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LIHEAP IM 2011-03 Tax Refunds Disregarded as Income Per the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

Special Topics

Published: February 1, 2011
Low Income Home Energy Assistance Program (LIHEAP)
Guidance, Policies, Procedures, Information Memorandums (IM)

Low Income Home Energy Assistance Information Memorandum

U.S. Department of Health and Human Services
Administration for Children and Families
Office of Community Services
Division of State Assistance
370 L'Enfant Promenade, S.W.
Washington, D.C. 20447

Transmittal No.  LIHEAP-IM-2011-03 Date:  February 1, 2011


SUBJECT:  Tax Refunds Disregarded as Income Per the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. RELATED REFERENCES:
The Low-Income Home Energy Assistance Act, Title XXVI of the Omnibus Budget Reconciliation Act of 1981 (P.L. 97-35), as amended; the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312). PURPOSE:
To advice grantees that tax legislation cited above provides that tax refunds received after December 31, 2009 are disregarded as “income” in all Federal and Federally-assisted means tested programs through December 31, 2012. 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).

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 must move expeditiously to implement the provision. CONTENT: 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 than the new provision should be.

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.

Programs Affected

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) the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and programs funded under various block grants such as) the Low Income Home Energy Assistance Program (LIHEAP), the Temporary Assistance for Needy Families block grant, the Social Services Block Grant, and the Child Care and Development Block Grant.

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 and that individuals are providing does not include a federal tax refund that may have been received.

In programs that have an assets test: Under LIHEAP, States have flexibility to set assets policy, including whether to have an assets test at all.  While that remains the case, if a State has an assets test, its policy must comply with the disregard provision included in P.L. 111-312 and households 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 was disregarded.

While States have flexibility on how compliance with this provision is achieved, one method for implementing this provision which is consistent with LIHEAP’s rules would be to subtract any federal tax refund a household received in the last 12 months from the reported assets of the household.  If the difference between the household’s reported assets and the amount received from the tax refund is less than resource limit, the household 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 States to ensure that their applications and interview protocols are designed such that a household has the opportunity to provide information about a tax refund if receipt of such a refund may affect the household’s eligibility for or level of benefits.  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 household having assets above 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 States and understand that States may not be able to revise automated systems immediately.  However, States must find a mechanism to ensure that applicants or recipients who exceed the assets level due to a tax refund received in the last 12 months are not denied or terminated.

Filing Season

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,  households applying or updating their eligibility in 2011 may have a received a tax refund in 2010 that now needs to be disregarded.

State agencies are encouraged to develop outreach strategies to encourage households that were denied because they were over the resource limit to reapply for program benefits

Nick St. Angelo
Division of Energy Assistance
Office of Community Services


Last Reviewed: June 14, 2019