LIHEAP IM 2010-1Treatment of Making Work Pay (MWP), Other Tax Credits and Refunds when Determining Eligibility
LIHEAP INFORMATION MEMORANDUM TRANSMITTAL NO. LIHEAP-IM-2010-1, DATED 2/22/10
TO: LOW INCOME HOME ENERGY ASSISTANCE PROGRAM (LIHEAP) STATE GRANTEES
SUBJECT: Treatment of Making Work Pay (MWP), Other Tax Credits and Refunds when Determining Eligibility
RELATED REFERENCES: Low Income Home Energy Assistance Act, as amended (Title XXVI of Public Law 97-35, the Omnibus Budget Reconciliation Act of 1981, as amended); 45 Code of Federal Regulations, Part 96; Final Rule amending HHS block grant regulations (64 Federal Register, 55843, October 15, 1999); LIHEAP AT-2008-4, dated June 12, 2008; LIHEAP IM-2009-03, dated January 26, 2009; American Recovery and Reinvestment Act of 2009.
PURPOSE: To advise grantees that the American Recovery and Reinvestment Act of 2009 requires programs funded in whole or in part with federal funds to disregard the MWP credit as a resource in the month received and the following two months when determining eligibility. To inform grantees about the option to disregard other tax credits and refunds.
BACKGROUND: Section 2605 (b) (2) of the LIHEAP statute defines who may be eligible to receive assistance. The statute provides grantees with the flexibility to include as eligible all of those mentioned in the law, or to limit eligible households to a smaller target group. Although the law allows categorical eligibility (such as the recipients receiving benefits from programs listed in section 2605 (b) (1) (A)), grantees must also offer eligibility to households on the basis of income as required by section 2605 (b) (8).
CONTENT: The American Recovery and Reinvestment Act (ARRA)includes a temporary refundable tax credit called the Making Work Pay (MWP) credit. For people who receive a paycheck and are subject to income tax withholding, this credit was designed to reduce tax withholding and give workers higher take-home pay. Taxpayers who did not have income taxes withheld by an employer during the year can receive the credit as a lump sum refundable credit when they file their 2009 income tax returns in 2010. Taxpayers filing returns may also be receiving other refundable credits, including the Earned Income Tax Credit, the Child Tax Credit, and an education-related tax credit called the American Opportunity Tax Credit. In addition, an individual's tax refund may involve a combination of refundable credits and a refund of excess income tax paid during the year.
ARRA requires programs funded in whole or in part with federal funds to disregard the MWP credit as income, and to disregard the credit as a resource in the month received and the following two months.1 This disregard applies to both new applicants and ongoing recipients. Since LIHEAP grantees must offer eligibility to households on the basis of income as required by section 2605 (b) (8), grantees must also apply the MWP credit disregard when determining eligibility for LIHEAP funds on the basis of income as required by ARRA. For LIHEAP programs that have an asset limit, grantees have discretion under current statutory and regulatory authority to fashion their own disregards, so they can choose to exclude the MWP credit for a longer period of time or altogether. At minimum, though, the MWP payment must be disregarded as income, and must be disregarded as a resource in the month of receipt and the following two months.
The goal of the ARRA provision was to ensure that the MWP credit did not jeopardize an individual's or family's eligibility for means-tested benefits. This is particularly important during a recession when many families who were previously working are turning to means-tested programs for the first time.
In addition, the MWP provision was intended to minimize administrative burdens for states. Many of the families that might lose eligibility as a result of this credit will regain eligibility for benefits once they spend the funds. By disregarding the credit amount for several months, programs will avoid the additional workload of having to determine households ineligible and then process new applications for the households several months later.
Minimum Statutory Requirements for Disregard of the Making Work Pay Credit
If a broader or longer exclusion of one or more tax credits and tax refunds is not applied, then the following minimum statutory requirements must be met in order to implement the Making Work Pay disregard:
• For income purposes, a grantees application and ongoing eligibility process needs to ensure that it does not include consideration of any MWP credit received by the applicant or recipient.
• For resource purposes, probably the simplest way to implement this provision is to ask applicants, or recipients whose eligibility is being redetermined, who may be over the asset limit for a program whether they have received a tax refund in the past three months. If the applicant or recipient has received a tax refund, it will be necessary to determine whether the refund included the MWP credit and, if so, how much of the refund should be attributed to the MWP credit and should be disregarded when determining asset eligibility.
Option to Provide a More Expansive Making Work Pay Disregard
Grantees that use an asset limit in their LIHEAP programs have the discretion to provide an exclusion of the Making Work Pay credit for more than three months. For example, a grantee might choose to provide a twelve month exclusion from resources, along with the statutorily-required disregard from income.
Option to Disregard Other Tax Credits and Refunds
Families that worked in 2009 may receive tax refunds that include not only the MWP credit, but also the EITC and the Child Tax Credit - both of which were expanded temporarily in the ARRA legislation as a way of directing more help to families during the recession. In some cases, families could also be receiving the refundable American Opportunity Tax Credit for certain educational costs. In addition, in some circumstances, a family may have had excess taxes withheld from their pay, so that they are also receiving a refund of excess taxes paid.
At minimum, grantees must disregard the federal Child Tax Credit as income, and as a resource in the month of receipt and the following month.2 The Internal Revenue Code does not specify minimum disregards applicable to ACF programs for Earned Income Tax Credit refunds3 or for the American Opportunity Tax Credit. But, in addition to complying with applicable federal minimum disregards, a grantee might choose to establish, for example, a 12 month disregard from income and resource consideration for all refundable credits and refunds. Doing so could be administratively simpler for states, grantees, and families. A grantee could elect to do this if its governing federal law allows discretion in determining when amounts received count as income, whether to have an asset limit, and which exclusions to provide from its asset limit. A grantee might choose to do so for 2010 or on an ongoing basis.
Yolanda J. Butler, Ph.D.
Office of Community Services
1 The statutory language in Section 1001 of the ARRA says:
(c) REFUNDS DISREGARDED IN THE ADMINISTRATION OF FEDERAL PROGRAMS AND FEDERALLY ASSISTED PROGRAMS.-Any credit or refund allowed or made to any individual by reason of section 36A of the Internal Revenue Code of 1986 (as added by this section) or by reason of subsection (b) of this section shall not be taken into account as income and shall not be taken into account as resources for the month of receipt and the following 2 months, 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.
2 Sec. 203, P.L. 107-16, which is effective through December 30, 2010, provides:
SEC. 203. REFUNDS DISREGARDED IN THE ADMINISTRATION OF FEDERAL PROGRAMS AND FEDERALLY ASSISTED PROGRAMS.
Any payment considered to have been made to any individual by reason of section 24 of the Internal Revenue Code of 1986 [the Child Tax Credit] . shall not be taken into account as income and shall not be taken into account as resources for the month of receipt and the following month, 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. 3 As to the Earned Income Tax Credit, there is a statutory minimum disregard for certain programs. 26 U.S.C. 32(l) provides:
(l) Coordination with certain means-tested programs For purposes of- (1) the United States Housing Act of 1937,
(2) title V of the Housing Act of 1949,
(3) section 101 of the Housing and Urban Development Act of 1965,
(4) sections 221(d)(3), 235, and 236 of the National Housing Act, and
(5) the Food Stamp Act of 1977, any refund made to an individual (or the spouse of an individual) by reason of this section, and any payment made to such individual (or such spouse) by an employer under section 3507, shall not be treated as income (and shall not be taken into account in determining resources for the month of its receipt and the following month).