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"Grossing-Up" Non-Taxable Income

Did you know that you can gross up non-taxable income? 

You may gross up non-taxable income for income qualifying purposes. The non-taxable income source being "grossed-up" must be documented. 

Non-taxable income refers to types of income not subject to federal taxes, which includes, but is not limited to:

  • some portion of Social Security Income;
  • some federal government employee Retirement Income;
  • Railroad Retirement benefits;
  • some state government Retirement Income;
  • certain types of disability and Public Assistance payments;
  • Child Support;
  • military allowances; and
  • other income that is documented as being exempt from federal income taxes. 

The percentage to be grossed-up varies by agency: 

  • FHA – the greater of 15% or the appropriate tax rate for the income amount
  • USDA – 25%
  • VA – 25%
  • Freddie Mac – 25% or the amount of the current federal and state income tax withholdings tables
  • Fannie Mae – 25% or the amount of the current federal and state income tax withholdings tables
  • Jumbo – 25% (see guidelines for specific restrictions) 

Refer to the Employment & Income/Non-Taxable Income topic in FWL Guidelines details.