Ask Households About Income from Tips

When determining and verifying household income, be sure to gather information from households about how much each member is expected to earn in tips over the next 12 months. HUD Handbook rules say you must count tips as part of household income [HUD Handbook, Exhibit 5-1].

You may already do this for household members who work in professions that traditionally rely on tips for a large part of their compensation, such as food servers, cab drivers, doormen, bellhops, and delivery people. But you should ask all household members about tips because you might not realize that some members who have other types of jobs may get tips from time to time. For example, clergy, postal workers, caterers, and handymen might receive tips. Many household members forget to or won’t disclose these amounts as part of their salaries if they aren’t asked about them directly. And employers may not tell you about a member’s tip income unless you specifically ask.

In addition, it’s important to note that the recent Change 4 modifications to HUD Handbook 4350.3 have altered how you verify employment income. First, HUD managers must attempt to use EIV to verify employment (not employment income). If EIV provides the information necessary to verify employment, you can then accept employment-income documents from the resident and project income using that documentation. These documents may include pay stubs, offer letters, payment records, and so on. And you always have the discretion to obtain additional third-party verification depending on the circumstances, such as where a resident declares seasonal employment or irregular income.

With the most recent revised transmittal issued on Dec. 10, 2013, HUD has clarified the verification techniques. To verify employment income including tips, gratuities, and overtime, applicants may provide W-2 forms, if the applicant has had the same employer for at least two years and increases can be accurately projected. Paycheck stubs or earning statements may also be provided by the applicant and are now considered third-party verification. HUD requires that you use the most recent four to six consecutive stubs [HUD Handbook 4350.3, appendix 3].

If you don’t have access to EIV information because there is no data, the data is incomplete, or the data is disputed, then rely on the traditional verification methods, such as third-party verifications from the source, documents, or oral verification. When verifying information by phone, the owner must record and include in the tenant’s file the third party’s name, position, and contact information; information reported by the third party; name of the person who conducted the telephone interview; and the date and time of the telephone call [HUD Handbook 4350.3, par. 5-18 (C)].