SPDP

  State Policy Documentation Project

 

 


Financial Eligibility for TANF Cash Assistance

States use a variety of financial eligibility rules to determine whether a needy family qualifies to receive TANF cash assistance. In all states, a family's current income must fall below established standards in order to qualify for benefits. In every state but Ohio, eligibility is also based on a family's assets. Countable assets must fall below specified limits or a family will not qualify for aid regardless of its current income. 

Following are descriptions of some of the major financial eligibility rules:

Asset limits
Every state except Ohio denies eligibility to applicants and recipients with countable assets above specified limits. All states exclude the value of a family's home from asset considerations. Some 23 states exclude the entire value of one family car, while 27 states exclude a portion of a car's value from asset determinations. 

Gross Income Limits 
Under AFDC, a gross income test was the first income screen used to determine a family's eligibility for cash assistance. Under this test, a family's gross income--total earned and unearned income with few or no exclusions--had to fall below a "gross income limit." 

Some 29 states apply gross income tests to all applicants and recipients under TANF. Eight states use gross income limits for some families, and 14 states have no gross income limit. In most of the states with gross income rules, the gross income limit is set at a relatively high level. This means that a family with income below the gross income limit still may be ineligible for assistance because its income is too high to meet subsequent income tests (described below). The gross income limit thus does not play a significant role in limiting eligibility in most states.

Net Income Limits for Applicants
In 28 states, applicants are subject to a "net income test," under which a portion of a family's income is disregarded and then compared with a "net income limit." Families in which countable income falls below the net income limit are considered eligible for assistance, and the family's benefit amount is then determined (see below).

Under the net income test in most states, out-of-pocket child care expenses (up to specified maximums) and a portion of family earnings are deducted from gross income to determine countable net income. In most states, the portion of earnings disregarded for the net income test is smaller than the portion disregarded when determining a recipient's benefit amount. Because a greater share of income is counted for the net income test, some applicant families are found to be ineligible under the net income test even though they would be eligible for benefits if only the benefit calculation formula were used.

In 26 of the 28 states with a net income test, the test results in a lower income eligibility limit for applicants than for recipients. Families must have relatively low incomes to qualify as applicants, but once they become recipients they are able to have somewhat higher earnings before losing eligibility. In the states with no net income test, eligibility rules generally are the same for applicants and recipients. In those states, applicants and recipients are eligible as long as they qualify for a minimum amount of benefits under the benefit calculation formula.

Benefit calculation
This is the final step in financial eligibility determination. Benefits in all states except Arkansas and Connecticut are calculated in one of two ways. In 35 states, a family's benefit is the difference between its countable income--income after various deductions--and the maximum welfare benefit for a family of its size. In measuring countable income, out-of-pocket child care expenses (in states that do not pay directly for a family's child care) and a portion of earned income are deducted from gross income. As discussed below, some states also disregard a portion of other sources of income (such as child support payments a family receives), and some states count specified sources of income not traditionally counted, such as EITC refunds. 

In 14 states, benefits are calculated using a method known as "fill-the-gap" budgeting, which allows welfare recipients with earned income, and in some cases those with unearned income, to keep a larger share of benefits than would the more common benefit determination method described above. Under fill-the-gap rules, a family's countable income is subtracted from a standard that is higher than the maximum benefit. The family's benefit level equals the difference between countable income and the standard--or a percentage of the difference--but the benefit can be no greater than the maximum benefit. In Maine, for example, the maximum benefit for a family of three is $461 and the "standard of need" used for fill-the-gap purposes is $596. A family with countable income (income after allowed deductions) of $200 would be eligible for a benefit of $396, the difference between the $596 need standard and the $200 countable income. Under the more common method for determining benefits, the family's welfare grant would be $261, the difference between countable income and the maximum benefit.

Arkansas and Connecticut are the only states that do not use one of these methods for benefit calculation purposes. In Arkansas, families are eligible either for the maximum benefit or 50% of the maximum payment, depending on the family' gross income. There is no other variation in benefits based on non-welfare income. In Connecticut, families subject to the state's 21-month time limit are allowed to receive the maximum benefit as long as earnings are below the federal poverty guideline. Once earnings exceed the poverty line, families become ineligible for benefits. (Connecticut's benefit rules are different for families applying for an extension to the time limit and for families not subject to the time limit.) Like Connecticut, Indiana is expected to implement in 2000 a policy that allows families to receive the maximum benefit until their earnings exceed the poverty guideline. 

Earned Income Disregard 
All states except Wisconsin disregard a portion of a family's earned income when determining eligibility and benefit levels. In many states, a portion of the "earned income disregard" reflects an estimate of work-related expenses incurred by employed parents. More generally, earned income disregards are intended to allow families to keep a share of their welfare benefits when they begin working and to phase out benefits somewhat gradually as earnings rise, as a means of helping families make the transition from welfare to work.

Under AFDC, the monthly earned income disregard was $120 and one-third of remaining earnings for the first four months of employment, $120 for the next eight months of employment, and $90 in subsequent months. This meant that after working for a year, families faced a one dollar benefit reduction for every dollar of earnings above $90 a month. As of 1998, only four states — Colorado, Delaware, Georgia, and Indiana — had retained the AFDC earned income disregards. (As noted, Indiana is expected to alter its disregard sometime in 2000). Most of the remaining states have altered the earned income disregard rules to make them more generous than the AFDC rules. 

Nine states disregard a substantial portion of family earnings for a brief period and then reduce the disregard substantially. (Two of these states, Missouri and Texas, adopted these substantial time-limited disregards in 1999.) For example, 100% of earnings are disregarded for two months in Kentucky, which means families going to work receive the maximum welfare benefit regardless of their earnings. After two months of work, Kentucky welfare recipients are subject to the former AFDC earned income disregards.

In most other states, the earned income disregard is a fixed dollar amount (e.g., $200 in Wyoming), a percentage of earnings (e.g., 50% in Oregon), or a combination of the two (e.g., $200 and 20% of remaining earnings are disregarded in Michigan).

Wisconsin's benefit policy includes no earned income disregard.

Maximum Benefits
The maximum benefit amount generally is the benefit amount that a family with no countable income would receive. This includes families with no earnings, but it may include some families with earnings in many states. Families with modest earnings may have no countable income after the earned income disregard is applied. Families with substantial earnings may have no countable income in states that disregard 100% of earnings for a brief period when a parent starts working. In Connecticut and Virginia (and in Indiana starting sometime in 2000), families receive the maximum benefit until earnings reach or equal the poverty line. 

In all states except Idaho and Wisconsin, the maximum benefit amount varies by family size. In a number of states, the maximum benefit also varies by region. 

Treatment of Other Special Sources of Income

  • Child Support
    All TANF cash assistance recipients are required to assign child support payments they
    receive to the state to offset the costs of their welfare benefits. Under AFDC, up to the first $50 in monthly support payments was "passed through" to families and disregarded for benefit calculation purposes, but states are not required to continue this policy under TANF. Seventeen states currently "pass through" and disregard a portion of child support payments, and one state--Wisconsin--passes through and disregards the full amount of support payments. Connecticut, which disregards $100 of child support payments, passes through the entire payment. Because only a portion is disregarded, payments over $100 result in lower benefits.

  • Supplemental Security Income (SSI) 
    Under AFDC, parents or children receiving SSI benefits were not included in the assistance unit, and their SSI benefit was not counted in determining eligibility for cash assistance for other family members. Under TANF, states are not required to exclude SSI recipients and their income. Idaho includes SSI recipients in the TANF cash assistance unit and counts the SSI benefit as income. In Wisconsin, children receiving SSI are included in the cash assistance unit and their SSI benefits are counted as income when determining whether an applicant is eligible for assistance. Parents receiving SSI are not eligible for cash assistance, but a single parent on SSI may qualify for a child-only benefit.

  • Earned Income Tax Credit (EITC) 
    Families eligible for the EITC can receive it as a lump sum payment when they file a tax return, or they can receive a portion of the credit throughout the year as part of each paycheck under the "advance payment" option. Under AFDC, EITC lump sum payments were not counted as part of a family's income. Any EITC amounts held by the family in the second month following the month of receipt were counted as assets. EITC amounts received as advance payments were not counted as income. Under TANF, all but three states--Connecticut, North Dakota, and New York--have maintained this treatment of EITC lump sum payments, and all but two states--Alabama and Connecticut--have maintained the AFDC treatment of advance payment EITC benefits. 

  • Housing Assistance 
    In some states, a family's welfare benefit is affected either by its housing costs or housing status. Some 20 states provide lower benefits either to families living in subsidized housing, to families with little or no shelter costs — whether they live in subsidized housing or private unsubsidized housing — or to families sharing housing with others. 

  • Lump Sum Income 
    Under AFDC, families that received a lump sum payment that was not expected to recur — such as a personal injury settlement — became ineligible for assistance for a period of months based on the size of the payment. Under TANF, 22 states have retained the AFDC rule. Another 18 states treat the lump sum payment solely as an asset. Three states count the payment as income for one month and as an asset in subsequent months. In six states, the lump sum payment may lead to a period of ineligibility, but one that is shorter than under the AFDC rule. Two states allow families to put lump sum payments in an Individual Development Account. 

    Individual Development Accounts
    Some 30 states allow TANF recipients to establish special savings accounts known as Individual Development Accounts. IDAs are not considered as assets for TANF eligibility purposes. Depending on their design, they may not be counted as assets in other federal means-tested programs, either. Some IDA programs allow families to make contributions only from earnings, while others allow contributions to come from any source of income. Withdrawals from IDAs typically are limited to specified uses such as post-secondary education, home purchase, and small business capitalization. In at least 11 states, a family's IDA contribution is matched with TANF funds or funds from other sources.

 

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This page last updated September 02, 2023

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