Although millions of people each year earn cash refunds from the Internal Revenue Service (IRS) via the Earned Income Tax Credit (EITC), many others, including many people with disabilities, are not taking advantage of this generous program.

In late January 2018, the IRS issued a Notice encouraging tax filers with disabilities to apply for the EITC, noting that the tax credit could put a refund of up to $6,318 into an eligible taxpayer’s pocket. According to the IRS, many eligible people miss out on the EITC because they fall below the income threshold requiring them to file taxes, even though they can still file taxes and possibly get the credit. Others incorrectly believe that receiving the EITC will jeopardize their eligibility for other government benefits.

The EITC is available to individuals making up to $15,010, a figure that rises based on the person’s tax filing status and the number of qualifying children in the person’s household. For a married couple filing jointly with three qualifying children, the maximum household income is $53,930. Married couples filing taxes separately, as opposed to jointly, are not eligible for the EITC.  

Taxpayers may claim a child with a disability or a relative with a disability of any age to get the credit if the person meets all other EITC requirements.  For many EITC recipients, the credit may not only result in paying no taxes, but in receiving a refund from the IRS. The maximum refund for 2017 is $6,318.

To be eligible for the EITC, people must have “earned income.” Income from Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI) or military disability benefits is not considered “earned income,” although recipients of these programs may still end up benefiting from the EITC if other people in their household are making “earned income.”

On the other hand, income from employer-provided disability benefits is considered “earned income,” until the recipient reaches “minimum retirement age,” meaning the age the person could have begun receiving a pension or annuity from their former employer.  

Refunds received via the EITC are not considered income for the purposes of means-tested government benefit programs, such as Medicaid, SSI, Supplemental Nutritional Assistance Program (SNAP) benefits, Section 8 housing, or other programs with maximum income limits.

For an IRS estimate of the size of your potential refund from the EITC, click here.

For people needing assistance in filing their taxes, the IRS has a Volunteer Income Assistance Program, which provides free services for certain people making less than $54,000, including people with disabilities and limited English speakers. For the elderly, the IRS has a similar program, known as the Tax Counseling for the Elderly program.

For more from the IRS about the EITC, click here.

Supplemental Security Income (SSI) is a federal program that helps people with disabilities and very low incomes pay for food and shelter. SSI is often confused with Social Security Disability Insurance (SSDI). One of the main differences between the two programs is that SSDI is available to people with disabilities no matter how much money they earn or have, while SSI places very strict limits on a recipient's income and assets. However, in most states, an SSI beneficiary also qualifies for Medicaid health coverage, which can be an extremely valuable benefit.

Once an SSI applicant has shown that she is disabled, she must also prove that she meets the program’s rules for income and assets.  As far as assets are concerned, to be eligible for SSI, an applicant can have no more than $2,000 in assets ($3,000 for a couple), a figure that has not changed since 1989.  If the applicant can use or liquidate an asset to pay for food or shelter, the asset will probably count as a "resource" against this limit.  A resource would include any funds held in the applicant's bank accounts, retirement accounts, or in cash.  The $2,000 resource limit does not disappear once a person qualifies for SSI. If an SSI beneficiary ends a month with more than $2,000 in her name, she will lose her benefits in the following month.

However, not all assets count towards the $2,000 resource limit. The major exclusions are:

• The SSI claimant’s home (the principal place of residence), no limit on value
• One automobile, no limit on value
• Household goods (furniture, etc.), no limit on value
• Personal effects (jewelry, art work, etc.), no limit on value as long as the SSI claimant is actually using the items. 
• Up to $100,000 in an ABLE account
• Assets in a special needs trust, no limit on amount

The Social Security Administration currently lists 44 resource exclusions in all.  Your special needs planner can advise you on which assets you own may be excluded from counting towards the $2,000 limit.  The planner can also discuss with you setting up a special needs trust to protect an SSI beneficiary's assets while allowing her to maintain SSI eligibility.  To learn more, contact us today.

Trustees of special needs trusts are increasingly relying on “administrator-managed prepaid debit cards,” such as True Link cards, when disbursing funds to beneficiaries.  These cards offer trust beneficiaries greater independence and the ability to get what they need more quickly.  But such cards existed in a regulatory gray area as far as the Social Security Administration (SSA) was concerned.  That is no longer the case.

Special needs trusts are created to protect the assets of people with disabilities. When properly maintained, special needs trusts preserve the individual’s eligibility for public benefit programs, such as Supplemental Security Income and Medicaid.

However, special needs trusts must abide by strict rules, overseen by the SSA, concerning what trust assets can be used for. For example, special needs trust funds can almost never be used for food and shelter expenses, medical expenses that would otherwise be covered by Medicaid, and items that can be traded for cash.

To ensure that trust distributions comply with these rules, trustees are increasingly relying on administrator-managed prepaid debit cards, the most commonly used being a reloadable Visa card known as the True Link card. These cards allow trustees to maintain oversight of card transactions while providing people with disabilities -- the cardholders -- the ability to make purchases quickly and independently.

Since the cards can be managed online, trustees are able to link the trust funds to checking and similar accounts and quickly transfer funds to beneficiaries for their use. Along with ongoing monitoring and the ability to print off regular reports, the cards allow trustees to block purchases that my run afoul of SSA’s rules, and thus jeopardize the beneficiary’s continued eligibility for public benefits.   Each True Link card, for example, can be customized to block transactions that might negatively affect benefits, such as purchases at grocery stores, restaurants, and bars. Administrators can also set up the card to work only at specific, authorized merchants -- and nowhere else.

On May 14, the SSA published a new section regarding True Link and similar type cards in its Program Operations Manual System (POMS), the SSA’s internal guidance system that is used by field workers who handle benefits eligibility questions.  This marks the first time the SSA has recognized these cards as a legitimate way for trustees to manage funds in a special needs trust.

Among the rules set forth in the POMS, the SSA specifies that to protect the beneficiary and the trust from making inappropriate disbursements, the trust must be the account owner and administrator.   If the card is used to withdraw cash, such as from an ATM, then the funds will be counted as cash income and thus can affect the person’s eligibility for public benefit programs,   If the beneficiary uses the card to pay for food or shelter, the disbursements will likely reduce SSI payments.

To learn more about how an administrator-managed debit card can be used in conjunction with a special needs trust, contact us.