How the EITC Refund Affects Eligibility for Public Benefits

1. How the EITC Refund Affects Eligibility for Public Benefits 900 Lydia Street - Austin, Texas 78702 Phone (512) 320-0222 – fax (512) 320-0227 - www.cppp.org City of Laredo “Maximizing Federal Tax Benefits” Seminar January 20, 2005 Celia Hagert, Senior Policy Analyst (hagert@cppp.org); Don Baylor, Policy Analyst (baylor@cppp.org)

2. The Center for Public Policy Priorities is a nonpartisan, nonprofit 501(c)(3) think tank committed to improving public policies and private practices to better the economic and social conditions of low- and moderate-income Texans. The center pursues this mission through independent research, policy analysis and development, public education, advocacy, and technical assistance. Who We Are 2

3. CPPP’s Core Areas • State Fiscal Analysis • Access To Public Benefits (Health, Food, Cash Assistance, Immigrants’ Access) • Workforce And Economic Development • Family Economic Security • Child Well-Being 3

4. Family Asset Building Project Goal: Make lasting economic success a reality for low-income Texas families by promoting policies and practices that encourage asset building. 1) Build support for state policies and programs that encourage low-income families to save for their future while allowing them to meet their short-term needs; 2) Provide support and technical assistance to EITC outreach and financial literacy providers; and 3) Develop an asset building campaign in partnership with low-wage employers in Texas 4

5. Family Asset Building Project Activities • Train EITC outreach workers about the impact of tax credits on public benefits eligibility • Increase availability of and access to Individual Development Accounts and other programs that help families save for the future • Support better coordination of EITC, financial literacy, and asset development efforts at the state and local level 5

6. Why Focus on EITC & Public Benefits eligibility? • Many eligible individuals don’t file for EITC for fear they will lose important benefits (TANF, CHIP, Food Stamps, Medicaid, SSI)* • People need to know whether and how EITC refunds will affect their eligibility for key benefits upon which they depend, and how to make sure that their benefits are protected • EITC outreach workers can help people understand when EITC refunds MAY affect eligibility • EITC outreach workers can encourage people to save their refunds in “protected” (exempt from program “resource tests”) savings accounts and encourage asset development *TANF is “Temporary Assistance for Needy Families”; CHIP is “Children’s Health Insurance Program;” SSI is “Supplemental Security Income” 6

7. How Does the EITC Affect Eligibility for Public Benefits? The EITC is not counted as income in most public benefit programs, including: • Supplemental Security Income (SSI) • Medicaid • Food Stamps • TANF • CHIP • Veterans’ benefits • Federally assisted housing 7

8. How Does the EITC Affect Eligibility for Public Benefits? • The EITC may be counted as a resource in most public benefit programs, including: • Supplemental Security Income (SSI) • Medicaid • Food Stamps • TANF • CHIP • Veterans’ benefits • Federally assisted housing • Resource rules on EITC refunds vary by program (benefit) 8

9. What is a “Asset Test or Resource Limit”? • Each benefit program established a resource limit, which generally includes liquid resources and the value of vehicles • Most programs don’t count non-liquid resources (for example, IDAs, retirement accounts, Texas Tomorrow Fund, 529 accounts), although each program’s definition of “non-liquid” may vary, and therefore exemptions also vary by program • When a person/family exceeds a program’s resource limit or asset test, a family (or that person’s child) may lose eligibility • Resource limits vary by program (see attached table) 9

10. When is the EITC Counted As a Resource ? • Each benefit program treats unspent EITC refunds differently, exempting it as a resource for anywhere from one to 12 months* • After this time, if the EITC refund (when combined with any other non-exempt savings a family may have) exceeds a program’s resource limit or asset test, a family (or that person’s child) may lose eligibility • In some programs, EITC rules are different for new applicants vs. current recipients • Because resource limits and EITC treatment vary by program, an unspent EITC refund could affect a person’s eligibility for one benefit, but not another • *Families should be encouraged to retain records of their EITC refunds 10

11. When is the EITC NOT Counted as a Resource? • When a person spends the refund immediately, it is not counted • If a person deposits the refund in a savings account that is exempt under a program’s resource test, then it is not counted (see chart) • Many non-liquid resources (for example, IDAs, retirement accounts, Texas Tomorrow Fund, 529 accounts) are exempt, although the exemptions differ by program (see chart) • EITC refunds deposited in a TANF or AFIA IDA are NEVER counted in any program 11

12. Summary • In many cases, an EITC refund will not affect eligibility for benefits, but in some cases it will • EITC rules and asset limits vary by program, so a person should not be automatically discouraged from filing for the EITC for fear they will lose benefits • If a person spends the EITC refund immediately, it is not counted • EITC refunds deposited in a TANF or AFIA IDA are NEVER counted in any program • EITC refunds deposited in retirement and education savings accounts may also be exempt, but these exemptions will vary depending on each benefit program’s resource rules • EITC outreach provides an excellent opportunity to educate families about IDAs and the benefits of saving for the future 12