Among the many welfare benefits available to taxpayers, the Tax Assistance for Needy Families (TANF) benefit is one of the most common state-administered assistance programs. Although TANF often provides a much needed benefit for families, families also must consider how this new source of income will impact them at tax time.
Definition
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TANF is a welfare benefit paid to poor families with children under the age of 18. TANF benefits are administered by the Department of Family and Children's Services in the state in which the taxpayer resides.
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Tax Implications
TANF payments are paid to low-income taxpayers as a subsidy to their income. TANF payments are designated as income because they are cash payments made from the state to the individual. However, the classification of TANF payments is not the same as ordinary earnings, and, therefore, the payments are not taxed as ordinary income. This is because both individual states and the IRS categorize TANF payments as non-taxable income. This means TANF payments are not subject to federal income tax and aren't required to be included on a taxpayer's income tax return.
Filing
Because TANF payments are not taxable, taxpayers are only taxed on income received in addition to TANF payments. Because the eligibility criteria for TANF incorporates means testing, most TANF recipients are not required to file an income tax return because they don't have enough additional income. For example, to qualify for TANF in Georgia in 2011, a taxpayer must earn less than $784 per month, which is $9,408 per year. For tax year 2010, the minimum income required to necessitate filing taxes are as follows: $9,350 for a single individuals, $18,700 for married people filing jointly, $3,650 for married people filing separately, $12,050 for head of household, and $15,050 for a taxpayer who is a qualifying widow or widower. Based on the filing requirements, a TANF recipient is only in danger of having his income exceed the filing requirement if he is married and files separately. However, if you paid federal tax, it is in your best interest to file even if you are not required to do so, as your federal tax payment usually will be refunded to you.
Exceptions
There are exceptions to the tax rule that filing while receiving TANF is not required. In the rare instance that you receive lottery winnings or an inheritance, you may be required to file an income tax return. If you are uncertain, consult the IRS publication that deals specifically with these income issues if such an event occurs.