Income limits serve as fundamental thresholds that determine whether communities qualify for New Markets Tax Credit (NMTC) program benefits. These carefully calibrated limits ensure federal tax incentives target areas experiencing genuine economic disadvantage. Understanding these requirements enables businesses, developers, and Community Development Entities (CDEs) to evaluate whether projects meet program criteria for successful new markets tax credit applications.
The 80 Percent Area Median Income Threshold
The central income limit within the NMTC program establishes that census tracts qualify as low-income communities when the median family income does not exceed 80 percent of the applicable area median income. This threshold identifies communities experiencing significant economic disadvantage relative to their surrounding regions.
Communities with median incomes below 80 percent of the area median demonstrate measurable economic distress, including limited access to capital, constrained household purchasing power, and reduced tax revenues for public services.
The relative nature of this limit reflects economic reality across the United States: a census tract with a median family income of $50,000 faces severe disadvantage in a metropolitan area where the area median reaches $90,000 (representing only 56 percent). The same $50,000 might represent 85 percent of the area median income in a lower-cost region, which would fall outside NMTC eligibility.
Defining and Measuring Median Family Income
Median family income represents the middle point in the distribution of all family incomes within a census tract, with half of families earning more and half earning less. The focus on family income rather than individual income reflects the economic reality that families are the primary unit of economic activity in most communities.
Data comes from the American Community Survey (ACS) conducted by the U.S. Census Bureau. For NMTC qualification purposes, the CDFI Fund typically uses five-year ACS estimates that aggregate data over five consecutive years, improving statistical reliability for small geographic areas.
Calculating Applicable Area Median Income
Income limits require determining the applicable area median income against which the census tract median family income is compared. This calculation follows different methodologies depending on whether census tracts are located within or outside Metropolitan Statistical Areas (MSAs).
For census tracts within MSAs, the applicable area median income is the greater of the statewide or metropolitan area median family income. For example, A census tract with a median family income of $48,000 is located where the statewide median is $65,000 and the metropolitan median is $75,000. The applicable area median would be $75,000. The tract’s $48,000 represents 64 percent—well below the 80 percent threshold and therefore qualifies.
For census tracts outside MSAs, the applicable area median uses the greater of the statewide or national median family income, ensuring that rural areas in lower-income states can still qualify even when depressed relative to national standards.
Income Limits Across Geographic Contexts
Urban census tracts within major metropolitan areas often face comparison to high area median incomes. A census tract with a median family income of $55,000 might qualify in a high-income metro where the area median exceeds $85,000, but fail to qualify in a metro where the area median is $65,000.
Suburban census tracts present mixed scenarios. Inner-ring suburbs experiencing economic decline often meet the 80 percent threshold, while outer suburbs with newer development typically fall outside NMTC eligibility.
Rural census tracts benefit from comparisons to the national median family income when the state median is relatively low, recognizing the unique economic challenges rural areas face across the United States.
Targeted Population Income Provisions
Beyond geographic income limits, the NMTC program includes targeted population provisions that create alternative qualification pathways based on the incomes of individuals served by projects.
A targeted population consists of individuals with incomes at or below 80 percent of the area median income or residents of low-income communities. Projects can qualify for NMTC financing even when located outside qualifying census tracts if they demonstrate that at least 50 percent of their customers, clients, tenants, or beneficiaries come from targeted populations.
This approach extends eligibility to focus on whom projects serve rather than just where they’re located. A healthcare facility in a non-qualifying census tract might still qualify by documenting that the majority of patients served have incomes below 80 percent of the area median.
Income Verification and Documentation
Compliance requires thorough documentation throughout the seven-year compliance period. For projects qualifying based on census tract median family income, the NMTC Mapping Tool provided by the CDFI Fund allows users to verify qualification by entering specific addresses. The tool displays the current qualification status based on the most recent income data.
For projects qualifying through targeted population provisions, income verification requires documentation such as tax returns, pay stubs, benefit award letters, or signed affidavits.
Income Updates and Grandfathering Protection
The CDFI Fund updates area median income figures periodically, typically following the release of new ACS five-year estimates. These updates can change census tract qualification status as income levels shift.
However, projects already utilizing NMTC financing receive grandfathering protection if qualification status changes after Qualified Equity Investment (QEI) closing. Once an investment is made, subsequent updates don’t retroactively disqualify the project, providing certainty that compliance won’t be disrupted.
Practical Implications for Project Planning
Understanding income limits creates practical implications for project planning—Census tracts with median family incomes significantly below 80 percent of the area median offer more stable qualification prospects. A tract at 60 percent of the area median provides a comfortable cushion against data fluctuations, while tracts closer to the threshold face a greater risk with economic improvements or data updates.
Projects with site selection flexibility should prioritize qualifying census tracts when other factors are comparable. Review successful NMTC projects to understand how businesses strategically leverage eligibility across multiple locations.
Moving Forward with NMTC Eligibility
Income limits establish clear thresholds ensuring NMTC resources target communities and populations experiencing genuine economic disadvantage. Eighty percent of the area median income standard, combined with targeted population provisions, creates comprehensive frameworks that identify areas in need of investment capital while preventing resources from flowing to relatively prosperous communities.
Ready to determine whether your project location qualifies for NMTC financing? Contact CBO Financial for a comprehensive project analysis that evaluates your eligibility based on current income data, census tract qualification, and targeted population opportunities. Our team helps businesses and developers across the United States navigate NMTC requirements and access financing that transforms both projects and the communities they serve.