HUD Adjusted Income: Deductions and Rent Calculation

HUD adjusted income is the figure your housing agency uses to set your rent in public housing and the Housing Choice Voucher (Section 8) program. It starts with your household’s gross annual income and subtracts four specific deductions: one for each dependent, one for elderly or disabled families, one for qualifying medical costs, and one for childcare that lets someone work or study. The number that remains, divided by 12, is your monthly adjusted income, and in most cases 30 percent of that becomes your monthly rent. The deduction amounts changed under the Housing Opportunity Through Modernization Act (HOTMA), so older figures floating around online may no longer be accurate.

What Goes Into Annual Income

Annual income is the starting figure, before any deductions. It includes all money received by every family member 18 or older (and by the head of household or spouse regardless of age), plus unearned income received on behalf of children under 18.¹ Wages, salaries, overtime, commissions, Social Security, pensions, annuities, unemployment, and recurring cash gifts all count.

Regular monthly cash from a relative who helps with bills counts because it recurs. Holiday, birthday, wedding, and baby shower gifts are nonrecurring and stay out of the total.¹

Income That Does Not Count

Federal regulations exclude more than two dozen income categories. Families sometimes over-report these, which inflates adjusted income and raises rent. Major exclusions include:²

Wages earned by children under 18.
Payments for the care of foster children or foster adults, and state or tribal kinship and guardianship care payments.
Federal, state, local, and institutional student financial aid for tuition, books, supplies, and room and board.
Insurance settlements for personal or property losses and reimbursements for medical expenses.
Lump-sum back payments of Social Security, SSI, or VA disability benefits.
Balances in IRAs, 401(k)s, and similar retirement accounts recognized by the IRS.
Income and distributions from 529 plans and Coverdell education savings accounts.
Military hostile fire pay.
Federal tax refunds and refundable credits, for 12 months after you receive them.

Income belonging to a live-in aide is also excluded, as is income of foster children and foster adults living with you. If you receive an unusual payment and aren’t sure how it’s treated, ask your housing agency before your next reexamination.

The Four Deductions That Reduce Your Income

Once annual income is set, your housing agency subtracts the four mandatory deductions. The dollar amounts are adjusted for inflation each year; these are the 2026 figures.³

Dependent Deduction

You get $500 for each dependent.³ A dependent is a family member (other than the head, spouse, or co-head) who is under 18, has a disability, or is a full-time student. Three qualifying dependents means $1,500 off annual income.

Elderly or Disabled Family Deduction

If the head, spouse, or co-head is 62 or older or has a disability, the family gets one flat $550 deduction.³ This is per family, not per person. A household with two spouses over 62 still gets $550.

Medical and Disability Assistance Expenses

Elderly and disabled families can deduct unreimbursed medical expenses. Any family that includes a person with a disability can also deduct unreimbursed attendant care and auxiliary apparatus costs that allow a household member to work. The two categories are combined, and only the portion exceeding 10 percent of annual income is deductible.⁴ On $20,000 in annual income with $3,500 in qualifying costs, the deductible amount is $1,500 (the piece above the $2,000 threshold).

The 10 percent floor is much higher than the old 3 percent rule. HOTMA phases the increase in over three years for families who were already receiving the medical deduction under the old rule: 5 percent in year one, 7.5 percent in year two, and 10 percent in year three.⁵ New participants go straight to 10 percent.

The disability assistance portion has its own cap: it cannot exceed the combined earned income of family members aged 18 or older who are able to work because of that attendant care or equipment.⁴

Childcare Expenses

Reasonable childcare costs that allow a family member to work, look for work, or attend school are deductible.⁴ HUD program guidance applies this to care for children under 13. There’s no statutory cap tied to the enabled family member’s earnings, but the expense must be “reasonable,” which gives your agency room to limit the amount.

Hardship Relief When the Medical Threshold Hurts

The jump from 3 percent to 10 percent can hit elderly households with chronic conditions especially hard. A family that cannot pay rent because of the higher threshold can request a hardship exemption that lowers the deduction floor back to 5 percent of annual income for 90 days, renewable if the hardship continues.⁵

A parallel exemption exists for childcare. If a family member stops working or attending school but the childcare expense is still necessary, the family can request a 90-day hardship exemption to keep the deduction in place, and the agency can extend it in additional 90-day periods.⁶

Minimum rent has its own hardship exemption. If even the minimum is unaffordable because of job loss, a death in the family, or loss of government benefits, you can ask for an exemption. The minimum rent is suspended while the agency reviews, and you can’t be evicted for nonpayment during that review.⁷

How the Final Rent Number Is Built

After the deductions, divide the result by 12 to get monthly adjusted income. Your Total Tenant Payment (TTP) is the highest of these four amounts:⁸

30 percent of monthly adjusted income.
10 percent of monthly gross income (before deductions).
Welfare rent, meaning the portion of a public welfare payment designated for housing, where applicable.
The minimum rent set by your housing agency.

For most families the 30 percent figure wins, which is why subsidized rent is usually described as “30 percent of income.” But a household with very low adjusted income relative to gross income can find that 10 percent of gross produces the higher figure, and that becomes the TTP instead.

The minimum rent is a floor. In public housing and Section 8 vouchers it can be up to $50 per month; in other Section 8 programs it is $25.⁷ Some agencies set theirs lower or at zero. If your calculation produces a TTP below the minimum, you pay the minimum unless you qualify for the hardship exemption above.

A Worked Example

A 65-year-old head of household has $24,000 in gross annual income, two dependents, and $4,000 in unreimbursed medical expenses. Deductions: $550 elderly family, plus $1,000 for the two dependents, plus $1,600 in medical costs (the piece above 10 percent of $24,000, which is $2,400). Total deductions: $3,150. Adjusted annual income: $20,850. Monthly adjusted income: $1,737.50. Thirty percent is about $521, and that’s the TTP because it exceeds 10 percent of monthly gross ($200) and any typical minimum rent.

When Your Income Gets Reviewed

Housing agencies reexamine your income and family composition on a set schedule. Reviews were traditionally annual, but HOTMA lets agencies conduct biennial reviews for some families depending on agency policy.

Between scheduled reviews, an interim reexamination is required when your adjusted income rises enough to produce a 10 percent or greater increase in annual adjusted income.⁹ Increases in earned income are generally excluded from this trigger, so a raise or a new job usually will not force an interim review unless the agency’s written policy specifically says so. The idea is not to penalize families for earning more.

If your income drops, ask for an interim reexamination yourself. Waiting for the next annual review means overpaying rent in the meantime.

Documentation to Bring

Your agency needs proof of every piece of the calculation. For wages, the standard is at least two current, consecutive pay stubs per wage earner.¹⁰ Social Security amounts are often verified electronically, so a separate benefit letter may not be needed if you confirm the reported figure.

Deductions each need their own proof. Medical expenses call for receipts, invoices, or provider statements showing what you paid out of pocket after insurance. Childcare deductions need similar documentation from the provider. Dependent deductions typically call for birth certificates or adoption records. Disability-related deductions may require documentation of the disability and of the specific attendant care or equipment costs.

For household assets at or below $52,787, your housing agency may accept your signed self-certification instead of third-party bank statements, though it must independently verify at least once every three years.¹¹ Above that amount, expect to submit current statements for every account.

Keep copies of what you turn in. If the agency miscalculates, your own records are the fastest route to a correction, and organized paperwork moves the reexamination along whether it’s routine or triggered by a change in circumstances.

1
eCFR. 24 CFR 5.609 – Annual Income
2
eCFR. 24 CFR 5.609 – Annual Income
3
HUD User. 2026 HUD Inflation-Adjusted Values
4
eCFR. 24 CFR 5.611 – Adjusted Income
5
HUD Exchange. HOTMA Resident Fact Sheet – Health, Medical, and Childcare Deductions
6
eCFR. 24 CFR Part 5 Subpart F – Family Income and Family Payment
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eCFR. 24 CFR 5.630 – Minimum Rent
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eCFR. 24 CFR 5.628 – Total Tenant Payment
9
eCFR. 24 CFR 960.257 – Family Income and Composition: Annual and Interim Reexaminations
10
U.S. Department of Housing and Urban Development. Administrative Guidance for Effective and Mandated Use of the Enterprise Income Verification (EIV) System
11
U.S. Department of Housing and Urban Development. HOTMA Net Family Assets