What if a Beneficiary Receives a Federal Tax Refund?

Sara Toor, M.A. & Cameron Lindahl, M.S. 

​When beneficiaries file taxes they may receive a federal tax refund and even a state refund. According to the federal law, if a beneficiary receives Supplemental Security Income (SSI) and/or Medicaid and receives a federal tax refund, the refund is not counted as income for purposes of his/her benefits as long as it is in his/her name and with his/her associated Social Security Number (SSN). 

Federal tax refunds are disregarded for 12 months after the month of receipt. It is part of the federal regulation on income found on the Code of Federal Regulations 416.1103, subparagraph d. The POMS that supports this is SI 01130.676. For Medicaid beneficiaries who receive a federal tax refund, the same applies.

The Centers for Medicare and Medicaid Services (CMS), the federal agency in charge of Medicaid also issued the following policy:

“Tax 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. This also applies to “209(b) States” that use more restrictive Medicaid eligibility criteria than are used by the Supplemental Security Income (SSI) program.

Tax refunds and advance payments are not counted as an available resource for a period of 12 months following the month of receipt of the payment. This means that during the time a payment is exempt from being counted as a resource to the individual, it also is not countable as a resource to anyone else. Under Medicaid, this also applies in 209(b) States. However, if any portion of the payment is still retained by the individual after the 12-month period expires, that portion then becomes a countable resource for both Medicaid and CHIP.”

The Centers for Medicare and Medicaid Services (CMS) also indicate on their Information Bulletin what would occur if an applicant seeking Medicaid Long Term Care Services gives away the federal tax refund or places it into a trust:

“Transfers of Assets and Treatment of Trusts Under Medicaid (Not Applicable to CHIP)
The legislation also provides that a tax refund or advance payment is not to be counted in determining the amount or extent of Medicaid benefits or assistance. This 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 (January 1, 2010 through December 31, 2013), 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. Section 728 also precludes counting as available in any way refunds or advance payments that may, during the exempt period, be placed in trusts which would normally be governed by the trust provisions at section 1917(d) of the Act. Assessing a transfer penalty, or counting such payments placed in a trust during the exempt period as available income or resources, would effectively treat the refunds or payments in a manner that could affect Medicaid eligibility and/or benefits. However, if given away or placed in a trust after the end of the exempt period, payments would be subject to transfer penalties or being counted under the Medicaid trust provisions, as applicable.”

Does the Policy Apply to State/Local Income Tax Refunds?

There is a possibility that state income tax refunds could be counted as a resource/income. According to the Centers for Medicare and Medicaid Services (CMS), the issue of the treatment of state income tax refunds is left to the states. More specifically, “Section 728 does not apply to any refunds or advance payments for State or local taxes. However, States have the authority under section 1902(r)(2) of the Social Security Act to disregard both as income and resources State and local tax refunds and advance payments in the same manner such federal tax payments are disregarded under section 728. We encourage States to make use of this authority for all eligibility groups subject to section 1902(r)(2). States wishing to use this authority should submit a Medicaid State plan amendment in the standard format used for section 1902(r)(2) income and resource disregards. States can also implement similar income and resource disregards under their CHIP programs.”

If you need guidance on what to do if you receive a  federal or state tax refund and are receiving public benefits, such as Supplemental Security Income and/or Medicaid, please reach out to a Special Needs Planning Attorney in your area  .

DISCLAIMER: The information provided by CPT is for informational purposes only and is intended to be used as a non-legal guide prior to consultation with an attorney familiar with your specific legal situation. CPT is not engaged in the practice of law or in rendering legal advice or counsel. No such legal advice or counseling is either expressly or impliedly intended. This form is not a substitute for the advice or counsel of an attorney. If you require legal advice, you should seek the services of an attorney. © 2017 CPT All rights reserved.