TANF-ACF-PI-2010-02 (Guidance about the Federal Making Work Pay Tax Credit and other tax credits)
State agencies and Tribes administering the Temporary Assistance for Needy Families (TANF) program under title IV-A of the Social Security Act, and other interested parties.
Guidance about the Federal Making Work Pay Tax Credit and other tax credits
To remind TANF jurisdictions of the federal requirements for recipients of means-tested benefits who receive the Making Work Pay and other tax credits.
Section 1001(c) of the Recovery Act
The American Recovery and Reinvestment Act (ARRA), signed into law in February 2009 by President Obama included 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 EITC, 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. This disregard applies to both new applicants and ongoing recipients.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
Minimum Statutory Requirements
If a TANF jurisdiction does not provide for a broader or longer exclusion of one or more tax credits and tax refunds, then in order to implement the Making Work Pay disregard:
- For income purposes, a TANF jurisdiction’s 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 Disregard
Because TANF jurisdictions are not required by the Social Security Act or federal regulations to set an asset limit, they may choose to provide an exclusion of the Making Work Pay credit for more than three months.For example, the jurisdiction might choose to provide a twelve month exclusion from resources, along with the statutorily-required disregard from income.Doing so could be administratively simpler for TANF jurisdictions and recipient families.
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, the TANF jurisdiction must disregard the federal Child Tax Credit as income, and as a resource in the month of receipt and the following month.The Internal Revenue Code does not specify minimum disregards applicable to ACF programs for Earned Income Tax Credit refunds or for the American Opportunity Tax Credit.But, in addition to complying with applicable federal minimum disregards, a TANF jurisdiction might choose to establish, for example, a 12 month disregard from income and resource consideration for all refundable credits and refunds.
TECHNICAL ASSISTANCE RESOURCES:
Internal Revenue Service information can be found at the following:http://www.irs.gov/formspubs/article/0,,id=207441,00.html
INQUIRIES: Please direct inquiries to the TANF Program Manager in your Region.
Ann H. Barbagallo
Office of Family Assistance