The U.S. federal government imposes taxes on money gained from a wide variety of sources such as job earnings, interest, dividends, rent and profits realized from the sale of assets. The government also provides certain individuals with income payments and other benefits based upon need, which are collectively known as welfare benefits. In general, welfare benefits do not have an impact on income taxes.
General Rules on Welfare Income
The Internal Revenue Service says that government welfare payments based upon need are not included in the recipient's taxable income. In other words, people who receive money or other benefits from welfare programs such as Supplemental Security Income, Temporary Assistance for Needy Families and food stamps do not pay income taxes on their benefits. In addition, payments received from a state fund for the victims of crime are not included in taxable income if the payments are made as welfare payments.
Taxable Welfare Income
Money received from welfare programs may be taxable in certain circumstances. The IRS states the welfare received as compensation for services counts as taxable income and that welfare income obtained fraudulently is also taxable. For example, the Congressional Research Service says that "workfare" payments received under the Temporary Assistance for Needy Families are included in taxable income if the payments are not received directly from the state or local welfare agency. Payments received from a work-training program associated with a state welfare agency are not included in taxable income unless the payments are greater than the amount that would have been received otherwise.
Social Security Income
The U.S. government provides income to retirees through the Social Security program. Social Security is not considered a welfare program and Social Security income may be taxable in some cases. According to the Social Security Administration, single taxpayers with income between $25,000 and $34,000 may have to pay taxes on as much as 50 percent of their Social Security benefits and those with income over $34,000 may owe income taxes on as much as 85 percent of their benefits.
Considerations
Several other miscellaneous sources of government income are not included in income for tax purposes. The IRS lists the following as examples of income that is not taxable: benefits received under the Elderly Nutrition Program, payments made by states to certain qualified individuals to reduce the cost of winter energy and benefits received under Medicare Part A and Part B.
References
- IRS.gov: Publication 525 - Main Content
- Social Security Administration: Taxes and Your Social Security Benefits
- IRS.gov: Publication 907 - Main Content
- Social Security Administration: Supplemental Security Income Home Page
- "Congressional Research Service"; Welfare Recipients and Workforce Laws; Vee Burke; June 2004
- Department of Health and Human Services. "U.S. Federal Poverty Guidelines Used to Determine Financial Eligibility for Certain Federal Programs." Accessed April 20, 2020.
- USDA. "Exploring the Causes of State Variation in SNAP Administrative Costs." Accessed April 20, 2020.
- Illinois Department of Human Services. "Supplemental Nutrition Assistance Program – SNAP." Accessed April 20, 2020.
- Medicare.gov. "What's Medicare?" Accessed April 20, 2020.
- Department of Health and Human Services. "TANF: Total Number of Recipients Fiscal Year 2019." Accessed April 20, 2020.
- Department of Health and Human Services. "TANF: Total Number of Adult Recipients Fiscal Year 2019." Accessed April 20, 2020.
- Department of Health and Human Services. "TANF: Total Number of Child Recipients Fiscal Year 2019." Accessed April 20, 2020.
- Center on Budget and Policy Priorities. "Chart Book: Temporary Assistance for Needy Families." Accessed April 20, 2020.
- Josh Levin. "The Queen: The Forgotten Life Behind an American Myth.” Little Brown and Company, 2019. Accessed April 20, 2020.
- The Presidency Project. "Radio Address to the Nation on National Security and Administration Goals." Accessed April 20, 2020.
- Congressional Research Service. “The Temporary Assistance for Needy Families (TANF) Block Grant: A Legislative History.” Accessed April 20, 2020.
- Medicaid. "October 2019 Medicaid & CHIP Enrollment Data Highlights." Accessed April 20, 2020.
- The Kaiser Family Foundation. "Births Financed by Medicaid." Accessed April 20, 2020.
- Medicaid and CHIP Payment and Access Commission. "Medicaid Enrollment Changes Following the ACA." Accessed April 20, 2020.
- USDA. "Supplemental Nutrition Assistance Program Participation and Costs." Accessed April 20, 2020.
- USDA. "WIC Frequently Asked Questions (FAQs)." Accessed April 20, 2020.
- USDA. "National School Lunch Program." Accessed April 20, 2020.
- Social Security Administration. "Supplemental Security Income (SSI) Benefits." Accessed April 20, 2020.
- Social Security Administration. "SSI Monthly Statistics, November 2019." Accessed April 20, 2020.
- Social Security Administration. "Table 2. Recipients, by Eligibility Category and Age, November 2018 - November 2019." Accessed April 20, 2020.
- IRS. "Earned Income Tax Credit Income Limits and Maximum Credit Amounts." Accessed April 20, 2020.
- Center on Budget and Policy Priorities. "Policy Basics: The Earned Income Tax Credit." Accessed April 20, 2020.
- Department of Housing and Urban Development. "Rental Assistance." Accessed April 20, 2020.
- Department of Housing and Urban Development. "Public Housing." Accessed April 20, 2020.
- Department of Housing and Urban Development. "Housing Choice Vouchers Fact Sheet." Accessed April 20, 2020.
- Center on Budget and Policy Priorities. "Policy Basics: The Housing Choice Voucher Program." Accessed April 20, 2020.
- Department of Health and Human Services. "LIHEAP and WAP Funding." Accessed April 20, 2020.
- Rasmussen Reports. "Americans Say Too Many Rely on Government Aid." Accessed April 20, 2020.
- Mother Jones. "Mitt Romney on Obama Voters." Accessed April 20, 2020.
- Vox. "Why So Many People Who Need the Government Hate It." Accessed April 20, 2020.
- Tax Foundation. "Which States Rely the Most on Federal Aid?" Accessed April 20, 2020.
- Congressional Research Service. "Noncitizen Eligibility for Federal Public Assistance: Policy Overview," Appendix A. Accessed April 20, 2020.
- Kaiser Health News. "Medicaid Helps Hospitals Pay For Illegal Immigrants’ Care." Accessed April 20, 2020.
Writer Bio
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.