Grossing Up Non-Taxable Income
Social Security, disability, VA benefits and child support are often untaxed. Underwriting can count them at more than face value, and it changes what you qualify for.
Untaxed income counts for more
A dollar you keep is worth more than a dollar you are taxed on.
- Guidelines allow certain non-taxable income to be increased before it goes into your qualifying calculation.
- Named non-taxable sources include some portion of Social Security, some federal and state government retirement income, Railroad Retirement Benefits, certain disability and public assistance payments, child support and military allowances.
- The adjustment is not uniform. Programs use different percentages, and several cap it at your actual tax rate.
- One program treats a set share of Social Security as non-taxable without requiring documentation of that status, then applies the adjustment to that portion.
- The file has to support the number. Guidelines require documentation of the amount grossed up and generally point to the tax rate used on your last return.
- Not every program offers it. Many guidelines are silent on grossing up entirely, which effectively means it is not available there.
Social Security income
Disability and VA benefits
Retirement and pension
Child support received
Military allowances
Purchase or refinance
Why The Percentage Is Not One Number
This is the most inconsistently treated calculation in the entire guideline set.
Some programs apply a flat uplift to non-taxable income. Others cap the uplift at the borrower’s actual tax bracket, using whichever is less. One agency program applies a smaller adjustment. Another treats a fixed share of Social Security as presumed non-taxable and grosses up only that portion, which produces a much smaller number but requires no extra documentation. One jumbo guideline sets no fixed percentage at all: the amount added cannot exceed the appropriate tax rate for the income, with a specified default only where the borrower is not required to file a return. And one lender uses a table that varies by state tax level and income band.
The practical consequence is that the same borrower with the same benefit statement can qualify for materially different loan amounts at different lenders, purely because of how each one performs this calculation. That is not a loophole; it is a documented difference between guidelines, and it is worth checking before assuming a number.
There is a related rule that catches people. At least one program prohibits grossing up non-taxable income when calculating residual income, even though it permits the gross-up for the debt ratio. So the same income can be counted two different ways in two different tests within the same file.
Who this actually helps
Six situations where the adjustment moves the needle.
Retirees On Social Security
Often the largest single beneficiary. A meaningful share of Social Security is untaxed for many households, and the adjustment can be the difference between qualifying for the house you want and the one you settle for.
Disabled Veterans
VA disability compensation is not taxed. Where a program permits the adjustment, that income counts for more than its face amount in your ratios.
Parents Receiving Child Support
Child support appears by name in the itemized list of non-taxable income in at least one jumbo guideline, and one lender treats VA award letters and child support together as non-taxable benefits income.
Military Families
Military allowances are named as non-taxable income. For a service member with substantial housing and subsistence allowances, this is not a rounding error.
Public Assistance And Long-Term Disability Recipients
Certain disability and public assistance payments are named as non-taxable. Whether they qualify as income at all is a separate question, but where they do, the adjustment applies.
Anyone With A Mixed Income Picture
If part of your income is taxed and part is not, the untaxed portion gets the adjustment. Identifying which portion is which is worth doing carefully rather than lumping it together.
Hear From Homeowners Like You
Frequently Asked Questions
Questions about the gross-up.
Increasing non-taxable income before it goes into the debt ratio calculation, to reflect that untaxed income goes further than taxed income. It does not change what you actually receive; it changes how underwriting counts it.
It depends entirely on the program. Guidelines in our library use several different methods, and some cap the adjustment at your actual tax rate. There is no single national number, which is why we run it against specific programs rather than quoting a figure.
Named sources include some portion of Social Security, certain federal and state government retirement income, Railroad Retirement Benefits, certain disability and public assistance payments, child support, military allowances, and other income documented as exempt from federal income taxes.
Usually. Guidelines require the file to document and support the amount grossed up, and generally point to the tax rate on your most recent return. One program presumes a fixed share of Social Security is non-taxable without additional documentation.
No. Many guidelines are silent on grossing up, which in practice means it is not offered. This is one of the clearest cases where which lender you use directly changes what you qualify for.
Not necessarily. At least one program specifically prohibits grossing up non-taxable income for the residual income calculation while permitting it for the debt ratio.
One jumbo guideline addresses this directly, specifying a default rate to use where the borrower is not required to file a federal return.
Find out what you qualify for
If a meaningful share of your income is not taxed, ask before you accept a loan amount. Send us your award letters or benefit statements and we will run the calculation across programs and show you where it lands highest.
Get Pre-QualifiedGross-up treatment for non-taxable income varies substantially by loan program and investor and is subject to change. Many programs do not address or permit grossing up. Documentation supporting the non-taxable status and the amount adjusted is required. Saxton Mortgage does not provide tax advice. Not all applicants will qualify. This is not a commitment to lend.