AFI Fact Sheet Guidance on Effect of 2010 Tax Law on Eligibility Determination
February 4, 2011
Dear Assets for Independence Grantees:
We wanted to share important information about provisions of the new federal tax law that affect eligibility for services through federally-funded programs. In addition to this summary of key points for AFI grantees, see the in-depth description of the law found below this message.
Applicability to AFI Projects
Here are the key points for AFI Grantees:
Tax refunds or tax credits received by any household members after December 31, 2009, to the present should not be counted as income or assets in determining eligibility for AFI enrollment.
- Tax credits and refunds from this period are excluded or subtracted from calculations of adjusted household income.
- Tax credits and refunds from this period that may be in checking or savings accounts at the time of application are excluded or subtracted from calculations of household net worth.
- This exclusion applies for a period of 12 months. So, tax refunds received prior to December 31, 2009, might be considered if, for example, some portion remains in a checking or savings account held by any member of an applicant’s household.
- Grantees may need to adjust their intake procedures and documentation to be sure that they are excluding the Federal sums in calculating eligibility. For example, a grantee may ask specifically what income or savings reported by an applicant derives from Federal tax refunds or credits and document subtraction of those amounts, if any, from income or asset totals.
- It may be that applicants previously judged ineligible in the past year would be eligible if Federal tax refunds or credits were disregarded.
- Grantees who have available openings in their projects are encouraged to contact such applicants to inquire if they might be eligible with the disregard and if they do want to enroll in the project.
- Grantees could adjust outreach materials, presentations and guidelines to attract applicants who may previously appear to have been excluded on the basis of income or assets.
For additional and specific guidance on the impact of receipt of tax credits on eligibility determination for participants in your Assets for Independence project, please see the Guidance, Policies, and Procedures section on the AFI program website (www.acf.hhs.gov/programs/ocs/programs/afi) or the EITC and tax assistance section of the AFI Resource Center website (www.idaresources.org).
Manager, Assets for Independence
Disregarding tax refunds received after December 31, 2009, as income and resources for a period of 12 months.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312).
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312) (“The Act”) was signed into law on December 17, 2010. The law includes a provision that disregards tax refunds received after December 31, 2009 as income and as resources (for a period of 12 months) in programs funded in whole or in part with federal funds, including those operated by States, localities, or others. The law is not retroactive, but applies as of the date of enactment and, thus, grantees must move expeditiously to implement the provision.
Section 728 of the Act states:
(a) IN GENERAL. -- Notwithstanding any other provision of law, any refund (or advance payment with respect to a refundable credit) made to any individual under this title shall not be taken into account as income, and shall not be taken into account as resources for a period of 12 months from receipt, for purposes of determining the eligibility of such individual (or any other individual) for benefits or assistance (or the amount or extent of benefits or assistance) under any Federal program or under any State or local program financed in whole or in part with Federal funds.
(b) TERMINATION.-- Subsection (a) shall not apply to any amount received after December 31, 2012.
Under prior law, certain refundable tax credits were disregarded as income and resources under rules that varied from program to program. Some programs excluded the Earned Income Tax Credit (EITC) for 12 months while others disregarded it for as little as three months. And, because amounts received due to a specific credit were excluded – but not the entire refund – it could be difficult for eligibility workers to implement.
Under the new law, the total amount of a refund received after December 31, 2009 – regardless of whether the refund is the result of a refundable credit, over-withholding, or both – is disregarded as income and resources in the month received. The resource exclusion lasts for 12 months for all programs.
Under this simplified structure, programs that have an asset test can administer the exclusion more simply than under prior law.
Under the Act, tax refunds must be excluded from consideration as income in the month received and as a resource for twelve months in any program that is funded in whole or in part by federal funds. This includes all major means-tested programs that consider income and may consider assets when determining eligibility, such as (but not limited to) the Assets for Independence program, Supplemental Nutrition Assistance Program (SNAP), Medicaid, and programs funded under various block grants such as the Temporary Assistance for Needy Families block grant, the Social Services Block Grant, and the Child Care and Development Block Grant.
To comply with the requirement that a federal tax refund be disregarded as income in the month the refund is received, grantees must ensure that the income information being sought and that individuals are providing does not include a federal tax refund that may have been received.
Under the Assets for Independence Program, grantees must comply with the disregard provision included in P.L. 111-312 and an individual, family, or household may not be determined ineligible for assistance on the basis of having assets above a limit, if the assistance unit would have met the resource limit if the tax refund were disregarded.
One method for implementing this provision which is consistent with the Assets for Independence program rules would be to subtract any federal tax refund an individual, family, or household received in the last 12 months from the reported assets of the eligibility unit. If the difference between the unit’s reported assets and the amount received from the tax refund is less than resource limit, the assistance unit would meet the resource-related eligibility criteria. This simplified approach will minimize administrative burdens on states and families alike.
To ensure compliance with the P.L. 111-312 provision, it is important for AFI grantees to ensure that their applications and interview protocols are designed such that an applicant has the opportunity to provide information about a tax refund if receipt of such a refund may affect his or her eligibility for participation in an AFI project. This opportunity must be afforded regardless of the manner in which an applicant submits an application or provides information that will be used to update or renew eligibility, including those who submit information in person, by phone, or online and those who do and do not have an interview with an eligibility worker. This is particularly important when applicants are reporting on their assets and simply may be asked for the amount of money in a bank account. An application or request for eligibility renewal should not be denied on the basis of the applicant having assets about a resource limit unless the applicant has been asked whether anyone in the household has received a tax refund in the last 12 months and those refunds have been properly disregarded. We recognize that the timeframe presents challenges to grantees and understand that grantees may not be able to revise automated systems immediately. However, grantees must find a mechanism to ensure that applicants or recipients who exceed the asset level due to a tax refund received in the last 12 months are not denied or terminated.
Families will begin to file their 2010 tax returns very shortly and will, in turn, begin to receive tax refunds soon. Low-income families that had earnings in 2010 can receive sizable refunds on the basis of refundable tax credits such as the EITC. Thus, swift implementation of this provision is important to ensure that tax refunds are properly disregarded in eligibility decisions. In addition, because the provision applies to all refunds received after December 31, 2009, individuals applying or updating their eligibility in 2011 may have received a tax refund in 2010 that now needs to be disregarded.
AFI grantees are encouraged to develop outreach strategies to encourage applicants that were denied because they were over the resource limit to reapply for participation in an AFI project.