Treatment of Making Work Pay (MWP), Other Tax Credits and Refunds when Determining Eligibility
THIS CONTAINS INFORMATION ISSUED BY THE U.S. ADMINISTRATION FOR
CHILDREN AND FAMILIES IN LIHEAP INFORMATION MEMORANDUM TRANSMITTAL
NO. LIHEAP-IM-2010-1, DATED 2/22/10
TO: LOW INCOME HOME ENERGY ASSISTANCE PROGRAM (LIHEAP)
STATE GRANTEES
SUBJECT: Treatment of Making Work Pay (MWP), Other Tax
Credits and Refunds when Determining Eligibility
RELATED Low Income Home Energy Assistance Act, as amended
REFERENCES: (Title XXVI of Public Law 97-35, the Omnibus Budget
Reconciliation Act of 1981, as amended); 45 Code
of Federal Regulations, Part 96; Final Rule
amending HHS block grant regulations (64 Federal
Register, 55843, October 15, 1999); LIHEAP
AT-2008-4, dated June 12, 2008; LIHEAP IM-2009-03,
dated January 26, 2009; American Recovery and
Reinvestment Act of 2009.
PURPOSE: To advise grantees that the American Recovery and
Reinvestment Act of 2009 requires programs funded
in whole or in part with federal funds to disregard
the MWP credit as a resource in the month received
and the following two months when determining
eligibility.
To inform grantees about the option to disregard
other tax credits and refunds.
BACKGROUND: Section 2605 (b) (2) of the LIHEAP statute defines
who may be eligible to receive assistance. The
statute provides grantees with the flexibility to
include as eligible all of those mentioned in the
law, or to limit eligible households to a smaller
target group. Although the law allows categorical
eligibility (such as the recipients receiving
benefits from programs listed in section 2605 (b)
(1) (A)), grantees must also offer eligibility to
households on the basis of income as required by
section 2605 (b) (8).
CONTENT: The American Recovery and Reinvestment Act (ARRA)
includes a temporary refundable tax credit called
the Making Work Pay (MWP) credit. For people who
receive a paycheck and are subject to income tax
withholding, this credit was designed to reduce tax
withholding and give workers higher take-home pay.
Taxpayers who did not have income taxes withheld by
an employer during the year can receive the credit
as a lump sum refundable credit when they file
their 2009 income tax returns in 2010. Taxpayers
filing returns may also be receiving other
refundable credits, including the Earned Income Tax
Credit, the Child Tax Credit, and an education-
related tax credit called the American Opportunity
Tax Credit. In addition, an individual's tax
refund may involve a combination of refundable
credits and a refund of excess income tax paid
during the year.
ARRA requires programs funded in whole or in part
with federal funds to disregard the MWP credit as
income, and to disregard the credit as a resource
in the month received and the following two
months.1 This disregard applies to both new
applicants and ongoing recipients. Since LIHEAP
grantees must offer eligibility to households on
the basis of income as required by section 2605
(b) (8), grantees must also apply the MWP credit
disregard when determining eligibility for LIHEAP
funds on the basis of income as required by ARRA.
For LIHEAP programs that have an asset limit,
grantees have discretion under current statutory
and regulatory authority to fashion their own
disregards, so they can choose to exclude the MWP
credit for a longer period of time or altogether.
At minimum, though, the MWP payment must be
disregarded as income, and must be disregarded as
a resource in the month of receipt and the
following two months.
The goal of the ARRA provision was to ensure that
the MWP credit did not jeopardize an individual's
or family's eligibility for means-tested benefits.
This is particularly important during a recession
when many families who were previously working are
turning to means-tested programs for the first
time.
In addition, the MWP provision was intended to
minimize administrative burdens for states. Many
of the families that might lose eligibility as a
result of this credit will regain eligibility for
benefits once they spend the funds. By
disregarding the credit amount for several months,
programs will avoid the additional workload of
having to determine households ineligible and then
process new applications for the households
several months later.
Minimum Statutory Requirements for Disregard of
the Making Work Pay Credit
If a broader or longer exclusion of one or more
tax credits and tax refunds is not applied, then
the following minimum statutory requirements must
be met in order to implement the Making Work Pay
disregard:
• For income purposes, a grantee's application
and ongoing eligibility process needs to
ensure that it does not include consideration
of any MWP credit received by the applicant or
recipient.
• For resource purposes, probably the simplest
way to implement this provision is to ask
applicants, or recipients whose eligibility is
being redetermined, who may be over the asset
limit for a program whether they have received
a tax refund in the past three months. If the
applicant or recipient has received a tax
refund, it will be necessary to determine
whether the refund included the MWP credit
and, if so, how much of the refund should be
attributed to the MWP credit and should be
disregarded when determining asset eligibility.
Option to Provide a More Expansive Making Work Pay
Disregard
Grantees that use an asset limit in their LIHEAP
programs have the discretion to provide an
exclusion of the Making Work Pay credit for more
than three months. For example, a grantee might
choose to provide a twelve month exclusion from
resources, along with the statutorily-required
disregard from income.
Option to Disregard Other Tax Credits and Refunds
Families that worked in 2009 may receive tax
refunds that include not only the MWP credit, but
also the EITC and the Child Tax Credit - both of
which were expanded temporarily in the ARRA
legislation as a way of directing more help to
families during the recession. In some cases,
families could also be receiving the refundable
American Opportunity Tax Credit for certain
educational costs. In addition, in some
circumstances, a family may have had excess taxes
withheld from their pay, so that they are also
receiving a refund of excess taxes paid.
At minimum, grantees must disregard the federal
Child Tax Credit as income, and as a resource in
the month of receipt and the following month.2 The
Internal Revenue Code does not specify minimum
disregards applicable to ACF programs for Earned
Income Tax Credit refunds3 or for the American
Opportunity Tax Credit. But, in addition to
complying with applicable federal minimum
disregards, a grantee might choose to establish,
for example, a 12 month disregard from income and
resource consideration for all refundable credits
and refunds. Doing so could be administratively
simpler for states, grantees, and families. A
grantee could elect to do this if its governing
federal law allows discretion in determining when
amounts received count as income, whether to have
an asset limit, and which exclusions to provide
from its asset limit. A grantee might choose to
do so for 2010 or on an ongoing basis.
___________/s/______________
Yolanda J. Butler, Ph.D.
Acting Director
Office of Community Services
_______________________________
1 The statutory language in Section 1001 of the ARRA says:
(c) REFUNDS DISREGARDED IN THE ADMINISTRATION OF FEDERAL PROGRAMS
AND FEDERALLY ASSISTED PROGRAMS.-Any credit or refund allowed or
made to any individual by reason of section 36A of the Internal
Revenue Code of 1986 (as added by this section) or by reason of
subsection (b) of this section shall not be taken into account
as income and shall not be taken into account as resources for
the month of receipt and the following 2 months, for purposes of
determining the eligibility of such individual or any other
individual for benefits or assistance, or the amount or extent of
benefits or assistance, under any Federal program or under any
State or local program financed in whole or in part with Federal
funds.
2 Sec. 203, P.L. 107-16, which is effective through December 30,
2010, provides:
SEC. 203. REFUNDS DISREGARDED IN THE ADMINISTRATION OF FEDERAL
PROGRAMS AND FEDERALLY ASSISTED PROGRAMS.
Any payment considered to have been made to any individual by
reason of section 24 of the Internal Revenue Code of 1986 [the
Child Tax Credit] . shall not be taken into account as income and
shall not be taken into account as resources for the month of
receipt and the following month, for purposes of determining the
eligibility of such individual or any other individual for
benefits or assistance, or the amount or extent of benefits or
assistance, under any Federal program or under any State or
local program financed in whole or in part with Federal funds.
3 As to the Earned Income Tax Credit, there is a statutory
minimum disregard for certain programs. 26 U.S.C. 32(l)
provides:
(l) Coordination with certain means-tested programs
For purposes of-
(1) the United States Housing Act of 1937,
(2) title V of the Housing Act of 1949,
(3) section 101 of the Housing and Urban Development Act of 1965,
(4) sections 221(d)(3), 235, and 236 of the National Housing Act,
and
(5) the Food Stamp Act of 1977,
any refund made to an individual (or the spouse of an individual)
by reason of this section, and any payment made to such
individual (or such spouse) by an employer under section 3507,
shall not be treated as income (and shall not be taken into
account in determining resources for the month of its receipt and
the following month).
