"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.