HUD Handbook 4350.3 § 5-10
Calculating Adjusted Income (HUD Occupancy Handbook 4350.3 REV-1 CHG-4)
HUD guidance — not codified law
In Force
Verified 9/24/2026 · Next check 10/1/2026
effective 9/24/2026FederalSection 8 HCVOperative Text
HUD Handbook 4350.3 § 5-10
A. Dependent Deduction
1. A family receives a deduction of $480 for each family member *(except
foster children and foster adults)* who is:
a. Under 18 years of age;
b. A person with disabilities; or
c. A full-time student of any age.
*It is not necessary for a member of the family to have legal custody of a
dependent in order to receive the dependent deduction.*
2. Some family members may never qualify as dependents regardless of
age, disability, or student status.
a. The head of the family, the spouse, and the co-head may never
qualify as dependents.
b. A foster child, *foster adult*, an unborn child, a child who has not
yet joined the family or a live-in aide may never be counted as a
dependent.
3. A full-time student is one who is carrying a full-time subject load at an
institution with a degree or certificate program. A full-time load is defined
by the institution where the student is enrolled.
4. When more than one family shares custody of a child and both live in
assisted housing, only one family at a time can claim the dependent
deduction for that child. The family with primary custody or with custody
at the time of the initial certification or annual recertification receives the
deduction. If there is a dispute about which family should claim the
dependent deduction, the owner should refer to available documents
such as copies of court orders or an IRS return showing which family has
claimed the child for income tax purposes.
B. Child Care Deduction
1. Anticipated expenses for the care of children under age 13 (including
foster children) may be deducted from annual income if all of the following
are true:
a. The care is necessary to enable a family member to work, seek
employment, or further his/her education (academic or vocational).
b. The family has determined there is no adult family member
capable of providing care during the hours care is needed.
c. The expenses are not paid to a family member living in the unit.
d. The amount deducted reflects reasonable charges for child care.
e. The expense is not reimbursed by an agency or individual outside
the family.
f. Child care expenses incurred to permit a family member to work
must not exceed the amount earned by the family member made
available to work during the hours for which child care is paid.
2. When child care enables a family member to work or go to school, the
rule limiting the deduction to the amount earned by the family member
made available to work applies only to child care expenses incurred while
the individual is at work. While that family member is at school or looking
for work, the expense for child care is not limited.
Example – Child Care Deduction
Separate Expenses for Time at Work and Time at School
Bernice and Ernest have two children. Both parents work, but Bernice works
only part-time and goes to school half time. She pays $4.00 an hour for eight
hours of child care a day. For four of those hours, she is at work; for four of
them she attends school. She receives no reimbursement for her child care
expense.
Her annual expense for child care during the hours she works is $4,000. Her
annual expense for the hours she is at school is also $4,000. She earns
$6,000 a year. Ernest earns $18,000.
The rule requires that Bernice’s child care expense while she is working not
exceed the amount she is earning while at work. In this case, that is not a
problem. Bernice earns $6,000 during the time she is paying $4,000.
Therefore, her deduction for the hours while she is working is $4,000.
Bernice’s expense while she is at school is not compared to her earnings.
Her expense during those hours is $4,000, and her deduction for those hours
will also be $4,000.
Bernice’s total child care deduction is $8,000 ($4,000 + $4,000). The total
deduction exceeds the amount of Bernice’s total earnings, but the amount
she pays during the hours she works does not exceed her earnings.
If Bernice’s child care costs for the hours while she works were greater than
her earnings, she would not be able to deduct all of her child care costs.
Bernice is paying a total of $8,000 in child care expenses. Of that expense,
payments of $4,000 cover the hours while she is in school; payments of
$4,000 cover the hours she works. If Bernice were earning $3,500, her total
child care deduction for the hours she works would be capped at the amount
of money she earns. In this case, the total deduction would be $7,500
($4,000 for expenses while she is in school plus $3,500 of the amount she
pays while she is working.)
3. Child care attributable to the work of a full-time student (except for head,
spouse, co-head) is limited to not more than $480, since the employment
income of full-time students in excess of $480 is not counted in the
annual income calculation. Child care payments on behalf of a minor who
is not living in the applicant’s household cannot be deducted.
4. Child care expenses incurred by two assisted households with split
custody can be split between the two households when the custody and
expense is documented for each household and the documentation
demonstrates that the total expense claimed by the two households does
not exceed the cost for the actual time the child spends in care.
C. Deduction for Disability Assistance Expense
1. Families are entitled to a deduction for unreimbursed, anticipated costs
for attendant care and “auxiliary apparatus” for each family member who
is a person with disabilities, to the extent these expenses are reasonable
and necessary to enable any family member 18 years of age or older who
may or may not be the member who is a person with disabilities to be
employed.
Examples – Eligible Disability Assistance Expenses
The payments made on a motorized wheelchair for the 42-year-
old son of the head of the family enable the son to leave the
house and go to work each day on his own. Prior to the purchase
of the motorized wheelchair, the son was unable to make the
commute to work. These payments are an eligible disability
assistance expense.
Payments to a care attendant to stay with a disabled 16-year-old
child allow the child’s mother to go to work every day. These
payments are an eligible disability assistance expense.
2. This deduction is equal to the amount by which the cost of the care
attendant or auxiliary apparatus exceeds 3% of the family’s annual
income. However, the deduction may not exceed the earned income
received by the family member or members who are enabled to work by
the attendant care or auxiliary apparatus.
3. If the disability assistance enables more than one person to be employed,
the owner must consider the combined incomes of those persons. For
example, if an auxiliary apparatus enables a person with a disability to be
employed and frees another person to be employed, the allowance
cannot exceed the combined incomes of those two people.
Example – Calculating a Deduction for Disability Assistance
Expenses
Head’s earned income $14,500
Spouse’s earned income +$12,700
Total income $27,200
Care expenses for disabled 15-year-old $3,850
Calculation: $3,850
(3% of annual income) - $816
Allowable disability assistance expenses $3,034
(NOTE: $3,034 is not greater than amount earned by spouse, who is enabled to
work.)
4. Auxiliary apparatus includes items such as wheelchairs, ramps,
adaptations to vehicles, or special equipment to enable a sight-impaired
person to read or type, but only if these items are directly related to
permitting the disabled person or other family member to work.
a. Include payments on a specially-equipped van to the extent they
exceed the payments that would be required on a car purchased
for transportation of a person who does not have a disability.
b. The cost of maintenance and upkeep of an auxiliary apparatus is
considered a disability assistance expense (e.g., the veterinarian
costs and food costs of a service animal; the cost of maintaining
the equipment that is added to a car, but not the cost of
maintaining the car).
c. If the apparatus is not used exclusively by the person with a
disability, the owner must prorate the total cost and allow a
specific amount for disability assistance.
5. In addition to anticipated, ongoing expenses, one-time nonrecurring
expenses of a current resident for auxiliary apparatus may be included in
the calculation of the disability assistance expense deduction after the
expense is incurred. These expenses may be added to the family’s total
disability assistance expense either at the time the expense occurs
through an interim recertification or in the rent calculation during the
following annual recertification.
6. Attendant care includes but is not limited to reasonable expenses for
home medical care, nursing services, housekeeping and errand services,
interpreters for hearing-impaired, and readers for persons with visual
disabilities.
Example – Calculating a Deduction When Disability Assistance Expenses Exceed
Related Earnings
Kenisha Prior, an individual with disabilities, lives with her mother Grace Prior. Her mother
works full time. Kenisha works part time at the library. She requires a motorized wheelchair and
special transportation to get to her job.
Grace Prior‘s Income $24,000
Kenisha Prior’s Income + 5,000
Total income $29,000
Disability Assistance Expense $8,000
(3% of annual income) - $870
$7,130
The $7,130 exceeds the amount Kenisha earns. The disability assistance deduction, therefore,
is limited to the amount earned by the person made available to work or, in this case, $5,000.
7. When the same provider takes care of children and a disabled person
over age 12, the owner must prorate the total cost and allocate a specific
cost to attendant care. The sum of both child care and disability
assistance expenses cannot exceed the employment income of the family
member enabled to work.
Example – Calculating Child Care
and Disability Assistance Deductions
Head’s earned income $8,300
Spouse’s earned income + $6,700
Total income $15,000
The family has two children: a 10-year-old son and a 15-year-old son who is disabled. One
care provider, who charges $120 per week, cares for both sons. The care provider reports
that the cost for caring for the 10-year-old is $50 a week and the cost of care for the child with
disabilities is $70 a week.
Child care expense $50 x 52 = $2,600
Total disability assistance expense $70 x 52 = $3,640
Total disability assistance expense ($3,640) less 3% of annual income ($450) = $3,190
Child care deduction $2,600
Disability assistance deduction +$3,190
Total deductions $5,790
Total deductions when compared to earnings must not exceed employment earnings of
$6,700.
D. Medical Expense Deduction
1. The medical expense deduction is permitted only for families in which the
head, spouse, or co-head is at least 62 years old or is a person with
disabilities (elderly or disabled families).
2. If the family is eligible for a medical expense deduction, owners must
include the unreimbursed medical expenses of all family members,
including the expenses of nonelderly adults or children living in the family.
3. Medical expenses include all expenses the family anticipates to incur
during the 12 months following certification/recertification that are not
reimbursed by an outside source, such as insurance.
4. The owner may use the ongoing expenses the family paid in the 12
months preceding the certification/recertification to estimate anticipated
medical expenses.
5. The medical expense deduction is that portion of total medical expenses
that exceeds 3% of annual income.
Example – Calculating the Medical Expense Deduction
Age of head 64 Annual income $12,000
Age of spouse 58 Total medical expenses $1,500
Sample Calculation
Annual income $12,000
x .03
3% of annual income $ 360
Total medical expenses $1,500
- $360
Allowable medical expenses $ 1,140
6. In addition to anticipated expenses, past one-time nonrecurring medical
expenses that have been paid in full may be included in the calculation of
the medical expense deduction for current tenants at an initial, interim or
annual recertification. Past one-time nonrecurring medical expenses that
have been paid in full are not applicable when calculating anticipated
medical expenses at move-in. If the tenant is under a payment plan, the
expense would be counted as anticipated
a. There are two options for addressing one-time medical expenses.
These expenses may be added to the family’s total medical
expenses either: (1) at the time the expense occurs, through an
interim recertification, or (2) at the upcoming annual recertification
NOTE: If the one-time expense is added at an interim
recertification, it cannot be added to expenses at the annual
recertification.
b. The following example illustrates the two options. Tenants may
use either option.
The following example illustrates the two options. Tenants may use either option.
Example – One-Time, Nonrecurring Medical Expenses
Maria and Gustav Crumpler had a total of $2,932 in medical expenses last year (Year 1). Of this
amount, $932 covered Gustav’s gall bladder surgery; $2,000 was for routine costs that are expected
to re-occur in the coming year. The entire amount may be included in the Crumpler’s medical costs
for the coming year (Year 2) despite the fact that the gall bladder surgery is a past event that is not
likely to re-occur.
If, during the coming year (Year 2), the Crumplers experience additional one-time medical costs not
anticipated at the annual recertification, they may request an interim recertification or wait for their
next annual recertification (during Year 3) and ask for the unanticipated expenses to be included in
the medical expense calculation for the following year.
The owner may wish to explain to residents that including past one-time medical expenses in an
annual recertification rather than in an interim recertification will result in a rent reduction for a larger
number of months.
For example, let us assume Maria has unanticipated dental surgery during Year 2 at a cost of $3,550
six months after the annual recertification. The Crumpler’s current TTP is $560; their annual income
is $25,000.
Annual income $25,000
Less elderly household deduction - $400
Less allowable medical deduction ($2,932 less 3% of $25,000) - $2,182
Adjusted annual income $22,418
Adjusted monthly income $1,868
TTP $560
If the Crumplers request an interim recertification, the $3,550 additional cost will lower their rent for 6
months; if they wait for their annual recertification, the cost of the dental surgery will affect their rent
for 12 months.
Annual income $25,000
Less elderly household deduction - $400
Less allowable medical deduction ($6,482 less 3% of $25,000) - $5,732
Adjusted annual income $18,868
Adjusted monthly income $1,572
TTP $472
At the Crumplers’ current annual income, the large dental bill reduces rent by $88.
OPTION #1: If the Year 2 rent is adjusted through an interim recertification, the Crumplers will save 6
months times $88 or $528.
OPTION #2: If the Crumplers wait until their annual recertification, the large bill will affect their rent
for the 12 months of Year 3, and they will save twice as much, or $1,056.
7. When a family is making regular payments over time on a bill for a past
one-time medical expense, those payments are included in anticipated
medical expenses. However, if a family has received a deduction for the
full amount of a medical bill it is paying over time, the family cannot
continue to count that bill even if the bill has not yet been paid.
Example – Medical Expense Paid over a Period of Time
Ursula and Sebastian Grant did not have insurance to cover
Sebastian’s operation four years ago. They have been paying $105 a
month toward the $5,040 debt. Each year that amount ($105 x 12
months or $1,260) has been included in their total medical expenses.
A review of their file indicates that a total of $5,040 has been added to
total medical expenses over the four-year period. However, the
Grants bring a current invoice to their annual recertification interview.
Over the four-year period they have missed five payments and still
owe $525. Although they still owe this amount, the bill cannot be
included in their current medical expenses because the expense has
already been deducted.
8. Not all elderly or disabled applicants or participants are aware that their
unreimbursed expenses for medical care are included in the calculation of
adjusted income for elderly or disabled families. For that reason, it is
important for owners to ask enough questions to obtain complete
information about allowable medical expenses. The following list
highlights some of the most common expenses that may be deducted. A
list of examples of eligible medical expenses may be found in Exhibit 5-3.
a. Services of doctors and health care professionals;
b. Services of health care facilities;
c. Medical insurance premiums or costs of an HMO;
d. Prescription/nonprescription medicines that have been prescribed
by a physician;
e. Transportation to treatment;
f. Dental expenses;
g. Eyeglasses, hearing aids, batteries;
h. Live-in or periodic medical assistance such as nursing services, or
costs for an assistance animal and its upkeep;
i. Monthly payments on accumulated medical bills;
j. Medical care of a permanently institutionalized family member if
his or her income is included in annual income; and
k. Long-term care insurance premiums. The family member paying
a long-term care insurance premium must sign a certification (see
Sample Certification for Qualified Long-Term Care Insurance
Expenses in Exhibit 5-4) that states the insurance is guaranteed
renewable, does not provide a cash surrender value, will not cover
expenses covered under Medicare, and restricts the use of
refunds. The certification must be maintained in the family’s
occupancy file. (Paragraph 5-6 L.3 describes situations in which
long-term care insurance payments must be included in annual
income.)
9. Special calculation for families eligible for disability assistance and
medical expense deductions. If an elderly family has both unreimbursed
medical expenses and disability assistance expenses, a special
calculation is required to ensure that the family’s 3% of income
expenditure is applied only one time. Because the deduction for disability
assistance expenses is limited by the amount earned by the person
enabled to work, the disability deduction must be calculated before the
medical deduction is calculated.
a. When a family has unreimbursed disability assistance expenses
that are less than 3% of annual income, the family will receive no
deduction for disability assistance expense. However, the
deduction for medical expenses will be equal to the amount by
which the sum of both disability and medical expenses exceeds
3% of annual income.
b. If the disability assistance expense exceeds the amount earned by
the person who was enabled to work, the deduction for disability
assistance will be capped at the amount earned by that individual.
When the family is also eligible for a medical expense deduction,
however, the 3% may have been exhausted in the first calculation,
and it then will not be applied to medical expenses.
c. When a family has both disability assistance expenses and
medical expenses, it is important to review the collected expenses
to be sure no expense has been inadvertently included in both
categories.
E. Elderly Family Deduction
An elderly or disabled family is any family in which the head, spouse, or co-head
(or the sole member) is at least 62 years of age or a person with disabilities.
Each elderly or disabled family receives a $400 family deduction. Because this is
a “family deduction” each family receives only one deduction, even if both the
head and spouse are elderly or disabled.
Example – Special Calculation for Families Who Are Eligible
for Disability Assistance and Medical Expense Deductions
The following is basic information on the family:
Head (retired/disabled)—SS/pension income $16,000
Spouse (employed)—employment income + $4,000
Total Annual Income $20,000
Total disability assistance expenses $500
Total medical expenses $1,000
Step 1: Determine if the disability assistance expenses
exceed 3% of the family’s total annual income.
Total disability assistance expenses $500
Minus 3% of total annual income -$600
($100)
No portion of the disability expenses exceeds 3%
of the annual income; therefore, the disability
assistance deduction is $0.
Step 2: Calculate if the medical expenses exceed the
balance of 3% of the family’s total annual income.
Total medical expenses $1,000
Minus the balance of 3% of total annual income - $100
Allowable medical expenses deduction $900
F. No Deduction for Alimony or Child Support Paid to a Person outside the
Assisted Family
There is no deduction for an amount paid to a person outside the assisted family
for alimony or child support. Even if the amount is garnished from the wages of a
family member, it must be included in annual income.
Example – Child Support Garnished from Wages
George Graevette pays $150 per month in child support. It is garnished from
his monthly wages of $950. After the child support is deducted from his
salary, he receives $800. The owner must count $950 as George’s monthly
income.Source: Legislative text reproduced verbatim
Effective Timeline
Current
Sep 24, 2026
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Related Rules
§ 888.113
§ 888.113 Fair market rents for existing housing: Methodology.
§ 888.115
§ 888.115 Fair market rents for existing housing: Manner of publication.
§ 5.512
§ 5.512 Verification of eligible immigration status.