It seems as if a lot of residents have embraced the Ride Hailing organizations (e.g. Uber, Lyft, etc.) as an opportunity to earn income.
In some cases, you may use gross income to project annual income. However, in most cases, residents want you to treat this income as self-employment. This means you advise them to provide information that allows you to verify “net income from a business”.
You can refer to HUD Handbook 4350.3 Revision 1, Appendix 6C for guidance when developing your own policies.
Net Income from a Business The following documents show income for the prior years. Owners must consult with tenants and use this data to estimate income for the next 12 months.
Because customers frequently ask how to establish a policy when addressing this type of income, we offer the following suggestions using HUD’s guidance above.
Develop a policy so that all residents with “like employment” are treated the same.
Most Ride Hailing organizations provide income statements showing monthly, quarterly and annual earnings. This information is reported to the IRS but may not show up in EIV.
In the policy we are creating for our customers, site staff should request copies of most recent concurrent statements showing eight weeks of income (but you may want to say four weeks or six weeks - it's up to you). We are also writing the policy to state that the resident must provide a copy of the Schedule C (from the tax return if the resident was required to file taxes) or copies of annual financial statements.
However, when the employment is new, it can be more challenging to effectively project this type of income.
For example, if a resident started working July 1, 2018, and reported the new income on July 20, 2018, they will not have filed a tax return (including Schedule C) for 2018. Tax returns for 2018 are not due until March 15, 2019.
So, when the income is new (resident reports that he/she is now working for a Ride Hailing service), get as much income information as you can. If the resident has been working for one week, get one week’s worth of income information. If the resident has been working for one month, get one month’s worth of income information. Use what you can to project income.
If the resident made $800 per week for two weeks, projected income is $41600.00.
Please refer to HH 4350.3 R1, C4, Paragraph 5-13 B for guidance re: documenting the file when 3rd party verification is not available. Document the file explaining why you did not get eight statements (or whatever your policy calls for). For example:
Could not obtain eight statements because resident has only worked for two weeks. Projected income based on available documentation and advised resident to report if they believe income was over or under stated.
Any valid business expenses can be deducted if the resident is able to provide receipts or other documents (e.g. mileage log, cell phone bill) to verify the projected expense. We recommend that you establish a specific timeframe for providing such information (e.g. within 10 business days).
Note: Residents should contact an accounting professional to understand which expenses can be applied and how to apply those expenses. If you have questions about which expenses are valid, you should contact your own accountant or accounting department.
As for any new business, first year expenses will be higher than expenses incurred in subsequent years if the resident has to purchase software, cell phones, etc.
We suggest that you don’t act as your resident’s accountant. If a resident wants you to consider net income instead of gross income, they should provide their own financial statements. Financial statements can be produced using any “off the shelf” accounting product. Alternatively, you can create a verification form that allows the resident to break down expenses.
Ask for receipts or other documents (e.g. mileage log) to verify expenses shown on the financial statement or other verification form. Copy the receipts and included them in the tenant file. Residents should keep these receipts because they will need them for tax purposes.
We have created a sample Self Certification – Income – Ride Hailing, that you may want to use to get some ideas when creating your own verification form. This sample is available on our Resources Page under the FASTFacts and Sample Forms link.
Keep in mind that, when this income is not included on the EIV Income Report, EIV will generate an Income Discrepancy indicating that the 50059 shows too much income. In these cases, investigate the Income Report and, if appropriate, document the tenant file to explain that the income is not available in EIV but was verified and is accurate. No additional action would be required in this case. Attend the RBD Online Training Workshop - EIV Income Discrepancies for additional information.