IS IT SAFE TO SAVE MY TAX REFUND?

A Training on Educating Tax Filers About the Impact of Savings on Eligibility for Public Benefits

Prepared by the Center for Public Policy Priorities(p): 512-320-2222; (f): 512-320-0227; www@cppp.org

Overview of Training

• The Big Picture

• What Are Asset Limits in Public Benefits?

• Types of Savings: What Counts and What is

Exempt From Asset Limits?

• When Does the EITC Count Toward Asset Limits?

• How do I Educate Tax Filers About “Saving

Safely”?

The Big Picture

#1 Under certain circumstances, families can save their tax

refunds and still receive public benefits.

#2 Families need to be aware that certain savings, depending

on the type and amount, may cause them to lose benefits

or become ineligible for benefits.

#3 The rules about assets – what counts and what doesn’t –

vary by program, so tax filers should not be automatically

discouraged from saving their tax refunds for fear they will

lose benefits.

The Big Picture

#4 You do not need to be an expert: this training is

intended to give VITA site volunteers basic

information about the interaction between

savings and public benefits.

#5 If you are unsure of how to answer a tax filer’s

question, refer him/her to CPPP or to a local

benefits office. (www.yourtexasbenefits.com/)

Why is this important?

• Many families don’t save their tax refunds for fear

they will lose important benefits.

• Low-income families should be saving for the future

and need to learn how to protect these savings and

their benefits.

• VITA sites can help families understand the rules and

encourage them to save in a way that won’t harm

them.

What are “Asset Limits”?• An “asset test” or limit is the total value of

countable resources (savings and other assets) a family may have and still be eligible for public benefits.

• Each public benefit has a different asset limit ($$) and different “exemptions” (i.e., assets that are not counted).

• This training covers the asset rules for Food Stamps, Temporary Assistance for Needy Families (TANF), Family Medicaid, Child Care, and the Children’s Health Insurance Program (CHIP).

Asset Limits – All Programs

Counted• Most liquid assets (i.e.,

checking/savings accounts, or cash on hand)

• $$ limits vary by program

• The value of certain vehicles – varies by program

Not Counted• A family’s primary home,

surrounding property, and personal effects

• Individual Development Accounts (IDAs)

• Texas Tomorrow Funds*• 401Ks* The TTF is currently closed to new

enrollment, but will reopen in October 2008.

Asset rules are set by federal and/or state law and policy.

Asset Limits at a GlanceProgram Resource Limit Vehicle rule

TANF $1,000 $4,650 of each car exempted; excess value over these amounts counted toward $1,000 limit

Food Stamps $5,000 $15,000 of first car exempted; $4,650 of each additional car exempted; excess value over these amounts counted toward $5,000 limit

Family Medicaid(No asset test for pregnant women, infants<1, and Emergency Medicaid)

$2,000; $3,000 if household includes elderly or disabled member

First car exempted; $4,650 of each additional car exempted; excess value over these amounts counted toward $2,000/$3,000 limit

CHIP (Only for families with income above 150% of poverty)

$10,000 First car exempted; $18,000 of second car exempted; and $7,500 of any additional vehicles. Excess value over these amounts is counted toward $10,000 limit

Child Care(not related to TANF)

No asset test No asset test

Asset Treatment at a GlanceAsset Food Stamps/Family

Medicaid/TANFCHIP

IRA/Keogh Plan/SEP IRA

Counted Not Counted

401K Not Counted

IDAs Not Counted

Unspent EITC refunds(Encourage families to retain proof of EITC refunds)

Applicants: Exempt in the month of receipt and following month; any unspent amount is counted starting in the 3rd month

Recipients: Exempt in the month of receipt and following 11 months; after that any unspent amount would be counted

Unspent Child Tax Credit

Exempt in the month of receipt and following month

Texas Tomorrow Fund* Not Counted

529 plans* Counted Not Counted

*See https://www.texascollegesavings.com/ for more information.

The EITC & Public Benefits• The EITC is not counted as income when determining a family’s

eligibility.

• The EITC may be counted as a resource, but the rules are

different for applicants and recipients (see chart on p.).

• When a person spends the refund immediately, it is not counted.

• If a person deposits the refund in a savings account that is

exempt from a program’s asset test, then it is not counted (see

chart).

• Because asset limits & exemptions vary by program, a family’s

decision to save its EITC refund could affect its eligibility for one

benefit, but not another.

EITC Example

Will the family lose:• Mom’s Medicaid? No, because there is no asset test in Medicaid for

pregnant women. • Children’s Medicaid? It would not affect child #1, because there is no

asset test for children under the age of 1. Child #2 would lose Medicaid, because the asset limit for Medicaid is $2,000; however, the child would be transferred to CHIP, which has a higher ($10,000) resource limit.

• Food Stamps? No. If mom deposits the money in her savings account, bringing the balance to $2,100, the family would not lose Food Stamps, because the asset limit is $5,000. (Note: remember that even if the refund did cause a family’s savings to go over the $5K limit, unspent EITC refunds are not counted for 12 months.)

#1: A family of three (mom and two kids) receives a $2,000 EITC refund and puts it in a savings account. Mom is pregnant.

Child # 1 is 6 months. Child #2 is 7 years old. The family has $100 in savings. The family is on Food Stamps. Mom receives

Medicaid. The children receive Medicaid.

EITC Example

If mom decides to save her refund, will the family lose:

• TANF? Yes, because the resource limit for TANF is $1,000.• Child care? No. When mom loses TANF, she will automatically receive

transitional child care benefits, which have no asset test. • Children’s Medicaid? No, because the asset limit for Medicaid is $2,000. • Food Stamps? No, because the asset limit is $5,000.

Note: This mom should be encouraged to open a Texas Tomorrow Fund for her child, because it would increase her child’s chances of being able to afford college and prevent her EITC refund from counting against her in the future, in the event she saves more than is allowed under the Medicaid, CHIP or Food Stamp limits.

#2: A family of two (mom and one kid) receives a $1,500 EITC refund. They have no savings, but mom is afraid to save the money for fear of

losing benefits. Mom is on TANF and just got a job. She gets subsidized child care through TANF so she can work, the children

receive Medicaid, and the family gets Food Stamps.

Recap• Savings, depending on the type and amount, may cause a

family to lose benefits in certain situations.

• Asset limits and exemptions vary by program, so a person

should not be automatically discouraged from saving their

tax refund for fear they will lose benefits.

• A family should never be discouraged from filing for the

EITC. EITC refunds are not counted as income, and if a

family spends their refund immediately, it is not counted as

a resource.

• If you are unsure of how a family’s refund will affect them,

refer them to a local benefits office or call CPPP.

ResourcesFor information about public benefit rules:

• The Center for Public Policy Priorities – www.cppp.org

Contact: Celia Hagert, (512) 320-0222 x110 or hagert@cppp.org

For information about savings options for low-income families:

• The Texas College Savings Plan - https://www.texascollegesavings.com/

• RAISE Texas (formerly the Texas Asset Building Coalition) –

http://www.covenantcapital.org/html/publicpolicy/idanetwork.html

Contact: Woody Widrow, (512) 477-4431 x129 or widrro@consumer.org

; or Don Baylor (512) 320-0222 x108 or baylor@cppp.org

To find a local benefits office: www.yourtexasbenefits.com/

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