American citizens who earn a low income or who suffer from disabilities may qualify for state welfare assistance. The purpose of welfare assistance is to enable family heads to pay for living expenses while they receive training for work or search for suitable employment. While recipients are receiving welfare, they are generally exempt from taxation on their benefits as long as their payments do not exceed a predetermined limit.
Welfare Assistance Program
Each state provides public welfare assistance in the form of cash payments, food stamps and employment training to low-income households. These services are often disbursed through county health departments or by family and children's services departments. Welfare recipients receive a set amount of cash payments that are determined by their total earned income.
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Tax Impact of Welfare Payments
The Internal Revenue Service considers public welfare assistance to be nontaxable income. This determination means that individuals who receive welfare payments are not required to include the assistance in their taxable income for the year.
Tax Treatment of Work Training Benefits
Welfare recipients who are involved in a work training program may receive cash assistance for the time and effort they spend during training. These cash payments are also nontaxable income as long as they do not exceed the predetermined amount of qualified assistance for the household. However, if the work training payments are higher than the amount of welfare assistance that the individual is qualified to receive, all of the work training payments are subject to income tax. The recipient must report this amount on her income tax return as earned income.
Taxpayers who receive welfare assistance fraudulently must report their program payments as income on their tax returns. If an individual commits welfare fraud, he may be required to make reparations and to serve a disqualification period for future benefits. Severe welfare fraud may subject an individual to criminal prosecution.
- The New York Times; "Welfare Aid Isn't Growing as Economy Drops Off": Jason DeParle; February 2009
- IRS.gov: Publication 554 (2010) — Tax Guide for Seniors — Taxable and Nontaxable Income
- IRS.gov: Publication 525 (2010) — Taxable and Nontaxable Income
- IRS.gov: Publication 17 (2010) — Your Federal Income Tax