TN 68 (08-14)

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

A. Background on tax refunds and advanced tax credits

On January 2, 2013, the President signed into law the American Taxpayer Relief Act of 2012 (ATRA). The law excludes all Federal tax refunds and advanced tax credits from resource counting for a period of 12 months after the month of receipt. For income treatment of tax credits and refunds, refer to SI 00830.060.

NOTE: The Federal tax refunds and advanced tax credits specifically identified in this section represent only those seen most frequently by SSA. The list is not exhaustive. All Federal tax refunds and advanced tax credits received after January 1, 2010 qualify for a 12-month resource exclusion (e.g., refundable adoption tax credit).

B. Definitions

1. Federal Refundable tax credit

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

2. Earned income tax credit (EITC)

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.

3. Child tax credit (CTC)

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.

4. Making Work Pay (MWP) tax credit

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.

5. First-time homebuyer tax credit

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.

6. Deemed first-time homebuyer tax credit

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.

C. Policy for treatment of Federal tax refunds and advanced tax credits received on or after January 1, 2010 for SSI resource purposes

Exclude for 12 months all Federal tax refunds and advanced tax credits. The 12-month period begins the month following the month of receipt of the refund or payment.

D. Differences in exclusion period from the prior policy on Federal tax refunds and advanced tax credits

The 12-month resource exclusion modifies certain resource policies that were in effect for Federal tax refunds and advanced tax credits received prior to January 1, 2010.

1. Policy for Earned Income Tax Credit (EITC) and Child Tax Credit (CTC)

a. Resource exclusion for EITCs and CTCs received from March 2, 2004 through December 31, 2009

Exclude all retained funds attributable to an EITC or a CTC for 9 months following the month of receipt.

b. Resource exclusion for EITCs and CTCs received on or after January 1, 2010

Exclude retained funds attributable to an EITC or a CTC for 12 months following the month of receipt.

NOTE: For treatment of EITC’s and CTC’s received before March 2, 2004, and more information related to these tax credits, see the chart at SI 01130.676G.

2. Policy for MWP tax credits paid as a credit or used to reduce the countable income of a worker

a. Resource exclusion for MWP tax credits received prior to January 1, 2010

Exclude retained funds attributable to the MWP for 2 months following the month of receipt when received on or after January 1, 2009 but prior to January 1, 2010.

b. Resource exclusion for MWP tax credits received on or after January 1, 2010

Exclude retained funds attributable to a MWP for 12 months following the month of receipt when received on or after January 1, 2010. The MWP tax credit ended with the 2011 tax year.

Exclude the amount attributable to the MWP tax credit for 12 months following the month of receipt if the individual or couple receives the tax credit in the form of a refund when they filed their 2009 or 2010 taxes.

Self-employed individuals received the MWP tax credit when they filed their taxes for the 2009 or 2010 tax year. Exclude the MWP tax credit from resource counting for the 12 months following the month of receipt.

NOTE: Due to the tax calendar, funds attributable to the MWP tax credit received in the form of a refund for the 2009 tax year counted as received after January 1, 2010 and qualified for the 12-month resource exclusion provided for in the Tax Relief Act.

3. Policy for first-time homebuyer tax credits and deemed first-time homebuyer tax credits

a. Resource counting for first-time homebuyer and deemed first-time homebuyer tax credits received prior to January 1, 2010

Count as a resource any retained funds attributable to the first-time homebuyer tax credits or deemed first-time homebuyer tax credits received prior to January 1, 2010.

b. Resource exclusion for first-time homebuyer and deemed first-time homebuyer tax credits received on or after January 1, 2010

Exclude retained funds attributable to the first-time homebuyer tax credit or deemed first-time homebuyer tax credit for 12-months following the month of receipt beginning with refunds received on or after January 1, 2010.

E. Procedure for how to exclude Federal tax refunds and advanced tax credits

1. When to develop receipt of a tax refund or advanced tax credit

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

2. How to develop and document receipt of a tax refund or advanced tax credit if necessary

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

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

  • Document the evidence on the Report of Contact (DROC) screen in MSSICS and lock the screen; and

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

F. Examples of how to apply resource exclusions to Federal tax refunds and credits

The following are examples of how to apply the 12-month resource exclusion for Federal tax refunds and advanced tax credits.

1. Recipient retains EITC funds

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

The claims representative (CR) documents the recipient’s allegation on a locked DROC and asks whether the recipient has made any withdrawals from her checking account since she 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 MSSICS financial account screen (RFIA). Prior to 2010, these funds qualified for a 9-month exclusion; however, these funds now qualify for a 12-month exclusion.

2. Recipient spends down EITC funds

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.

He deposited the tax credit into his savings account with non-excluded money valued at $1,900.00. He 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.

3. First-time buyer’s tax credit retained

During a redetermination in April 2011, a CR notes that an SSI recipient needs to have his 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.

G. Chart showing resource exclusion changes under the Tax Relief Act

Type of tax credit or advanced tax credit

Length of exclusion if received on or after January 1, 2010

Length of exclusion if received from March 2, 2004 through December 31, 2009

Length of exclusion if received prior to March 2, 2004

EITC

12 months

9 months

1 month following month of receipt

CTC

12 months

9 months

1 month following month of receipt

MWP tax credits paid monthly and tax refunds received annually

12 months**

2 months *

Did not exist

First-time homebuyers tax credit and deemed first-time homebuyers tax credit

12 months**

No exclusion*

Did not exist

* The MWP, first-time homebuyers tax credit, and the deemed first-time homebuyers tax credit were retroactive to January 1, 2009.

**The 12-month exclusion for MWP ended in 2011 and the homebuyers’ tax credit ended in 2012.

H. References