TN 121 (08-14)

SI 00830.060 Federal Tax Refunds and Advanced Tax Credits for SSI Income Purposes

CITATIONS: Public Law 112-240, Public Law 111-312, Public Law 111-198, Public Law 111-148, Public Law 111-92, and Public Law 111–5

A. Introduction to all Federal refundable and advanced tax credits

On January 2, 2013, the President signed into law the American Taxpayer Relief Act of 2012 (ATRA). The law excludes from income all Federal tax refunds and advanced tax credits received on or after January 1, 2010.

This section describes how to treat the following tax credits for SSI income purposes:

  • all Federal refundable and advanced tax credits,

  • earned income tax credit (EITC),

  • child tax credit (CTC),

  • making Work Pay (MWP) tax credit,

  • first-time homebuyer tax credit, and

  • deemed first-time homebuyer tax credit.

For the treatment of Federal refundable and advanced tax credits for SSI resource purposes, see SI 01130.676.

B. Definitions

1. Federal Refundable tax credit

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 his or her employer, or as a refund from the Internal Revenue Service (IRS).

2. Earned Income Tax Credit (EITC)

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.

3. Child Tax Credit (CTC)

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 his or her tax return and meet additional criteria to receive the CTC.

4. Making Work Pay (MWP) tax credit

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.

5. First-time homebuyer tax credit

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.

6. Deemed first-time homebuyer tax credit

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.

C. Policy for how to treat all Federal tax refunds and advanced tax credits received on or after January 1, 2010 for SSI income purposes

Exclude from income the portion of a Federal tax refund that is attributable to a Federal refundable and advanced tax credit received on or after January 1, 2010.

D. Policy for how to treat the Earned Income Tax Credit (EITC)

Exclude from income any EITC payments received either as an advance or as a refund, regardless of the tax year involved.

E. Policy for how to treat the Child Tax Credit (CTC)

Exclude from income any CTC payments received as a refund beginning with tax year 2001.

F. Procedure for how to document Federal tax refunds and advanced tax credits for SSI income purposes

Accept the individual’s allegation of the amount attributable to the Federal refundable and advanced tax credit and the month he or she received the tax refund. Document the allegation on the Modernized Supplemental Security Income Claims System (MSSICS) Report of Contact (DROC) screen and lock it, or fax the report of contact into the Non-Disability Repository for Evidentiary Documents (NDRED) for non-MSSICS cases, according to the procedures in GN 00301.285 through GN 00301.289. Do not retain the paper form after you document the issue electronically.

G. Policy for how to treat the Making Work Pay (MWP) tax credit

IMPORTANT: The MWP tax credit ends with the 2011 tax year, beginning after December 31, 2010.

1. Worker receives MWP tax credit in his or her wages

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

2. Worker receives MWP tax credit in the form of a tax refund

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.

H. Policy for how to treat the first-time homebuyer and deemed first-time homebuyer tax credit received on or after January 1, 2010

Any refund amounts attributable to the first-time homebuyer and deemed first-time homebuyer tax credit are not countable income for SSI purposes.

I. Policy for how to treat the first-time homebuyer and deemed first-time homebuyer tax credit received before January 1, 2010

The individual or couple must file a tax return to obtain the first-time homebuyer tax credit or deemed first-time homebuyer tax credit.

Treat the tax credits as follows when determining countable income.

1. General time frame to purchase a home and claim the tax credit

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

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

2. Members of the uniformed services on duty outside the United States (US)

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

3. Treat tax credit as unearned income if received before January 1, 2010

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 his or her 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.)

4. Individual receives tax credit immediately under a short-term loan agreement

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.

J. Policy for determining the amount of the first-time homebuyer or deemed first-time homebuyer tax credit for SSI income purposes before January 1, 2010

1. Tax credit amounts

  • 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

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

2. Countable amount of the tax credit when received before January 1, 2010

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.

3. Countable amount of the tax credit for married individuals when received before January 1, 2010

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.)

K. Procedure to calculate the first-time homebuyer and deemed first-time homebuyer tax credit for SSI income purposes before January 1, 2010

Take the following steps to calculate the amount of the first-time homebuyer or deemed first-time homebuyer tax credit:

  1. Ask the individual for documentation of the purchase price of the home, e.g., mortgage or closing-cost documents.

  2. Calculate the tax credit by multiplying the purchase price of the home by 10 percent (.10). The result is the value of the tax credit (up to a maximum of $8,000 for a first-time homebuyer or up to a maximum of $6,500 for a deemed first-time homebuyer).

  3. Accept the individual’s allegation of the month he or she received the tax refund. Document the allegation on the MSSICS DROC screen and lock it, or fax the Report of Contact into NDRED for non-MSSICS cases, according to the procedures in GN 00301.285 through GN 00301.289. Do not retain the paper form after you document the issue electronically.

  4. Count the refund portion attributable to the tax credit as unearned income, if the individual received it before January 1, 2010, according to the policy in SI 00830.060I.

L. Examples of how to treat the first-time homebuyer tax credit and deemed first-time homebuyer tax credit for SSI income purposes

1. SSI claimant receives a tax refund equal to or greater than the tax credit before January 1, 2010

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

2. SSI claimant receives a tax refund that is less than the value of the tax credit before January 1, 2010

Mr. Jones, an SSI claimant with an ineligible spouse, alleges during his redetermination interview that he received a Federal tax refund of $2,000 in February 2009. He filed a joint Federal tax return in January 2009 and claimed the first-time homebuyer tax credit of $8,000. He presented a copy of his settlement statement that verified the home’s purchase price as $90,000. Since Mr. and Mrs. Jones' tax liability was less than the full tax credit due, they received a refund of $2,000. Mr. Jones 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 Mrs. Jones' unearned income in February 2009.

3. SSI couple receives the tax credit as deemed first-time homebuyers after January 1, 2010

John and Alice Johnson, 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. Mr. and Mrs. Johnson 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.

M. References

  • GN 02820.001 The American Recovery and Reinvestment Act of 2009 (ARRA): Introduction

  • GN 02820.010 Title II Eligibility Under the American Recovery and Reinvestment Act of 2009 (ARRA)

  • GN 02820.020 Supplemental Security Income (SSI) Eligibility under the American Recovery and Reinvestment Act of 2009 (ARRA)

  • GN 02820.025 Effect of the American Recovery and Reinvestment Act of 2009 (ARRA) on SSI Income and Resources

  • SI 00810.310 How to Compute Countable Income

  • SI 00815.270 Income Tax Refunds

  • SI 00815.350 Proceeds of a Loan

  • SI 01110.003 Resources Limits for SSI Benefits

  • SI 01130.676 Federal Tax Refunds and Advanced Tax Credits for SSI Resources

  • RS 01804.525 Processing of Fraudulently Filed SE Tax Returns for Purposes of Claiming the EITC


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SI 00830.060 - Federal Tax Refunds and Advanced Tax Credits for SSI Income Purposes - 08/11/2014
Batch run: 08/11/2014
Rev:08/11/2014