I have lots of questions about calculating income for Section 502 Direct Loans during a pandemic! Do we use the last 30 days to project the income for the next 12 months? If the applicant has resumed their previous level of employment, are the straight-based and average calculations likely the best calculation method to choose? Will a Rural Development underwriter count income from current paystubs that reflect an applicant’s full employment and the unemployment that was received last year during COVID-19? What about income that is in decline due to COVID-19? For example, when I compare the 2020 income to 2019 income, the 2020 income is less than 2019 because their employer was closed or had reduced hours.
Sincerely, Calculating Income during COVID-19
Dear Calculating Income during COVID,
You do have lots of questions about calculating income during COVID-19! And I know you’re not the only one. Let’s break them down one at a time.
1. Do we use the last 30 days to project the income for the next 12 months?
Rural Development seeks 30 days of income as evidence that they are back to work. But this does not mean that we only consider those 30 days for the income projection because it may or may not include overtime, bonuses, etc. that would show up in historical. There still needs to be a comparison of the four calculation methods.
2. If the applicant has resumed their previous level of employment, are the straight-based and average calculations likely the best calculation method to choose?
Not necessarily if they do not reflect overtime, bonuses, etc. accurately. For example, an applicant works at Frito-Lay where they earn all of their overtime in the last three months of the year. If you are only using income from January and February, that overtime would not be included without looking at historical income.
3. Will a Rural Development underwriter count income from current paystubs that reflect an applicant’s full employment and the unemployment that was received last year during COVID-19?
If they are back to work full time, the unemployment income should not be a consideration on top of full-time income. However, if they are back to work part-time and will still be eligible for unemployment or partial unemployment, then it should be factored in annual income. It would not be used for repayment income unless the employment is seasonal in nature and they have a history of receiving unemployment each year (i.e., construction, farm/processing, ski resort, etc.).
4. What about income that is in decline due to COVID-19? For example, when I compare the 2020 income to 2019 income, the 2020 income is less than 2019 because their employer was closed or had reduced hours.
Rural Development would have to look at specific cases but if the hourly rate or number of hours has changed, then it may be in decline. If they are saying it is in decline because of the pandemic and 2020 was an anomaly year for the applicant, then that wouldn’t necessarily be accurate. If they were working in 2019 at $10/hour; 40 hours per week, then in 2020 were laid off for nine months and now are back to work at $10/hour; 40 hours per week, then 2020 should be excluded as an anomaly and not be used as a “typical year” comparison. The better historical data would be from 2019. That said, if the hourly rate or number of hours has changed, then using historical doesn’t help in any way and either straight based, YTD or average is the correct projection method. As an example:
2019 – Worked at Cheesecake Factory (front of house/no tips) – $10/hour; 40 hours/week x 52 weeks = $20,800
2020 – Worked January and February then received unemployment March through December (THIS IS NOT A NORMAL YEAR) Total income: = $15,000
2021 – Went back to work Jan. 1, 2021, at $10/hour; 40 hours/week x 52 weeks = $20,800 projection.
2019 was the typical year for their income so comparing the wages from 2019 to 2021 makes sense whereas using 2020 (an anomaly year) is comparing apples to oranges. If this applicant did receive tips or bonuses, basing those from 2019 would also make more sense, although 2021 may not be a typical year for tips/bonuses, so it may be used as annual but perhaps not for repayment if the paystubs reflect a lower rate (due to people not fully returning to restaurants yet, etc.).
Calculating income right now is challenging. It is difficult to provide a one size fits all scenario. If an applicant was working full time in 2019 and then laid off for most of 2020 but is now back to work full time (at the same rate/hours) as 2019, it might make sense to use the historical from 2019 rather than year to date because it will include any overtime/bonuses. The other consideration is what is their line of work. If the person is in the restaurant or entertainment or hospitality industry, it may be difficult to project income if their workplace might be shut down again due to rising cases. For example, some states have gone back and forth between the re-opening phases depending on the number of cases, so there is still a lot of uncertainty for those industries that are in the shutdown threat (restaurants, venues, concerts, theaters, bowling alleys, etc.).
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