It’s my annual “Taxes from A to Z” series! For the series, I’ll focus on terms that you might see on your tax forms and statements but not necessarily in the headlines. If you’re wondering whether you can claim wardrobe expenses or whether to deduct a capital loss, this is one series you won’t want to miss.
W is for Welfare Benefits.
Welfare benefits which are paid out by the government to individuals based upon need are not considered taxable for federal income tax purposes.
Examples of welfare benefits paid out by the government include Low Income Home Energy Assistance Program (LIHEAP), Medicaid, Supplemental Nutrition Assistance Program (SNAP, also called food stamps), Temporary Assistance for Needy Families (TANF), and Women, Infants and Children (WIC). It doesn’t matter if the benefits are paid to the individual or to a vendor on behalf of the individual: it doesn’t change the tax consequences.
This is the rule for need-based benefits. If you provide compensation in exchange for benefits, or if benefits are payable for reasons other than need, those benefits are typically includible in taxable income.
With respect to deductions, if welfare benefits aren’t taxable to you, the related expenses are also not deductible. In other words, medical expenses and similar expenses which might otherwise be deductible are not deductible if you are reimbursed as part of your welfare benefits.
And there’s one more rule: you must include in your income any welfare payments that are obtained fraudulently. Cheaters, take note.
