Families are eligible for a medical expense exclusion from their annual income, and a medical expense deduction from their adjusted annual income. It is important to remember the difference between these two provisions.
The exclusion states that money received specifically for, or in reimbursement of, medical expenses are excluded from annual income.1
After annual income is calculated, the medical expense deduction only applies if the annual expected medical expenses exceed 3% of the tenant’s annual income. The deduction is the difference between the expenses and 3% of the annual income.2 Note that on January 1, 2024 certain changes go into effect pursuant to the Housing Opportunity Through Modernization Act (HOTMA). 24 CFR 5.611 will be changed to raise the threshold for the medical expense deduction to 10%. This change will be phased in over time.
For example, suppose that Mary is a grandmother with disabilities raising two minor grandchildren in public housing. Her income is $862 per month in disability benefits. Over the next year, she projects to have unreimbursed medical expenses of approximately $200 per month for doctor co-pays, prescription copays, medical transportation, and health insurance (for which over $100 a month is often withheld from Social Security payments).
Rent computed without the medical expense deduction:
Annual Income: $862 x 12 = $10,344
Disability Deduction: $400
Minor Deductions: $480 x 2 = $960
Adjusted Income: $10,344 - $400 - $480 = $8984
Adjusted Monthly Income (AMI): $5384/12 = $749
Rent at 30% of AMI: $449 x .30 = $225
Rent computed with the medical expense deduction:
Annual Income: $862 x 12 = $10,344
Disability Deduction: $400
Minor Deductions: $480 x 2 = $960
Medical Expenses: $200 x 12 = $2400
3% of Gross Income: $10,344 x .03 = $310
Medical Deduction: $2400 - $310 = $2,090
Adjusted Income: $10,344 - $400 - $480 - $2,090 = $7,374
Adjusted Monthly Income (AMI): $7,374/12 = $614.50
Rent at 30% of AMI: $614.50 x .30 = $184.35