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I was just notified to submit documention through Housing Connect. Thing is, I started reading about documentation hiccups here and now I think I may have messed up as well. I took an early withdrawal from my 401K last year to pay off some high interest debt. I think I may have messed up the income on the application and disqualified myself. I'm scared I won't be eligible if they consider that distribution as regular income. I fall square within the 60% AMI with my employment income, but that one-time distribution would put me between 80% and 130%, so no units to qualify for at this property. When I submitted the application I put down what earn instead of last year's tax income. Can anyone please advise? TIA
Location: Read the Marketing Handbook, and Income a Guide.
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Do not withdraw. You have not, strictly speaking, disqualified yourself because you are not authorized to do that, it’s not your job it is their job. You can appeal their decision.
I don’t have an answer if the 401K distribution counts as Income or not for the lottery. (I believe the IRS does consider it income.) The circumstance is an opportunity for the process to make a mistake.
The Table of Contents of Marketing Handbook is very useful on Income, also on Appeals. You may appeal a rejection on Income. The Handbook discusses income in detail. https://www.nyc.gov/assets/hpd/downl...g-handbook.pdf
Where are you in the timeline? The process often takes a long time. Perhaps long enough that your 2023 tax returns would be used if and when additional documents are requested. Presumably the 401K distribution would not appear on 2023 tax returns.
(What year’s tax return will the 401K withdraw appear? The most recent filed are 2022, and likely those will be used. Sorry, I got years mixed up.)
In the Spring, the AMI% will very likely adjust upward. You might benefit from this if the process is still underway for the particular lottery.
Good luck and good patience.
Last edited by WildAboutHarry; 10-12-2023 at 07:33 AM..
Reason: Tax year issue
I would argue that such a distribution may be income, but it is extraordinary/nonrecurring income and should not be counted against you. Uphill battle with many agents, who are none too good at their jobs, but there is no way it can be considered income you can ordinarily expect to be receiving in future years, which is what they are trying to measure.
Do not withdraw. You have not, strictly speaking, disqualified yourself because you are not authorized to do that, it’s not your job it is their job. You can appeal their decision.
I don’t have an answer if the 401K distribution counts as Income or not for the lottery. (I believe the IRS does consider it income.) The circumstance is an opportunity for the process to make a mistake.
The Table of Contents of Marketing Handbook is very useful on Income, also on Appeals. You may appeal a rejection on Income. The Handbook discusses income in detail.
[URL]https://www.nyc.gov/assets/hpd/downloads/pdfs/services/marketing-handbook.pdf[/URL]
Income a Guide, a shorter document also useful.
[URL]https://www.nychdc.com/sites/default/files/2020-08/Income%20Guide.pdf[/URL]
Where are you in the timeline? The process often takes a long time. Perhaps long enough that your 2023 tax returns would be used if and when additional documents are requested. Presumably the 401K distribution would not appear on 2023 tax returns.
(What year’s tax return will the 401K withdraw appear? The most recent filed are 2022, and likely those will be used. Sorry, I got years mixed up.)
In the Spring, the AMI% will very likely adjust upward. You might benefit from this if the process is still underway for the particular lottery.
Good luck and good patience.
Thank you for the resources and explanations! I was just notified on Housing Connect to submit documents. I have two weeks to do so. There will be no distribution on the 2023 tax return, so hopefully that will work in my favor if the process is drawn out or I need to appeal.
You would be submitting the 2022 tax return. Does the 401(k) withdrawal show up on that?
Plus, if they give your six paystubs the most weight, those will show that you qualify, right?
They do ask for statements from your asset accounts (checking, savings, retirement etc.) and they would see the withdrawal from the 401K and then the deposit into whatever account it went in to (likely checking or savings).
My best guess is that it would be considered income but you should try to convince them (and provide any evidence you have) that it's non-recurring. As others have noted though, it can be very hard to prove that.
If the agent has a brain cell, it's easy to document that this is a withdrawal from an existing savings account. There will be a 1099-R if nothing else. But, well...
The only reason it will even appear on a tax return is because it's pre-tax savings so the tax must be paid when the money is withdrawn.
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