Affordable Housing Connections
June 2021 Newsletter
There have been important changes to the Child Tax Credit that will help many families receive advance payments starting this summer.
Remember, the advanced child tax credit as well as the $300/week unemployment benefit are not included in the annual calculation of income. These payment sources can be used as a resource to help with unpaid rent.
The American Rescue Plan Act (ARPA) of 2021 expands the Child Tax Credit (CTC) for tax year 2021 only.
The expanded credit means:
- The credit amounts will increase for many taxpayers.
- The credit for qualifying children is fully refundable, which means that taxpayers can benefit from the credit even if they don't have earned income or don't owe any income taxes.
- The credit will include children who turn age 17 in 2021.
- Taxpayers may receive part of their credit in 2021 before filing their 2021 tax return.
For tax year 2021, families claiming the CTC will receive up to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021. They will receive $3,600 per qualifying child under age 6 at the end of 2021. Under the prior law, the amount of the CTC was up to $2,000 per qualifying child under the age of 17 at the end of the year.
The increased amounts are reduced (phased out), for incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers.
Advance payments of the 2021 Child Tax Credit will be made regularly from July through December to eligible taxpayers who have a main home in the United States for more than half the year. The total of the advance payments will be up to 50 percent of the Child Tax Credit. Advance payments will be estimated from information included in eligible taxpayers' 2020 tax returns (or their 2019 returns if the 2020 returns are not filed and processed yet).
The IRS urges people with children to file their 2020 tax returns as soon as possible to make sure they're eligible for the appropriate amount of the CTC as well as any other tax credits they're eligible for, including the Earned Income Tax Credit (EITC). Filing electronically with direct deposit also can speed refunds and future advance CTC payments.
Eligible taxpayers do not need to take any action now other than to file their 2020 tax return if they have not done so. Eligible taxpayers who do not want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to decline receiving advance payments. Taxpayers will also have the opportunity to update information about changes in their income, filing status or the number of qualifying children.
Stay tuned for more details as IRS provides information.
Reviewing and Revising Utility Allowances
Although we all wish our utility rates would always stay the same, we are bound to see variances in these rates year to year. Because utility rates change, utility allowances must be updated to account for these changes. Both the IRS and HOME statues and regulations, require an update of utility allowances annually. It is the owner’s/agent’s duty to contact the appropriate organization to request current utility allowance information. AHC updates its website as new limits are published.
If the utility allowance does change, the new utility allowance must be implemented 90 days after the change. This timeframe is referred to in regulation as the "90-day period." After the 90- day period, the new utility allowance must be used.
What Should I do?
Question: I work at a property that has floating HOME units. While conducting an annual recertification on a designated low HOME unit, the household’s income increased above 50% AMI however remains less than 80% AMI. Our HOME Agreement requires 20 HOME assisted units, yet all other HOME-assisted units are occupied with eligible households. I have no other HOME assisted units, what can I do to bring my unit back into compliance? Also, what would I need to do if my household went over 80% AMI?
When a household in a HOME unit goes over income, the HOME unit occupied by the household is considered temporarily out of compliance. In addition to the unit being out of compliance, the project may also be out of compliance with its occupancy and unit mix requirements. Temporary noncompliance due to an increase in an existing household’s income is permissible if the owner takes specific steps to restore the correct occupancy and unit mix in the property as soon as possible. Remember, HOME does not allow a household’s tenancy to be terminated because their income increased.
To determine next steps in the example above, you need to know the HOME requirements that apply to the property; specifically, the required number of Low HOME units.
Since this household is in a Low HOME unit, will the project still meet its unit mix of Low and High HOME units if this unit is redesignated as a High HOME unit? If the answer to this question is yes because you have “extra” Low HOME units, then this unit can be redesignated as a High HOME unit and the unit rent can be adjusted to no more than the High HOME rent after proper notice is given to the household.
If the project will fall below its required unit mix of Low and High HOME units if this unit is redesignated as a High HOME unit, then there are a couple of things you can do.
The first option is to rent the next available HOME unit to a household at or below 50% AMI with a rent that does not exceed the Low HOME rent limit. You will designate this newly rented unit as a Low HOME unit and redesignate the over 50% AMI HOME unit as a High HOME unit. If you so choose, you can also adjust the rent to no more than the High HOME rent after giving proper notice to the household.
This can also happen at a household’s annual recertification. If you have a household whose income falls below 50% at their annual recert, you can redesignate this unit as a Low HOME unit as long as the rent is also adjusted to no more than the Low HOME rent limit for that unit size.
Another option is to look at your existing High HOME units. Remember, a High HOME unit can be occupied by a household whose income is below 50% AMI. The unit is designated as a High HOME unit only because the gross rent exceeds the Low HOME rent limit. So, do you have any High HOME units occupied by households with incomes at or below 50% AMI? If so, you may be able to redesignate a High HOME unit as a Low HOME unit by adjusting the rent so that it does not exceed the Low HOME rent limit for that unit size. Granted, decreasing rent on a unit is something not every owner will want to do.
Now for the next part of the question, What would I need to do if my household went over 80% AMI?
Whenever a household in a HOME assisted unit goes over 80% AMI (or over 140% if also tax credit, but that is another Q&A), that HOME unit is temporarily out of compliance because the household is over income. To cure this noncompliance, you adjust the rent of the over income household to 30% of its monthly adjusted income (so you should consider allowed deductions) when permitted by the lease. With floating HOME units, the rent is capped at market rent for the area. This means that if 30% of the household’s adjusted monthly income is higher than the market rent for the area, the unit rent will be capped at market rent.
In this example, restoring compliance does not end here. You will also have to rent the next available non HOME unit a household at or below 50% AMI if you need to replace a Low HOME unit, or if you must replace a High HOME unit, to a household at or below 80% AMI, at a rent that does not exceed the Low or High HOME rent depending on what kind of HOME unit you need to replace. When this is done, you will designate the HOME unit with the over income household as a non-assisted unit and the HOME restrictions will no longer apply to this household or unit.
Affordable Housing Connections
We deliver monitoring and consulting services to governmental organizations, property owners and managers; and education to individuals who aspire to leadership in the affordable housing industry. Our aim is to protect the investment of private equity and tax dollars and to ensure continued quality affordable rental housing.