For the first time, all tax filers have the opportunity to easily grow their savings by purchasing Series I U.S. Savings Bonds directly through their federal income tax returns in 2011. Tax filers may buy bonds for themselves, their children or grandchildren, or others. This is a welcome development that will help many lower-wealth taxpayers use some of their tax refunds to build savings and assets in a safe and simple way.
Tax refund time is an important opportunity to build savings, particularly for low-wealth households who receive the Earned Income Tax Credit (EITC). The Earned Income Tax Credit for lower-wage workers ranged from $457 to $5,657, based on household size, in 2009. The IRS form 8888 allows tax filers to purchase savings bonds up to $5,000. According to a recent conversation with Peter Tufano, a member of the board of directors of D2D Fund, which developed the savings bond program with the Treasury Department, most tax filers in the pilot programs purchased savings bonds in amounts of about $400 or less.
While the savings bond program is a great tool to build assets for working families, low-wealth tax filers should proceed with caution when deciding how much money to invest in bonds. Tax filers who receive, or plan to apply for, state or federal public benefit programs such as Temporary Assistance for Needy Families (TANF), Medicaid, Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamps) and Supplemental Security Income (SSI), should be careful not to purchase savings bonds in an amount that would, when combined with other countable assets, exceed asset limits for those programs and make them ineligible for needed subsistence benefits. Asset limits vary across programs and states, making it difficult to issue uniform guidance to all tax preparation counselors and tax filers. Below are some resources to help you determine applicable asset limits:
State asset limits. All but five states have assets limits in the TANF program, some as low as $1,000, according to CFED’s asset limit resource guide for state asset limit levels. Many states have asset limits in the Medicaid program.
Federal asset limits. The federal SSI program asset limit is $2,000 for individuals and $3,000 for households with an elderly or disabled person. The federal asset limit for SNAP is $2,000 in about 25 states that have not adopted categorical eligibility. As of early 2010, the following states have lifted or eliminated the asset test for most of the caseload by expanding categorical eligibility: Arizona, California, Connecticut, Delaware, Georgia, Idaho, Illinois, Maine, Maryland, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Vermont, Washington, West Virginia, and Wisconsin. Guam and the Virgin Islands have also expanded categorical eligibility. Recent changes to the tax code will also exempt 2011 tax refunds from the asset test for federal benefit programs, but more work needs to be done to ensure that this exemption is made permanent. Additional clarification is also need to ensure that any assets purchased with a tax refund, such as savings bonds, are also excluded.
To avoid the loss of eligibility for public benefits, tax preparation programs should train counselors regarding this potential asset limit issue. Tax preparation counselors and tax filers should check with a local legal services organization or the state or county human services department to confirm program asset limits before recommending or proceeding with the purchase of U.S. Savings Bonds through the federal income tax return process by public benefit recipients or likely applicants.
Asset limits discourage people from saving and building assets. To work to eliminate asset limits in public benefit programs or receive more information on this topic, please contact Dory Rand at 312.368.0310.