How the EITC Refund Affects Eligibility for Public Benefits City of Laredo “Maximizing Federal Tax Benefits” Seminar January 20, 2005 Celia Hagert, Senior Policy Analyst Don Baylor, Policy Analyst 900 Lydia Street - Austin, Texas Phone (512) – fax (512)

Who We Are 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. 2

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

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

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

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

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

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

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

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

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

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