Determining the Income of Independent Contractors
It is becoming more and more common for managers of affordable housing to have to verify the income of “gig” workers. Sometimes called “giggers,” these are people who work out flexible work arrangements to provide services for one or more employers for a specified amount of time at an agreed upon rate. Examples of such contractors include Uber, Lyft, and TaskRabbit. This is a website that matches people with specific needs (e.g., running errands, assembling furniture, packing boxes) with people willing to do the work.
These contractors can make varying amounts of money from week-to-week and month-to-month. These non-traditional jobs can present verification challenges to managers.
While “temporary, nonrecurring, and sporadic” income should not generally be counted, income from ridesharing or freelance jobs is different. If these jobs are expected to continue, the income is considered “cyclical” as opposed to temporary, sporadic, and nonrecurring, and should be counted.
Documentation of Self-Employment Income
Gig drivers (e.g., Uber and Lyft) should be treated as self-employed. Self-employed individuals are required to keep track of all income and expenses – net income should be counted for housing purposes. For ridesharing drivers, allowable expenses include tolls, parking fees, maintenance, gas, and loan interest on the purchase of the vehicle. Managers should request driving logs and other documents to support vehicle expenses. This is especially important if the vehicle is used for both business and personal reasons.
A primary source of verification of self-employment is tax returns, including the Schedule C. Managers should be aware that if a self-employed individual makes $400 or more per year, the filing of a federal tax return is required.
For rideshare drivers, managers may also request a summary of payments from the rideshare company. All such companies can provide these summaries. Managers may use this summary, along with the household members Affidavit of Self-Employment, to develop an estimate of income.
For HUD projects, when no financial information is available, a notarized statement of net income may be accepted. In these cases, I recommend the self-employed individual be told that his or her income will be re-examined in 60 to 90 days and that at that time they must present legitimate income and expense documents. HUD managers may then conduct an interim recertification if there has been an increase in the income noted on the self-affidavit of $200 or more per month. It should be noted that if the income has decreased by $40 or more per month, the resident may request an interim.
Managers should not deduct accelerated depreciation of assets – only straight line depreciation may be deducted for housing purposes. If accelerated depreciation is used, an accountant’s determination of the straight-line amount should be obtained.
Projecting Income When “Current Circumstances” is not the Best Indicator of Probable Income
When it is clear that a person’s current circumstances are not the best estimate of likely income, HUD guidance says “to make a reasonable judgment as to the most reliable approach to estimating what the household member will receive during the year.” This gives managers discretion as to the best approach to use. A review of historical earnings is often a good method. Also, if there is a legitimate reason for a reduction in income, don’t automatically discount it.
On HUD projects, plan for interims. People with irregular employment are likely to experience unexpected and drastic income changes.
Ultimately, managers will have to use discretion in how the income of these gig workers will be determined, but remember – this is a type of income that must be counted.