TANF-ACF-PI-2011-01 (Disregarding tax refunds received after December 31, 2009, as income and resources for a period of 12 months)
This instruction applies to all States, DC, Tribes and the Territories of Guam, Puerto Rico, and the Virgin Islands operating TANF programs and Territories operating Adult Programs (Aid to the Aged, Blind, and Disabled)
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)
To inform States, DC, Tribes, Guam, Puerto Rico, and the Virgin Island of a new statutory requirement that a federal tax refund be disregarded 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.
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 was more difficult for eligibility workers to implement than the new provision should be.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312) 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, States, Tribes, and Territories 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 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. This 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 statute, 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) Temporary Assistance to Needy Families Program (TANF), Tribal TANF, 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. For Guam, Puerto Rico, and the Virgin Islands, it includes the Adult Programs (Aid to the Aged, Blind and Disabled).
Compliance with the Provision:
To comply with the requirement that a federal tax refund be disregarded as income in the month the refund is received, the program must ensure that the income information being sought does not include a previously received federal tax refund.
Under TANF, Tribal TANF and Adult Programs, States, Tribes and Territories have flexibility to set asset policy, including whether to have an asset test at all. While that remains the case, if a State, Tribe, or Territory has an asset test, its policy must comply with the disregard provision included in P.L. 111-312; 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.
While States, Tribes, and Territories have flexibility on how compliance with this provision is achieved, one method for implementing this provision which is consistent with the rules of TANF, Tribal TANF and the Adult Programs 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 the resource limit, the assistance unit would meet the resource-related eligibility criteria. This simplified approach will minimize administrative burdens on States, Tribes and Territories, and families alike.
To ensure compliance with the P.L. 111-312 provision, it is important for States, Tribes, and Territories to ensure that their applications and interview protocols are designed such that an application or assistance unit has the opportunity to provide information about a tax refund if receipt of such a refund may affect the unit’s eligibility for or level of benefits. This opportunity must be afforded regardless of the manner in which an individual, family or household 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 eligibility unit having assets above a resource limit unless the applicant has been asked whether anyone in the unit 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 States, Tribes, and Territories, and understand that they may not be able to revise automated systems immediately. However, States, Tribes, and Territories 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 a received a tax refund in 2010 that now needs to be disregarded.
Agencies administering TANF, Tribal TANF and Adult Programs are encouraged to develop outreach strategies to encourage households that were denied because they were over the resource limit to reapply for TANF benefits.
Please direct inquiries your Regional Office.
Earl S. Johnson
Office of Family Assistance
Last Reviewed: October 29, 2015