Annualizing Income 415-25-05-15

(Revised 10/1/12 ML #3343)

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To determine a household's benefit level, LIHEAP compares a household's income to its estimated annual heat cost. This means that income must be converted to a yearly figure or "annualized." The LIHEAP Application (SFN 529) asks the client for information about his or her income in the current month, the previous month, and anticipated income for the following month. The difference in these figures will determine the method of annualization to be used. (References to the "current month" or the "month of application" will also apply to the month during which a reportable change requires a recalculation of the LIHEAP Share Percentage. [See 40-05.]

 

If the income between consecutive months is less than $400 yet not exactly the same each month use the month of application and annualize.

1. If the difference between the current month's income and the previous month's income is less than $400, the income would be annualized by the most appropriate of the following methods:

1. Regular income - This would include anyone on a fixed income, TANF recipients, wage earners who have not recently changed jobs, etc. Income in this category would NOT be averaged (See "#2," of this section), even though the payroll schedule results in an additional paycheck during every two weeks will sometimes receive three paychecks in one month.

Annualization is done by multiplying a monthly payment by 12; a weekly payment by 52; a biweekly payment by 26; and a semi-monthly payment by 24.

2. Periodic income - Examples would include interest payments, land rent, farm payments, and some types of seasonal employment.

To annualize, multiply the amount received in a single payment by the number of times it is received in a 12-month period. Sometimes, payments for farm or other seasonal labor may fit into this category if the laborer is not paid regularly as the work is done.

3. Annual employment contracts - These would typically, but not necessarily, apply to employees of a school district.

The total amount of income specified in the contract would be included, regardless of the amount received in the current month.

4. Business/Farm Income - This would include most business and farm income, as reported on and verified by the most recent tax forms available.

To annualize, use the income from the most recent tax form that reduces gross income by the amount of necessary operating expenses. Use this amount regardless of the amount received in the current month. Each business/farm income is to be reported and computed separately. A reported income loss will be revised to zero income before adding to the income of another business or to other sources of annualized income.

2. If the difference between a household member’s income (from a single source) in two consecutive months is $400 or more, or if the household's income in the current month is at or near zero, that member’s income (from that source) would be annualized using a three-month average as follows:

1. The income from the month preceding the month of application,
2. The income from the month of application, and
3. A projection of income for the month following the month of application

• If income for the following month is known and verifiable, that income will be used. ("Known and verifiable" can include TANF, Unemployment Compensation, salaries and the like. It can also include the receipt of one paycheck [in the application month] from a new job, provided that it can be determined that the paycheck is representative of wages and hours in the following month.) If there is terminated source income, include the income in the three-month average.

Example:

Application month is October. Household’s job ends October. Use the regular earned income (from that source) for September. For October, use the actual amount received for that month. If there is no income predicted for November, then use 0.00. If there is income predicted for November, use the client’s best estimate for income. Total the three months and multiple by 4, then you will have the annual income. The second example under 25-05-15-10 is a good example of how to handle terminated source income.

• If income for the following month is not known or cannot be verified, the income in the month of application will be used twice in determining the three-month average.

The earned income deduction will be applied to the sources of income to which it is appropriate. Then, the three monthly figures will be totaled, and the total multiplied by four to arrive at an annual figure.

 

NOTE ON AVERAGING: Averaging is one method of determining a household's benefit level. The household must still be income eligible during any month for which LIHEAP benefits are to be paid. Income ineligibility during the month of application automatically disqualifies the household for that month and future months (See 415-30-20). Income ineligibility in the month before the month of application does not automatically disqualify the household, but benefits cannot be paid for that month. In other words, if averaging is called for, the prior month's income will be used in the averaging calculation, even if the household cannot receive a benefit for that month.

EXAMPLE:

Income Limit (monthly): $1,000

Last Month's Income:     $1,200

Current Month's Income:  $ 600

Anticipated Income:        $ 600

Averaging would be used, resulting in an average of $800 per month.

Averaging may also be appropriate if the household’s income is at or near zero.

3. Whenever it can conclusively be demonstrated that the household income annualized in the manner described in "1" and "2" above is not the best indicator of the household's ability to pay their fuel costs, the State Program Administrator may approve or promulgate an alternative method that is reasonable and equitable.

NOTE: A $400 difference caused solely by an additional check from a regular source of income does not trigger averaging.

 

Example:

Joe's Income - he applied in December.

November $350 - regular pay

December $800 - regular pay because of extra paycheck

January $350 - regular pay

This case is not averaged just because of the extra paycheck in December (since there are 5 pay periods).