A Federal refundable tax credit is a special tax credit that reduces the Federal tax liability of certain taxpayers. It can result in a payment to the taxpayer, either as an advance from their employer, or as a refund from the Internal Revenue Service (IRS).

The EITC is a special tax credit that reduces the Federal tax liability of certain low income working taxpayers. This tax credit sometimes results in a payment to the taxpayer, either as an advance from an employer or as a refund from IRS.

The child tax credit (CTC) is a special Federal refundable tax credit that is available to certain low income taxpayers with earned income and at least one child in the household that would qualify as a dependent for Federal income tax purposes. This child tax credit may provide a refund to individuals even if they do not owe any tax. The CTC may result in a tax refund payment to the taxpayer from IRS beginning with tax year 2001. There is no advance payment with the CTC.

The MWP tax credit was a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns. The employer normally paid the MWP tax credit by reducing the amount of the Federal tax withholding in the worker’s paycheck. Individuals who did not receive the full credit in their paycheck could claim the remaining tax credit when filing their 2009 and 2010 Federal tax return. The MWP tax credit ended with the 2011 tax year.

The first-time homebuyer tax credit was a one-time tax credit for eligible buyers who purchased a home as their primary residence in 2008, 2009, 2010, or, in some cases, 2011. Eligibility varied depending upon the year of home purchase.

The deemed first-time homebuyer tax credit was a one-time tax credit for individuals and couples and was available for tax years 2009, 2010, or 2011. The credit was available to long-time residents of the same principal residence if they purchased a new principal residence. To qualify, eligible taxpayers had to show that they lived in their old home for any 5-consecutive years during the 8-year period ending on the purchase date of the new home.

Develop and exclude a tax refund or advance tax credit only when an individual alleges receipt of either and alleges retaining an amount that may affect eligibility.

To develop and document receipt of a tax refund or advance tax credit

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  Use the individual’s Federal income tax return or other documents in their possession to verify the date(s) and amount(s) of such refund(s) or payment(s).

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  Document the evidence on the Report of Contact page and lock the page; and

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  Obtain a statement as to the date(s) and amount(s) of any account deposits corresponding to the tax refund or advance tax credit.

NOTE: Consider the policies pertaining to commingling of funds when determining how much to exclude from countable resources. For more information on how to develop commingled excluded and non-excluded funds, see SI 01130.700.

In March, an SSI recipient reports that they received a tax refund of $3,400 that was attributable to an EITC. The recipient deposited the tax refund in their checking account with other non-excluded funds.

The claims representative (CR) documents the recipient’s allegation on a locked Report of Contact page and asks whether the recipient has made any withdrawals from their checking account since they deposited the $3,400.

The SSI recipient reported making no withdrawals, so the CR excludes the tax refund portion of the funds by entering the amount in the “excluded” column on the financial account page. Prior to 2010, these funds qualified for a 9-month exclusion; however, these funds now qualify for a 12-month exclusion.

An SSI recipient applied for SSI on October 15, 2009 and received a notification of approval. On January 25, 2010, the recipient received a tax refund attributable to an EITC that was valued at $1,500.00.

They deposited the tax credit into their savings account with non-excluded money valued at $1,900.00. They kept the money in the account and took out only a little to live on each month until January 2011, when the funds were below $2,000.

The CR asks for bank statements to develop the commingling of funds and properly assumes the recipient spent the non-excluded funds first. At the end of the 12-month resource exclusion, the recipient has below $2,000 in the account and the CR determines that the recipient continues to be eligible for SSI.

During a redetermination in April 2011, a CR notes that an SSI recipient needs to have their record corrected. The recipient was suspended due to excess income and resources from June 2010 through October 2010 because the recipient received a tax refund of $6,000.

The CR determines the source of the $6,000 as attributable to the first-time homebuyer’s tax credit in June 2010 and the recipient retained the funds through mid-September. The CR applies the new 12-month exclusion policy and properly excludes the $6,000 from the recipient’s income and countable resources. The CR then reinstates the SSI recipient for the period from June 2010 through October 2010.