You are on SSI and/or Medicaid and receive an income tax refund. Is your refund counted as income for purposes of your benefits? Is it a resource that might make you lose your benefits? If you give your refund away will it make you temporarily ineligible for continued benefits?
The answer is: “No problem” at least if it is a federal tax refund.
Federal tax refunds are disregarded for 12 months from their receipt for purposes of determining eligibility for federally funded assistance programs like Medicaid or SSI. They are neither income nor resource.
Recently, the Pennsylvania Department of Public Welfare (DPW) issued a policy clarification (PMN16745350) verifying the disregard treatment. Here is a link to the policy clarification: https://tinyurl.com/m5ub7aj.
The federal agency in charge of Medicaid (CMS) has also issued a policy statement on the issue which says:
“[t]ax refunds and advance payments are not to be counted as income when determining eligibility under Medicaid or CHIP for the recipient of the payment, or for any other individual. Therefore, in addition to not counting the refund or payment as income to the individual, any payment made is not countable as income when determining Medicaid or CHIP eligibility for a spouse or other family members. Tax refunds and advance payments may not be counted as income to someone else even if they are given to that person.”
The CMS’ Informational Bulletin also addresses what happens when an applicant seeking Medicaid long-term care benefits gives away the tax refund or places it into a trust. According to the Bulletin, the law
“effectively precludes applying penalties under section 1917(c) of the Social Security Act to individuals who, in applying for long term care benefits under the Medicaid program during the period in which tax refunds or advance payments are not countable either as income or resources . . . dispose of part or all of the refunds or advance payments in a manner that normally would be considered a transfer of assets for less than fair market value.”
The CMS statement was issued in reference to a provision of prior law which was made permanent by the American Taxpayer Relief Act of 2012. So it should continue to be applicable today.
A question remains: Does this disregard policy also apply to state income tax refunds, or only federal? The DPW policy clarification specifically refers only to “federal tax refunds.” The implication may be that state refunds can be counted. The policy clarification doesn’t say. And the CMS policy statement says the issue of the treatment of state income tax refunds is left to the states.
