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HELPFUL HINT: Annualizing YTD Using Bi-Weekly Pay Stubs

Written by Jennifer Borland, Spectrum Enterprises

Calculating annualized Year-to-Date (YTD) can be confusing. The LIHTC program requires you use the highest verified income amount. It is essential that you compare YTD earnings to the hourly wage or salary given on Employment Verifications. For some state agencies this may not be a requirement, but most investors still want the comparison done. At Spectrum we see Employment Verifications which under-report earnings or hours every day. We often recommend that at least one pay stub be provided. The last thing you want is for your investor or state agency to complete a review and find that YTD annualizes higher than hourly wage and a household is found to be over income.

In order to accurately annualize, you need to know the frequency of pay and the number of weeks included in the YTD earnings. Following are two examples using bi-weekly pay stubs.

EXAMPLE 1

An applicant has had the same job for 3 years and provided a pay stub with his application. The pay date on the stub provided is 1/20/2012 and includes pay for 1/1/2012 – 1/14/2012. How many weeks’ pay is included in the YTD on this stub?

  1. 2 weeks
  2. 3 weeks
  3. 4 weeks

The answer is 3) 4 weeks. The easiest way to illustrate this is by counting backwards on a calendar.

Pay checks are issued bi-weekly on Fridays; I have highlighted his pay days for December 2011 and January 2012.

We know that the check received 1/20/2012 was for weeks worked 1/1/2012 – 1/14/2012; we also know that the pay check he received on 1/6/2012 and was for the weeks worked 12/18/2011 – 12/31/2011. While some of the time he is being paid for on 1/6/2012 was in 2011, the date he was paid was in 2012 and will be part of his employer’s 2012 accounting; this is the first pay check of 2012. Therefore the check received on 1/20/2012 was the second check in the bi-weekly series for 2012 and includes 4 weeks in the YTD.

As you can see from this example, you cannot simply plug dates in to a date to date duration calculator and get the correct answer. If you had used 1/1/2012 to 1/20/2012, a standard duration calculator would have told you it represents 20 days or 2 weeks (rounded down). In this case, your annualized YTD amount would have been a terrible overestimation of Jim’s income. To illustrate, let’s say the YTD earnings reported on the stub are $1,200:

  1. $1,200 / 2 weeks x 52 weeks = $31,200
  2. $1,200 / 3 weeks x 52 weeks = $20,800
  3. $1,200 / 4 weeks x 52 weeks = $15,600

EXAMPLE 2

In June, another applicant brings in a pay stub with her application. The stub shows that she was paid on 6/15/2012 for weeks worked 5/27/2012 – 6/9/2012, also bi-weekly. When you receive her Employment Verification it states she was hired 1/30/2012. How many weeks are included in the YTD earnings on this stub?

  1. 24
  2. 19
  3. 20

The answer is 2) 19 weeks.

Unfortunately, a common mistake we see is that the date of hire is ignored. In this situation, the applicant has not had her job for the entire year, so we’ll count the weeks from 1/30/2012 to 6/9/2012; the date she was hired to pay period end date on the stub. In a case like this, Spectrum would recommend you follow up with the employer to verify if she started working on 1/30/2012. It’s possible that was the date she accepted the position, but work (pay) didn’t actually begin.

By overestimating an applicant’s earnings you run the risk of denying eligible households or moving in households that cannot actually afford your rent. By underestimating an applicant’s earnings, you may find you have rented to people who are not income-eligible. As always, Spectrum recommends you have someone check your math and that you show your math in your files.


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