Follow Three Rules When Offering Resident Service Stipends
Like many owners and managers, you may pay a resident a small amount for part-time work he performs, such as raking leaves, cleaning common areas, or distributing flyers periodically at the site. HUD calls this payment a “resident service stipend” and defines it as a “modest amount (not to exceed $200 per month) received by a resident for performing a service for the owner, on a part-time basis, that enhances the quality of life” at the site [24 CFR 5.609 (c)(8)(iv)].
HUD requires you to exclude these stipends from household income if certain conditions are met. Here are three rules to follow when deciding whether to exclude resident stipends from household income.
Rule #1: Include Stipends of Over $200 a Month in Household Income
The HUD Handbook says that you should exclude resident service stipends of $200 a month or less from household income [Handbook 4350.3, par. 5-6 (N)(2)]. But you might not realize that if you pay a resident more than $200 a month, you must include the entire amount in household income [Handbook 4350.3, par. 5-6(N) (1)]. You can't exclude the first $200 of the total stipend.
It's a good idea to limit stipends to $200 a month. This way, residents will be happier because you'll be able to exclude the stipend amount from their household income. If a resident wants you to pay her more than $200 a month and you agree, make sure to explain that going over $200 a month will cost her the exemption and could increase her rent. Also, note that if you pay a resident more than $600 a year, you're required to issue the resident an IRS Form 1099-MISC and report the payments to the IRS as nonemployee compensation.
Example #1: John Doe gets a $150 resident service stipend. Exclude the $150 payment from his household income.
Example #2: Jane Roe gets a $250 resident service stipend. Include the entire $250 in her household income.
Rule #2: Make Sure Residents Perform Eligible Site-Related Services in Return for Stipends
For a payment to be a resident service stipend that can be excluded from income, HUD says it must pay for site-related services that “enhance the quality of life” at the site. HUD doesn't define this, but the Handbook gives the following examples of the types of services residents can do for the site:
Lawn maintenance; and
Coordinating resident initiatives.
Examples of other types of eligible services that owners and managers typically pay residents stipends to perform include:
Servicing laundry rooms;
Picking up trash;
Cleaning vacant units; and
Serving resident meals for site meals programs.
It's important to note that stipends paid for nonsite-related tasks, such as working at the management office or helping out at another site, aren't eligible. You can't exclude these stipends from household income.
Another reason to make sure the services qualify is that HUD lets you charge the cost of resident service stipends to site accounts as part of the site's operating expenses. But if the stipend covers work that isn't site related, HUD can make you reimburse the site's accounts for the amount of the stipend. If you have any questions about what services residents can perform in return for stipends, ask your local HUD office.
Rule #3: Limit Stipends to One per Resident
HUD rules say that a resident can't exclude more than one stipend a month from household income. So don't pay more than one stipend a month to any one resident. But you may pay stipends to several members of the same household, as long as each member gets only one stipend a month.