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Tax Act Brings Changes to SSI / Medicaid Treatment of Refunds, Tax Credits

  • February 12th, 2014

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 is best known as the law that extended the Bush-era tax cuts. But several little-noticed provisions fundamentally alter how the Supplemental Security Income (SSI) and Medicaid programs treat tax refunds and other tax credits, making it easier for elders and people with special needs to maintain their benefits.

Pursuant to the new law, tax refunds are not considered countable income for SSI or Medicaid purposes. Furthermore, any money received through a tax refund will not be a countable resource for 12 months following receipt of the funds, and SSI and Medicaid recipients will be under no obligation to segregate the funds from their other resources. The same rule applies to tax refunds received prior to an application for SSI or Medicaid, which means that so long as an applicant can point to funds in his account that are traceable to a tax refund during the previous year, those funds will not be a countable resource until the year has passed.

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The new law also changes the treatment of several other important tax credits. Under previous rules, Making Work Pay, Earned Income, Advanced Earned Income, and Child Tax Credits were all excluded as countable income for SSI and Medicaid purposes, but if the income was retained, it had to be spent within nine months of receipt. Now, the 12-month rule applies to all of these tax credits and, furthermore, First-Time Homebuyer Tax Credits that were previously countable as income and as a resource are now exempt and subject to the same countability rules as the other tax credits.

CMS' Informational Bulletin also addresses what happens when an applicant seeking Medicaid long-term care benefits places her tax refund 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."

In one more piece of good news, the law applies to any refunds or credits received after December 31, 2009, which means that, in limited cases, applicants who were initially denied SSI or Medicaid benefits due to receipt of a tax refund or credit may actually be retroactively eligible for benefits.

The relevant provisions can be found in Section 728 of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, here.

CMS' informational bulletin can be found here.


Last Modified: 02/12/2014

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