HUD Annual Income Definition: Inclusions, Exclusions, and Projection

Under HUD’s annual income definition, annual income is the projected gross amount of money your household expects to receive over the next 12 months from nearly all sources, counted before any payroll deductions and reduced only by a specific list of exclusions written into federal regulation.¹ Your housing authority uses this figure, together with a separate set of deductions that produce your adjusted income, to decide whether you qualify for programs like Section 8 Housing Choice Vouchers and Public Housing and to set your share of the rent.²

What HUD Counts as Income

The net is wide. Annual income includes all money received from any source by each household member who is 18 or older, plus every household member who is the head of household or spouse regardless of age, plus any unearned income received by or on behalf of dependents under 18.¹ The amounts are counted before deductions for taxes, health insurance, or retirement contributions. Gross pay is what matters, not take-home.

Periodic payments count as reliable income streams. Social Security benefits, annuities, pension distributions, disability payments, and regular insurance payouts all go into the annual income total, along with unemployment compensation, workers’ compensation received as periodic payments, and alimony.¹

Self-Employment and Business Income

If you run a business or work for yourself, HUD counts the net income, meaning revenue minus ordinary operating expenses. Straight-line depreciation on business assets is deductible following IRS rules, but costs of business expansion and principal payments on business loans are not.¹

Two rules trip people up. A business that operates at a loss is recorded as zero income; you cannot subtract the loss from wages or Social Security.³ And any cash or assets you withdraw from the business counts as income, unless the withdrawal reimburses money you originally invested.¹

Income From Assets

Income produced by your assets also counts: interest from savings accounts, dividends from investments, rental income from property. How that income is measured depends on the size of your household’s net assets. If net family assets total $52,787 or less (the 2026 inflation-adjusted threshold), only the actual income the assets produce is counted. Above that threshold, when the actual return on a particular asset can’t be determined, the housing authority applies an imputed return using HUD’s passbook savings rate, set at 0.40 percent for 2026.⁴

What HUD Excludes From Income

The exclusion list is long, and getting these right can meaningfully lower your rent. The most common exclusions:

Earned income from any household member under 18.¹
Payments for the care of foster children, foster adults, or care provided through state or tribal kinship and guardianship arrangements.
Insurance payments and settlements for personal or property losses, including health insurance reimbursements, motor vehicle insurance payouts, and workers’ compensation settlements (as opposed to periodic workers’ comp payments, which are counted).
Amounts received specifically for or as reimbursement of health and medical care expenses.
Hostile fire pay for service members exposed to hostile fire.
Income from and distributions from Coverdell education savings accounts (Section 530) and 529 qualified tuition programs, plus government-funded “baby bond” accounts.
Amounts recovered in lawsuits or settlements for malpractice or negligence that resulted in a family member becoming disabled.
Distributions of principal from an irrevocable trust outside the family’s control.

Nonrecurring Income

HOTMA added a broad exclusion for income that will not repeat in the coming year. This covers stimulus payments from any level of government, federal and state tax refunds (including refundable credits like the Earned Income Tax Credit), Census Bureau payments, gifts for holidays or birthdays, in-kind donations, and lump-sum additions to assets such as lottery winnings or inheritances.¹ The test is whether the income will recur. An inheritance becomes part of net assets going forward, and any income it generates counts, but the lump sum itself is not annual income.

Federal Benefits Excluded by Statute

Certain federal benefit programs are excluded by their own authorizing statutes. SNAP benefits (formerly food stamps) are the most common example.⁵ HUD maintains and periodically updates the list of federally excluded benefit programs.

Student Financial Assistance

Student aid has two separate exclusions. First, any financial assistance the Higher Education Act requires be excluded from family income is automatically excluded from HUD’s annual income as well.¹ Second, grants and scholarships from federal, state, tribal, or local governments, nonprofits, businesses, or educational institutions are excluded when they cover tuition, books, supplies, room and board, or other school-charged fees. For a student who is not the head of household or spouse, the exclusion also extends to reasonable and actual housing costs while attending school and not living in the assisted unit.

Some things do not qualify as student financial assistance. Work-study pay and teaching fellowships generally count as earned income. Gifts from family or friends do not qualify. Any scholarship amount exceeding the student’s actual education costs counts as income.

Dependent full-time students get an additional break: their earned income above the $500 dependent deduction amount for 2026 is excluded entirely.⁶

Live-In Aides and Training Program Earnings

A live-in aide’s income is completely excluded from the household calculation. To qualify, the aide must live with an elderly, near-elderly, or disabled person specifically to provide essential care, must not be financially obligated to support the household, and would not otherwise live in the unit.⁷

Earnings and benefits from participation in HUD-funded training programs, qualifying federal employment training programs, or resident management training are excluded during the period of participation, provided the program has clearly defined goals and objectives.¹

Whose Income Gets Counted

The housing authority counts income from every household member who is 18 or older, plus the head of household or spouse regardless of age, plus any unearned income received by or on behalf of dependents under 18.¹ If a child receives Social Security survivor benefits, those payments go into the household total even though the same child’s part-time wages would not.

The 12-Month Projection

Annual income is forward-looking. The housing authority projects what your household will receive during the 12 months following admission or the annual reexamination date, based on your current circumstances.⁸ If you recently started a new job, the calculation is a full year at your current pay rate. For seasonal work, the authority may look at historical patterns to estimate likely annual earnings. Your figure reflects what you’re expected to earn going forward, not what appeared on last year’s tax return.

Annual Income Versus Adjusted Income

Annual income is not the number your rent is based on. Your rent is calculated from adjusted income, which is annual income minus several mandatory deductions:

A dependent deduction of $500 per dependent for 2026.⁴
An elderly or disabled family deduction of $550 per household for 2026 (the family qualifies only once, not per individual).
For elderly or disabled families, unreimbursed medical costs and disability-related care expenses exceeding 10 percent of annual income.⁹
Reasonable childcare costs necessary for a family member to work or pursue education.

The dependent and elderly/disabled deduction amounts adjust annually with the Consumer Price Index. Families who were receiving the medical expense deduction before 2024, when HOTMA raised the threshold from 3 percent to 10 percent, get a phased transition: expenses above 5 percent are deductible first, then above 7.5 percent twelve months later, then the full 10 percent threshold after twenty-four months.⁹ Families experiencing hardship from the higher threshold can request temporary relief back to 5 percent.

The Asset Ceiling That Can Disqualify You Outright

Income is not the only gate. Under HOTMA, families with net assets exceeding $105,574 (the 2026 adjusted figure) are ineligible for Public Housing and Housing Choice Voucher programs entirely, regardless of how low their income is.⁴ Families who own real property suitable for occupancy as a residence may also be disqualified, unless they lack the legal authority to sell it.¹⁰

Certain holdings are excluded from the net family asset calculation: real property you cannot legally sell, personal property such as household furnishings and automobiles, and interests in certain trust arrangements outside the family’s control.¹

1
eCFR. 24 CFR 5.609 – Annual Income
2
U.S. Department of Housing and Urban Development. Housing Choice Voucher Program Guidebook – Calculating Rent and HAP Payments
3
U.S. Department of Housing and Urban Development. Public Housing Occupancy Guidebook – Income Determination
4
HUD User. 2026 HUD Inflation-Adjusted Values
5
U.S. Department of Housing and Urban Development. HUD Occupancy Handbook 4350.3 REV-1 – Exhibit 5-1: Income Inclusions and Exclusions
6
HUD Exchange. HOTMA Student Financial Assistance Resource Sheet
7
eCFR. 24 CFR Part 5 Subpart F – Section 8 and Public Housing
8
U.S. Department of Housing and Urban Development. Attachment A – Section 8 Definition of Annual Income
9
eCFR. 24 CFR 5.611 – Adjusted Income
10
U.S. Department of Housing and Urban Development. HOTMA Net Family Assets