Tax Refunds Will Not Count Against Public Benefits

Low-income taxpayers will be able to breathe a little easier when determining whether or not to file their taxes thanks to the tax package approved by Congress last month. Refunds received by low-income filers will not count as income for eligibility determinations for federally funded public benefits programs. This will allow low-income filers to claim their full EITC, CTC and other refundable credit benefits without the fear of losing the vital support of other programs like SNAP and Medicaid.

Similarly, any savings contributions that taxpayers choose to make from their refunds will also be excluded from determining benefit eligibility for 12 months following the receipt of the refund. VITA clients will be able to open new savings accounts and start on the road to asset building worry-free while fully protecting other non-tax benefits.

These rules will be in effect for tax years 2010 through 2012. Full details of this change can be found in Section 728 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Public Law 111-312), more commonly known as the tax compromise. Full text of the act is available online.

For highlights of other tax issues relevant to low- and moderate-income filers in the tax compromise, please check out the overviews provided by the Center on Budget and Policy Priorities and the Tax Policy Center.