Income limits and rent math

Two calculations decide almost everything about a voucher: whether your income fits the limit for your area, and what share of the rent you will pay. Both use the same building blocks, area median income and adjusted income, and both are local. This guide explains the mechanism and works through examples with invented round numbers, so you can follow the arithmetic and then look up your own PHA's real figures.

Area median income, and the three tiers

Area median income is the midpoint of family incomes in your area, as estimated by HUD each year for a county or metropolitan area. HUD then publishes income limits for each household size in that area. The tiers are percentages of that median, with adjustments for household size and for unusually high or low housing costs, so the published dollar limit is the figure that matters, not a percentage you calculate yourself.

Worked example, invented numbers. Suppose an area's median income for a family of four is $80,000. That figure is invented for illustration and is not any real area's figure. At the tier percentages, the extremely low-income line would be $24,000 and the very low-income line $40,000 for that household size. A four-person household earning $35,000 would sit below the very low-income line but above the extremely low-income line: eligible in principle, but not in the priority group that must receive at least 75% of new vouchers. A household earning $45,000 would be above the voucher entry line for that invented area, even though it would qualify for some other programs. Real limits also vary by household size, so a two-person household and a six-person household in the same area have different dollar limits.

Your rent share: the Total Tenant Payment

Your Total Tenant Payment, often shortened to TTP, is the minimum you pay toward rent and utilities. Under the federal formula it is the highest of four amounts: 30% of your monthly adjusted income; 10% of your monthly gross income; the welfare rent, if your state sets one and it applies to you; or your PHA's minimum rent, which the PHA may set anywhere from $0 up to $50. For most households, 30% of adjusted income is the highest figure, and that is why the program is usually described as the 30% rule.

Adjusted income is your annual gross income minus the deductions the rules allow, divided by 12. The deductions include amounts for dependents and, for elderly or disabled families, an additional family deduction, plus certain unreimbursed medical expenses and child-care costs above thresholds set by the rules. Deduction amounts are set in regulation and adjusted over time, so confirm the current amounts with your PHA rather than relying on a figure printed elsewhere. The important point is that adjusted income is usually lower than gross income, which is why your share is usually lower than 30% of your paycheck.

Worked example. A household has adjusted income of $24,000 a year, which is $2,000 a month. Thirty percent of $2,000 is $600, so the Total Tenant Payment is $600 a month, assuming that figure is higher than 10% of gross income and higher than the PHA minimum rent. If the same household's adjusted income fell to $18,000 a year, or $1,500 a month, the share would fall to $450. That is the whole mechanism: when adjusted income changes, the share changes with it, at the next reexamination or interim review.

The payment standard and what happens above it

The payment standard is the most the voucher will subsidize for rent plus utilities, for a given bedroom size. PHAs set it within a basic range of 90% to 110% of HUD's Fair Market Rent for the area, and a PHA can ask HUD for an exception standard outside that range in particular cases. Fair Market Rent is HUD's estimate of the cost of a modest home in the local market, published annually; it is a benchmark, not an average of all asking rents.

Worked example, invented numbers. Take the household above, with a Total Tenant Payment of $600, and suppose the PHA's payment standard for its bedroom size is $1,400. If the home's gross rent, meaning rent plus the utility allowance, is $1,300, the voucher pays $700 ($1,300 minus $600) and the household pays $600. If the gross rent is $1,550, the voucher still pays at most $800 ($1,400 minus $600), and the household pays $750: its $600 share plus the $150 by which the gross rent exceeds the payment standard. At the start of a new lease, federal rules cap the household's total share at 40% of monthly adjusted income, which for this household is $800, so $750 is within the cap and the lease could be approved on that test. A gross rent of $1,650 would push the household share to $850, above the 40% cap, and the PHA could not approve that first lease at that rent.

Utility allowances

If you pay some utilities yourself rather than having them included in the rent, your PHA assigns a utility allowance: an estimate of what those utilities cost for your unit size in your area. The allowance is subtracted from your Total Tenant Payment to work out the rent you actually hand to the landlord, and the voucher covers the rest up to the payment standard. In some cases the allowance is larger than the Total Tenant Payment, and the PHA then pays the household a utility reimbursement for the difference. Utility allowances are local and are updated periodically, so two identical homes in different PHA areas can carry different allowances.

When the numbers change

Your share is recalculated at least once a year at annual reexamination, and sooner if your income or household changes and your PHA processes an interim reexamination. Report income increases and decreases, household members joining or leaving, and changes in deductions promptly, under your PHA's deadlines. A household that waits to report an income drop loses months of lower rent; a household that waits to report an income rise can end up owing back rent. Keep pay stubs, benefit letters, and any change notices, and keep a dated copy of everything you send the PHA.