances, foster care payments, adoption assistance, and the earned income of a full-time student who is not the head or spouse. [1] Exclusions are different from deductions. Excluded income simply does not exist for HUD purposes, so there's nothing to subtract later.
The gross figure your housing authority lands on is what the regulations call "annual income." You'll see that exact term on your income determination paperwork.
What deductions reduce gross income to adjusted income?
24 CFR 5.611 lists the deductions that turn gross annual income into adjusted income. [3] There are five. Most households qualify for at least one, and elderly or disabled households usually qualify for more.
Dependent deduction. $480 per year for each dependent household member (not the head or co-head, not a foster child, not a full-time student 18 or older who fails the IRS dependent test). Two minor children get you $960 off gross income right away.
Elderly or disabled household deduction. $400 per year for any household where the head, co-head, or spouse is at least 62 or is a person with disabilities. This is a flat amount per household, not per person.
Medical expense deduction. Available only to elderly or disabled households. You deduct the slice of annual unreimbursed medical costs above 3% of gross income. Gross income of $15,000 and out-of-pocket medical costs of $1,800? The 3% threshold is $450, so you deduct $1,350. Qualifying costs include doctor visits, prescriptions, dental, vision, home health aides, and certain medical equipment. [3]
Disability-assistance expense deduction. For disabled household members, the cost of attendant care or auxiliary apparatus (a wheelchair, for example) is deductible to the extent it lets the person work, capped at the earned income that work produces. Narrow in practice.
Child-care deduction. Reasonable childcare costs that let an adult work, look for work, or attend school. Capped at the income earned by the adult whose work the childcare makes possible. Earn $12,000 and pay $8,000 in childcare to hold the job, you deduct $8,000. Earn $6,000, the deduction caps at $6,000.
Those five are the whole list. A PHA cannot add its own deductions and cannot strip any of these away. The rules are federal and identical at every housing authority in the country.
How does the income calculation affect your rent payment?
Once adjusted income is set, your minimum rent contribution follows a fixed formula. HUD calls it the Total Tenant Payment, or TTP. [4] Your TTP is the highest of four numbers:
- 30% of monthly adjusted income
- 10% of monthly gross income
- The PHA's minimum rent (up to $50 per month, set by each PHA)
- Any welfare rent amount, if applicable
For most working families and most seniors with moderate incomes, 30% of monthly adjusted income wins, because adjusted income is lower than gross and 30% of a smaller number beats 10% of the bigger one.
A concrete example. Household with gross annual income of $24,000. After a $480 dependent deduction and a $400 elderly deduction, adjusted income is $23,120. Monthly adjusted income is $1,926.67. Thirty percent of that is $578. Monthly gross income is $2,000, and 10% of that is $200. TTP is $578, because 30% of adjusted income is the highest of the four.
Now add medical costs. Same household, gross income $24,000, medical expenses $2,500. The 3% threshold is $720, so the deductible medical amount is $1,780. Adjusted income drops to $21,340. Monthly adjusted income is $1,778.33. Thirty percent is $533. The household saves $45 a month, $540 a year, from the medical deduction alone.
The housing authority then compares your TTP to the gross rent of the unit you lease (rent plus utilities). The voucher covers the gap between your TTP and the lesser of actual gross rent or the payment standard. [4] So a change in adjusted income moves straight through to the subsidy you receive.
If you want to test how deductions play out with your own numbers before you sit down with your caseworker, the VoucherReady income tools walk through the math.
What is the income limit to qualify, and does it use gross or adjusted income?
Eligibility runs on gross annual income, not adjusted income. [5] The thresholds are set as percentages of Area Median Income (AMI), which HUD updates every year by metro area. [9] Here's how the categories break down:
| Income limit category | AMI threshold | Who qualifies |
|---|---|---|
| Low income | 80% AMI | Outer limit for program entry |
| Very low income | 50% AMI | Required for vouchers by statute |
| Extremely low income | 30% AMI | PHAs must serve 75% of new admissions from this group |
By statute (42 U.S.C. 1437f(o)), at least 75% of voucher holders admitted in any fiscal year must come from families whose gross income does not exceed 30% of AMI. [5] Your gross income against those limits decides whether you get on the waitlist and whether you can receive a voucher. Once you have the voucher and your rent share is being set, the math switches to adjusted income.
This trips people up on the first read. You're income-tested on gross income to get in the door. You're subsidized on adjusted income once you're a participant. Two numbers, two jobs.
Does gross income or adjusted income change at annual recertification?
Both. Your housing authority recalculates gross and adjusted income at least once a year at your annual recertification. It asks you to report every current income source, verifies each one with documentation (pay stubs, benefit award letters, bank statements), rebuilds gross income from scratch, then applies whatever deductions you currently qualify for to reach the new adjusted income. [6]
Your rent share can rise or fall depending on what changed. A raise at work lifts gross income and can raise your TTP. A higher medical bill that clears the 3% threshold in a new year lowers adjusted income and lowers your TTP. A child moving out removes a $480 dependent deduction.
Interim recertifications happen between annual reviews when income changes enough to matter. PHAs are required to process interim adjustments when income drops by a meaningful amount, and most will also process upward adjustments when income climbs. The exact trigger varies, so read your housing authority's administrative plan. [6]
Landlords who take vouchers should understand this: a tenant's income change does not change the lease amount, it changes the subsidy. If a tenant's income falls and their adjusted income drops, the subsidy goes up and the tenant's share goes down. The rent you collect stays the same as long as it's within the payment standard.
How does HUD treat assets when calculating income?
Assets themselves are not income. What HUD counts is either the actual income the assets produce (interest, dividends, rental income) or, when total net assets exceed $5,000, an imputed income amount. [2]
The imputation rate is the HUD Passbook Savings Rate, published each year in a HUD notice. HUD set it at 0.06% for fiscal year 2023, so a household with $10,000 in net assets would have $6 a year of imputed income added to gross income if their actual asset income came in under $6. In most cases the imputed number is tiny. For households with larger savings, retirement accounts, or equity in property they no longer live in, it can produce real additional income.
Net assets are valued at current market value minus reasonable costs of converting to cash (broker fees, early-withdrawal penalties, and the like). The PHA sets asset values during verification. Disputes are uncommon, but they do come up with real estate and retirement accounts.
Got a question about how a specific asset gets treated? Your housing authority is the place to ask. The rules are federal, but the verification methods and documentation requirements live in each PHA's administrative plan.
Can a household have zero adjusted income?
Yes, and it happens more than you'd think. If deductions are large enough relative to gross income, or if gross income is very low to begin with, adjusted income can hit zero. HUD's regulations set the floor at $0. Adjusted income can't go negative. [3]
When adjusted income is zero, 30% of it is also zero. Your TTP then becomes the higher of the minimum rent (up to $50) or 10% of monthly gross income. For a household with almost no gross income, the TTP can land at the PHA minimum, often $25 to $50 a month.
PHAs can grant minimum rent hardship exemptions in certain situations, dropping even that small amount to zero for a while. A family in financial hardship requests it in writing. [4] These exemptions are not automatic. You have to ask, and you have to document why.
What income do the rules count for live-in aides and students?
A live-in aide (someone who lives with a disabled household member specifically to provide necessary care) is not counted as a household member for income purposes. Their income is excluded from gross income entirely. [1] Only actual family members' income counts.
Full-time students who are not the head of household or a spouse get a special rule. If the student is 18 or older, only the first $480 of their annual employment income counts in gross income. The rest of their earned income is excluded. [1] This shows up in households with a college-age child working part time.
Minor children's income is generally not counted. Earned income of a child under 18 is excluded from gross income. Unearned income of a minor (an inheritance, say) can be counted, though that situation is uncommon and the rules around it get tangled. When in doubt, ask your PHA in writing so you have the answer on paper.
What is the difference between HUD income rules and IRS income rules?
They share vocabulary but they're not the same system. HUD gross income and IRS gross income overlap on some items (wages, interest, rents) and split hard on others. Do not assume your taxable income equals your HUD gross income. They're different numbers built under different laws.
The major splits:
Child support. HUD counts child support actually received as gross income. The IRS does not tax it at all.
EITC. The Earned Income Tax Credit is excluded from HUD gross income. It's a refund from the IRS, not income for voucher purposes.
Self-employment. HUD uses net self-employment income after ordinary business expenses, but its definition of allowable expenses is not identical to Schedule C. Depreciation is not deductible under HUD rules.
Lump sums. The IRS taxes most lump-sum settlements as income. HUD excludes them from gross income (they can affect the asset calculation instead).
SSI. HUD counts SSI as gross income. The IRS does not tax it.
Your tax return is a fine starting document for recertification, but your PHA will almost certainly adjust the numbers. The rental assistance you receive depends on getting the HUD version right, not the tax version.
What documentation do you need to prove income at recertification?
HUD requires PHAs to verify income independently rather than take your word for it. [6] The documentation hierarchy runs from most preferred to least:
1. Third-party written verification (employer form, benefit award letter, bank statement) 2. Third-party oral verification (PHA calls the employer and documents the call) 3. Tenant-provided documents (pay stubs, tax returns) 4. Tenant-signed self-certification (only when nothing else is available)
For wages, expect to hand over at least two to four recent pay stubs and possibly a letter from your employer showing your hourly rate and hours. Social Security income gets verified through the SSA award letter or SSA's computer matching. Self-employment income usually needs a profit-and-loss statement plus the prior-year tax return.
For medical deductions, you need proof of the actual costs: explanation-of-benefits statements from insurance, receipts, and something showing what wasn't reimbursed. Keep those records all year. Reconstructing them at recertification time is miserable.
The VoucherReady landlord kit covers the documentation flow from the owner's side, including what PHAs ask landlords for during income verification and what a landlord is and isn't allowed to provide.
One honest note on timing. Getting documents together for recertification is one of the most common failure points for voucher holders. A missed deadline or an incomplete packet can trigger a delayed recertification, which can temporarily shift your rent share or, in rare cases, put your voucher at risk. Build in two to three weeks of buffer.
How do deductions work for households in low income senior housing?
Elderly and disabled households get the richest deductions HUD offers, so the gap between gross and adjusted income is widest for seniors on fixed incomes. That's by design.
For a typical retired household on Social Security, the $400 elderly deduction is automatic. Medical costs above 3% of gross income are also deductible, and seniors generally run higher medical bills than younger households. Take a senior household with gross income of $14,000 and $3,000 in out-of-pocket medical costs:
- $400 elderly deduction
- Medical deduction: 3% of $14,000 = $420 threshold; $3,000 minus $420 = $2,580 deductible
- Adjusted income = $14,000 minus $400 minus $2,580 = $11,020
- Monthly adjusted income = $918.33
- TTP = 30% x $918.33 = $275.50
Without the medical deduction, TTP would have been 30% x ($14,000 minus $400) / 12 = $283.33. The medical deduction saves this household about $7.83 a month, roughly $94 a year. Modest, sure. But in low income senior housing where budgets are tight, claim every deduction you qualify for.
The elderly deduction covers disabled households at any age. A 35-year-old with a qualifying disability gets the $400 deduction and the medical deduction, same as a 70-year-old retiree. [3]
What mistakes do households commonly make in income reporting?
The most expensive mistake is underreporting deductions. Plenty of households never claim the medical expense deduction because they don't picture their medical costs as one big number. Add up 12 months of copays, prescriptions, home health visits, and dental work, though, and the total often clears the 3% threshold. Keep a running log all year.
The second common mistake is confusing excluded income with deductions. If a payment is excluded from gross income entirely (EITC, for instance), it never enters the calculation. You don't claim a deduction for it. Your PHA should never count it in the first place. If they do count it by mistake, catch the error and dispute it.
The third is over-reporting. Some households include the asset balance itself (instead of just the asset income), or count insurance reimbursements as income. Neither is right. If insurance reimbursed you, only the unreimbursed portion counts toward your medical deduction.
The fourth is sitting on a pay cut. If your income drops significantly mid-year, request an interim recertification to lower your rent share right away instead of waiting for the annual review. PHAs are required to process these downward adjustments. [6] Waiting a full year to report a pay cut can cost you hundreds of dollars you didn't have to spend.
Frequently asked questions
Is the $480 dependent deduction per person or per household?
It's per dependent. Three qualifying dependents means you subtract $1,440 from gross income before your rent share is calculated. Qualifying dependents are household members who are not the head or co-head, not a live-in aide, and not a full-time student 18 or older who fails the dependent test. The rule comes from 24 CFR 5.611(a)(1).
Does overtime income count toward HUD gross income?
Yes. HUD counts all anticipated income, including overtime, bonuses, tips, and shift-differential pay. The housing authority usually annualizes your current pay including regular overtime if it looks ongoing. If your overtime is genuinely irregular, tell your PHA and document why, but expect them to ask for pay history before they agree to exclude it.
Can I deduct my health insurance premiums as a medical expense?
Yes, for elderly and disabled households. HUD includes health insurance premiums the family pays directly as an allowable medical expense under 24 CFR 5.611(a)(3). If your employer deducts premiums from your paycheck before you see the money, that portion is already excluded from wages. Only out-of-pocket premiums you pay directly count toward the deduction.
What happens to my rent share if my income drops to zero?
Your adjusted income floor is $0. Your Total Tenant Payment then becomes the higher of 10% of monthly gross income (also $0) or the PHA minimum rent, typically $25 to $50. You can request a minimum rent hardship exemption from your housing authority, which can drop your share to $0 for a period. Ask in writing and document your circumstances.
Does child support I receive count as income for voucher purposes?
Yes. Child support actually received counts in HUD gross income under 24 CFR 5.609(b)(5). Note the word 'actually.' If a court order says you should receive support but the payments aren't coming in, you don't count the ordered amount. You count only what you physically receive. Alimony follows the same rule.
Are Social Security disability payments counted as income?
Yes. Both Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) count in HUD gross annual income. The household may also qualify for the $400 elderly or disabled deduction and the medical expense deduction, which can pull adjusted income down and lower the rent share considerably.
If my adult child lives with me and works, is their income counted?
It depends on whether they're a household member. If your adult child is listed on your household composition, their income is included in gross income. The one exception for a full-time student 18 or older: only the first $480 of their annual earned income counts. If they're not on your household composition, their income doesn't touch your voucher.
How does self-employment income get calculated for HUD purposes?
HUD uses net self-employment income: gross receipts minus ordinary and necessary business expenses. Depreciation is not allowed under HUD rules even though the IRS allows it. HUD typically starts from the prior year's Schedule C and then adjusts it. Keep clean business records throughout the year so verification goes faster.
Does my savings account balance count as income?
The balance itself is not income. But if total net assets exceed $5,000, HUD imputes income at its Passbook Savings Rate even when your account earns less. Below $5,000 in total net assets, only the actual interest you earned counts. The balance still matters for calculating total net assets, which decides which rule applies.
How far back can a housing authority go if they find unreported income?
If a PHA finds unreported income, it can retroactively raise your rent share and collect the difference going back to when the income started, subject to its administrative plan and applicable fraud rules. HUD's regulations require repayment agreements for overpaid subsidy. Deliberate underreporting can lead to program termination and referral for fraud prosecution under 18 U.S.C. 1001.
Is the childcare deduction only for working parents?
No. Under 24 CFR 5.611(a)(2), the childcare deduction applies to childcare costs that let an adult work, look for work, or further their education through a vocational training program or school. The deduction is capped at the income earned by the adult who is able to work or study because of the care.
Can both the dependent deduction and the childcare deduction apply to the same child?
Yes. They operate independently. The $480 dependent deduction applies to every dependent regardless of childcare costs. The childcare deduction is a separate calculation based on actual childcare expenses paid. A family with two young children in daycare could claim both the $960 in dependent deductions and the childcare expense deduction at the same time.
Do lottery winnings or gambling income count as HUD gross income?
Generally yes, if they're regular or recurring. A one-time lottery jackpot is usually treated as a lump-sum addition to assets rather than annual income, which affects the asset calculation instead. Regular gambling winnings a household relies on get counted as income. The classification depends on frequency and the PHA's read, so ask your housing authority for a written determination.
Does gross income include the value of food stamps or Medicaid?
No. Benefits from the Supplemental Nutrition Assistance Program (SNAP) and the value of Medicaid are excluded from HUD gross income under 24 CFR 5.609(c). These are in-kind benefits, not cash, and HUD assigns them no cash value. Most major government benefits are excluded. It's primarily cash income and cash-equivalent benefits that get counted.
Sources
- HUD, 24 CFR Part 5 Subpart F - Unified Definition of Annual Income: HUD's unified annual income definition lists what is included and excluded from gross income across rental assistance programs
- HUD, 24 CFR 5.609 - Annual Income: When net family assets exceed $5,000, HUD includes imputed income at the HUD Passbook Savings Rate in gross annual income
- HUD, 24 CFR 5.611 - Adjusted Income: The five allowable deductions from annual income to adjusted income, including the $480 dependent deduction, $400 elderly/disabled deduction, medical expense deduction, disability-assistance expense deduction, and childcare deduction
- HUD, 24 CFR 982.515 - Family Share; family rent to owner: Total Tenant Payment is the highest of 30% of monthly adjusted income, 10% of monthly gross income, the minimum rent, or welfare rent; the PHA minimum rent may not exceed $50
- HUD, 42 U.S.C. 1437f(o) - Tenant-Based Rental Assistance statute: At least 75% of voucher holders admitted in any fiscal year must be families whose gross income does not exceed 30% of Area Median Income
- HUD, 24 CFR 982.516 - Family obligation to HCV program: PHAs must recertify household income at least annually and may process interim adjustments for income changes between annual reviews
- HUD, Income Limits Documentation System: HUD publishes annual Area Median Income figures and income limit thresholds at 30%, 50%, and 80% AMI by metropolitan area
- HUD, 24 CFR 982.505 - Payment standard amount and schedule: The voucher subsidy equals the difference between the gross rent of the unit and the Total Tenant Payment, with the gross rent capped at the payment standard
- Congressional Research Service, Section 8 Housing Choice Voucher Program: Trends and Policy Issues: Overview of HCV income rules, eligibility thresholds, and the distinction between income determination for eligibility and income calculation for rent-setting