Tax Act Includes Changes to Treatment of Refunds and Tax Credits for SSI / Medicaid Eligibility

Among its many provisions (see our previous article here), The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 includes several significant and accommodating terms that have changed the manner in which Supplemental Security Income (SSI) and Medicaid eligibility will be determined.

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Pursuant to Section 728 of The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the “Tax Act”), income tax refunds are no longer considered countable income for SSI or Medicaid eligibility purposes.  As an added benefit, any amount received as a tax refund will not be considered a countable resource for one year following the receipt of the funds, and, as such, SSI and Medicaid recipients will not be required to segregate their tax return refunds from their other countable resources.  This allowance also applies to tax refund amounts received during the year before filing an application for SSI or Medicaid.  Therefore, if an applicant can demonstrate that certain funds in his account are traceable to a tax refund received in the past year, the funds will not be considered a countable resource until one year from the date of receipt providing time in which to spend the funds on medically necessary care or invest in non-countable assets.

The Tax Act has also changed the treatment of several other important tax credits, including Making Work Pay, Earned Income, Advanced Earned Income, and Child Tax Credits.  Previously, these tax credits were excluded from countable income for SSI and Medicaid purposes; however, the tax credit income was required to be spent within nine months of receipt.  Instead, under the Tax Act, the one year rule allowed for income tax refunds will now apply to these tax credits (as well as the First-Time Homebuyer Tax Credit).

This new law applies to any refunds or credits received after December 31, 2009; therefore, in cases where SSI and Medicaid applicants were initially denied benefits because money received as a tax refund or credit exceeded the countable income and resource limitations, the new law may make them retroactively eligible for such benefits.

For a complete text of the relevant provisions, see Section 728 of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, here.

The Social Security Administration also created an Emergency Message regarding these changes, which can be viewed here.