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Three Definitions of Income
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Calculating Income Eligibility Contents
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Citizens
of the United States and resident aliens, except those with gross
incomes below a certain level, are required to file an income tax
return with the Internal Revenue Service (IRS) each year. This income
tax return is officially referred to as Form 1040.
IRS
Form 1040 requires reporting of certain kinds of income, which are
then added together to constitute what is referred to as "gross
income." From the gross income figure, certain deductions are
then taken to arrive at an "adjusted
gross income." This is the figure used to determine an
applicant's eligibility for participation in HOME programs.
The
IRS Form 1040 definition of "adjusted gross income"
referred to in the HOME regulations means the figure arrived
at by using the IRS form commonly referred to as the "long
form."
The
IRS definition of "adjusted gross income" set forth
in IRS Form 1040EZ, may not be used to determine the
eligibility of applicants to HOME programs.
The
term "adjusted gross income" that is used when referring
to the IRS Form 1040 definition of annual income should not be confused
with "adjusted income," which is calculated in accordance
with the regulations at 24 CFR 5.611 for use in determining subsidy
and payment levels.
Types of Income to Count
PJs
must determine if a household applying for assistance has any of
the types of income included in the IRS Form 1040 definition of
income and what amount, if any, must be included when calculating
gross income.
Click
on the following key words to view, print, and/or download an
easy-to-read table showing the current inclusions
and exclusions (below) in the IRS Form 1040 calculation of
"adjusted gross income."
Once
the gross income figure is obtained, applicable deductions are then
subtracted to arrive at the household's "adjusted gross income."
To determine if a household may take any of the deductions and in
what amount, the PJ should follow the instruction provided with
IRS Form 1040. These deductions may include:
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IRA
deductions, |
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Medical
savings account deductions, |
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Moving
expenses, |
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One-half
of self-employment taxes, |
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Self-employed
health insurance deductions, |
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KEOGH
and self-employed SEP and SIMPLE plans, |
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Penalties
on early withdrawal of savings, and |
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Paid
alimony. |
1040 Long Form Income
This
lists the inclusions and exclusions of IRS Form 1040 income.
Inclusions
- Wages,
salaries, tips, etc.
- Taxable
interest.
- Dividends.
- Taxable
refunds, credits or offsets of State and local income taxes.
There are some exceptions - refer to Form 1040 instructions.
- Alimony
(or separate maintenance payments) received.
- Business
income (or loss).
- Capital
gain (or loss).
- Other
gains (or losses) (i.e., assets used in a trade or business
that were exchanged or sold).
- Taxable
amount of individual retirement account (IRA) distributions.
(Includes simplified employee pension [SEP] and savings incentive
match plan for employees [SIMPLE] IRA.)
- Taxable
amount of pension and annuity payments.
- Rental
real estate, royalties, partnerships, S corporations, trusts,
etc.
- Farm
income (or loss).
- Unemployment
compensation payments.
- Taxable
amount of Social Security benefits.
- Other
income. (Includes: prizes and awards; gambling, lottery or raffle
winnings; jury duty fees; Alaska Permanent fund dividends; reimbursements
for amounts deducted in previous years; income from the rental
of property if not in the business of renting such property;
and income from an activity not engaged in for profit).
Exclusions
- Child
support.
- Money
or property that was inherited, willed or given as a gift.
- Life
insurance proceeds received as a result of someone's death
Using Previously Filed 1040
If
a household has submitted an IRS Form 1040 to the IRS for income
tax purposes and that form is less than six months old, a PJ may
use the form to determine the eligibility of the applicant for HOME
programs. However, using the actual tax return has the following
implications:
- PJs
must ensure that IRS Form 4506 "Request for Copy of Tax
Form" is completed and signed.
- PJs
are required to determine if any of the circumstances as reported
on the form have changed or will change in the upcoming 12 months
and to make such adjustments.
For
example, if the applicant received a raise at his/her job
since the submission of the tax return, the current income
figure should be used to determine eligibility.
- PJs
must ensure that everyone in the household is represented through
the use of the tax return.
For
example, if a husband and wife file a joint return, but their
adult son that resides with them files a separate return,
the tax return of the husband and wife would not be sufficient
for determining income.
Treatment of Assets
Income
from certain assets must be carefully considered when calculating
income under the IRS Form 1040 definition of adjusted gross income.
The
current list of IRS Form 1040 inclusions and exclusions includes
the following types of income from assets in the income calculation:
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Taxable
interest, |
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Dividends,
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Prizes,
awards, and |
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Gambling,
lottery, or raffle winnings. |
The
primary difference between the Part
5 and the IRS Form 1040 definitions of annual income is in the
treatment of assets. The calculation of IRS Form 1040 annual income
does not require the asset
calculations necessary when using the Part 5 definition.
In
addition, some types of assets are not included in the IRS Form
1040 calculation. Examples include:
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Life
insurance proceeds, and |
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Inherited
money or property. |
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