A federal refundable tax credit is a 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 employer, or as a refund from the Internal Revenue Service (IRS).

The EITC, also called Earned Income Credit (EIC), is a tax credit that reduces the federal tax liability for certain people who work and have low to moderate earnings. 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 CTC is a federal tax credit that reduces the taxpayer’s liability to zero and is available to certain low-income taxpayers with earned income. There is no advance payment of the CTC, and it may provide a refund to individuals even if they do not owe any tax beginning with tax year 2001. The taxpayer must be able to claim the individual as a qualifying child on tax return and meet additional criteria to receive the CTC.

The MWP tax credit is a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns. The MWP tax credit ended with the 2011 tax year.

The first-time homebuyer tax credit is 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 depends upon the year of home purchase.

The deemed first-time homebuyer tax credit is a one-time tax credit for individuals and couples. It is available for tax year 2009, 2010, or 2011 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.

Normal income counting rules apply if the individual receives a tax credit in wages. The MWP tax credit modifies only the individual’s net pay; therefore, it does not affect gross wages. For more information about determining countable wages, see SI 00820.100.

The amount attributable to the MWP tax credit is not countable income if the individual or couple receives the tax credit in the form of a federal tax refund.

Qualified individuals who purchased their home on or after April 9, 2008, but before May 1, 2010, could claim the first-time homebuyer tax credit or the deemed first-time homebuyer tax credit.

EXCEPTION: The deadline for purchasing the home was September 30, 2010, if the individual entered into a binding contract to purchase the home before May 1, 2010, and the individual closed on the home on or before September 30, 2010.

Uniformed service members who were on duty outside the US for at least 90 days during the period beginning after December 31, 2008, and ending before May 1, 2010, had an additional extension on the purchase deadline. These individuals and their spouses had through April 30, 2011, to purchase a home and claim the first-time homebuyer tax credit. If they entered into a binding contract to purchase a home before May 1, 2011, they had through June 30, 2011, to close on the purchase of the home.

We treat the amount of the first-time homebuyer and deemed first-time homebuyer tax credit as unearned income for SSI purposes. Only the amount of the first-time homebuyer tax credit or the amount of the deemed first-time homebuyer tax credit the individual received back in the form of a refund is countable income.

The tax credits reduce the taxpayer’s tax bill or increase their refund dollar for dollar. Unlike most tax credits, these tax credits are fully refundable. This means that IRS will give the tax credit to eligible taxpayers even if they owe no tax, or the tax credit is more than the amount of tax owed. As a result, an individual or couple who received the tax credit may also receive a federal tax refund from IRS consisting of income we have not otherwise considered for SSI purposes. Do not apply the income tax refunds instructions in SI 00815.270 for amounts attributable to the first-time homebuyer tax credit or deemed first-time homebuyer tax credit. For examples of how to treat this income, see SI 00830.060L (in this section.)

If the individual obtains the value of the anticipated tax credit in advance of filing the tax return by entering into a short-term loan agreement with an approved lender, follow the policy on loans in SI 00815.350.

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  The first-time homebuyer tax credit is equal to 10 percent of the purchase price of the home, up to a maximum of $8,000; and

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  The deemed first-time homebuyer tax credit is 10 percent of the purchase price of the home, up to a maximum of $6,500.

If the individual or couple alleges receiving a federal tax refund for the tax year in which the individual or couple claimed the tax credit, consider the amount of the refund attributable to the tax credit as unearned income in the month the individual or couple reportedly received the tax refund.

IMPORTANT: Consider any amount that the individual or couple receives as a refund in excess of the tax credit as a return of taxes previously paid and not as income. For the policy on income tax refunds, see SI 00815.270.

Attribute one-half of the tax credit to each spouse for married couples filing joint Federal tax returns, e.g., an SSI couple or SSI individual with an ineligible spouse. For an example of how to apply this policy, see SI 00830.060L, in this section.

Rodney Smith purchased their first home for $64,000 in December 2008. Rodney alleges qualifying for a $6,400 first-time homebuyer tax credit that they claimed on their federal tax return. Rodney filed their return with IRS in April 2009. During Rodney's SSI redetermination, they stated that they received a federal tax refund in June 2009 for $7,000. Rodney presented their settlement statement that verified the purchase price of the home as $64,000. Based on these facts, Rodney is ineligible for SSI in June 2009 because the $6,400 tax credit they received in that month counts as unearned income. We consider the additional $600 refund Rodney received to be a refund of taxes already paid; the additional $600 is not income for SSI purposes.

Coral Jones, an SSI claimant with an ineligible spouse, alleges during their redetermination interview that they received a federal tax refund of $2,000 in February 2009. Coral filed a joint Federal tax return in January 2009 and claimed the first-time homebuyer tax credit of $8,000. Coral presented a copy of their settlement statement that verified the home’s purchase price as $90,000. Since The couple's tax liability was less than the full tax credit due, they received a refund of $2,000. Coral is ineligible for SSI in February, since we consider one-half of the refund ($1,000) as unearned income. The other half of the refund ($1,000) is Coral's unearned income in February 2009.

An SSI couple lived in their home for 25 years. They sold their home for $30,000 in January 2010 and purchased a new home for $68,000 in the same month. They filed a joint federal tax return in January 2010 to claim the $6,500 deemed first-time homebuyer tax credit. The couple had zero tax liability. The $6,500 tax credit they received in May 2010 is not countable income for SSI purposes. They retained the $6,500 until they spent it to make repairs to their home in August 2010. The retained amount is not a countable resource during this period, and they continued to be eligible for SSI.