Module 2 – An Introduction to Benefits Cliffs and Work
Supports
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The Dashboard for Alabamians to Visualize Income Determination (DAVID) is a partnership between Alabama Works! and the Federal Reserve Bank of Atlanta.
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In this module, we introduce benefits cliffs and the loss of work supports or the loss of public assistance and tax credits, which can be a potential hindrance to economic mobility.
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On this slide, we are looking at poverty share by U.S. county. The bright yellow and orange are the areas with the highest amounts of poverty. The purple and black are the lowest. The question for us is, how do we improve economic mobility and thereby decrease the state’s poverty share?
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An important way to improve economic mobility and resilience is through workforce development. Elements of a successful workforce development system include:
● Aligning education and training programs with business needs.
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We now transition to career pathways and the financial incentive for career advancement. Slide 7
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Results from the Health Profession and Opportunity Grant Evaluation illustrate some of the barriers to advancement. These results show that only 3% of new CNAs advanced to LPN or RN training and only about 6% of participants enrolled in or completed more advanced training. Individuals can face numerous barriers to advancement. For today, we will focus on one barrier: the underlying financial disincentive to advance.
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Now we want to look at the barriers to career advancement. Individuals lose public benefits when their income increases above an eligibility threshold, creating what is referred to as benefits cliffs.
The loss of benefits, or “income,” leads to financial and emotional instability and prevents individuals from entering employment, working more hours, or advancing to a higher-paying occupation.
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What is the result of these benefits cliffs?
The individual with two children is about as well off financially making $51,000 per year as she was making about $11,000 per year.
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Now let’s transition into how benefits cliffs impact the incentives for career advancement. Slide 13
Tax Credit, and the Earned Income Tax Credit. Very few individuals receive all these public benefits.
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Leia has decided to become a certified nursing assistant. Her question: Should she continue on the pathway to the licensed practical nurse occupation or stay in school the additional time to become a registered nurse?
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The further Leia advances along a career pathway, the more financial benefits she gains. We are looking at a typical career pathway in health science.
• A near-minimum wage job’s annual wage would be approximately $18,700. • The CNA median wage is approximately $24,270.
• The LPN median wage is approximately $42,500. • The RN median wage is approximately $61,220.
Median wage is the wage at which half of the workers in the occupation earn more than the
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Employment income offers an incentive for career advancement. For many of us, this is what we can expect when we earn a credential. However, for some low-income families, including Leia’s, this picture looks very different. Let’s see what advancement looks like once we account for taxes and the loss of public benefits.
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When we look at net financial resources, the picture is far more complex. On the right side of the chart you will find the key representing the different net financial resources by occupation. The key also reflects the progression of the career pathway in health science. For example, if Leia plans to further her education and training, then once she has completed her CNA certification, she would move to the next step, which would be the LPN.
• The brown line represents income from a near-minimum-wage job. • The gold line is certified nursing assistant.
Working from the bottom, we have Leia’s age on the horizontal axis and her net financial resources on the vertical.
The shaded areas represent the time she is in school receiving training for the corresponding occupations. The near-minimum-wage job (the red line) does not require formal training so has no shaded bar.
If you follow the gold, or CNA, line starting at age 27 through age 37, Leia is much better off than when she was working a near-minimum wage job. But she has near-flat net resources growth for almost 10 years, resulting in a benefits plateau. Look at the green, or LPN, line. She faces a benefits cliff very early on as an LPN. Net resources are also lower as an LPN than as CNA. So we would say that there is a disincentive to advance from CNA to LPN.
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We will now look at tax credits and public assistance programs currently in DAVID. The goal of this training is not to teach you about all the rules associated with each program but to give you some knowledge of the programs so you can identify benefits cliffs and point your client in the right direction for help.
The gray box includes the definitions of the tax credits and public assistance programs and the bottom box is how they will be identified when integrated into the charts.
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In this section, we will look at tax credits. A tax credit is money that taxpayers can subtract from taxes they owe to the government. Unlike deductions and exemptions, which reduce the amount of taxable income, tax credits reduce the actual amount of tax owed.
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The United States federal earned income tax credit (EITC) is a refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children.
EITC is one of the largest antipoverty programs. The amount of EITC benefit depends on a recipient’s income and number of children. For a person or couple to claim one or more persons as their qualifying child, they and their child must meet requirements such as relationship, age, and shared residency. Nationwide, as of December 2020, about 25 million taxpayers received about $62 billion in EITC. The average amount of EITC received nationwide was $2,461.
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Taxpayers who claim at least one child as their dependent on their tax return may be eligible to benefit from the Child Tax Credit. The maximum amount of the credit is $2,000 per
qualifying child. The child must be younger than 17 on the last day of the tax year, generally December 31. The taxpayer must have earned income of at least $2,500 to receive a refund. The credit begins to phase out at $200,000 of modified adjusted gross income, or $400,000 for married couples filing jointly.
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You may be eligible to claim the child and dependent care credit if you paid for the care of an individual so that you could work or look for work.
The maximum amount of the credit is $3,000 for one qualifying individual, or $6,000 for two. Expenses paid for care are eligible if the primary reason for paying the expense is to assure the person's well-being and protection.
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Public assistance programs are government programs that provide either cash assistance or in-kind benefits to individuals and families. In this section, we look at some of the benefits available to low- and moderate-income families.
Again, the purpose of this section is to help you identify opportunities and potential barriers so you can make referrals to the appropriate caseworker (the Supplemental Nutrition Assistance Program, or SNAP, for example) if something appears to be a significant barrier.
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bread, and cereals. These benefits, issued monthly, are provided on an Electronic Benefit Transfer (EBT) card.
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SNAP E&T, short for education and training, is a federally funded program administered under SNAP. The program gives “able-bodied” SNAP recipients the opportunity to get the education, training, and skills necessary to become self-sufficient. Alabama’s SNAP E&T program is known as Alabama Resources for Enrichment, Self-Sufficiency, and Employability Training, also known as A-RESET.
Participants receive free education and training that helps them get employment in high-demand occupations. SNAP E&T participants can maintain their SNAP benefits while participating in the program.
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The National School Lunch Program (NSLP) is a federally assisted meal program operating in public and nonprofit private schools and residential childcare institutions. It provides
nutritionally balanced low-cost or free lunches to children every school day. Established under the National School Lunch Act, the program was signed by President Harry Truman in 1946.
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Next we transition to health care. On this slide, we look at the difference between Medicare and Medicaid.
Medicare is an insurance program. Medical bills are paid from trust funds that those who are covered have paid into. It serves primarily people over 65, whatever their income, as well as younger disabled people and dialysis patients. Patients pay part of costs through deductibles for hospital and other costs. Medicare is a federal program and is basically the same
everywhere in the United States.
Medicaid is an assistance program. It serves low-income people of every age. Patients usually pay no part of the costs for covered medical expenses. A small copayment is sometimes
required. Medicaid is a federal-state program. It varies from state to state. It is run by state and local governments within federal guidelines.
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In 2018, more than one million Alabama citizens qualified for Medicaid benefits through a variety of programs for children, families, and pregnant women as well as for elderly and
Medicaid programs in Alabama include: ● Medicaid for Children
● Medicaid for Parents and Caretaker Relatives ● Medicaid for Pregnant Women
● Medicaid for the Elderly and Disabled ● Medicaid in the Nursing Home
● Breast and Cervical Cancer Program ● Plan First Family Planning Program ● Home and Community-Based Waivers ● Help Paying for Medicare Costs
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The next program we look at is the Children’s Health Insurance Program (CHIP). CHIP is administered by the U.S. Department of Health and Human Services that provides matching funds to states for health insurance for families with children. The Alabama Department of Public Health administers this under the ALL Kids program. Benefits include doctor visits, mental health care, prescriptions, dental and vision care, and emergency services. Slide 32
The next topic we cover under health care is the Affordable Care Act (ACA). The ACA was a comprehensive health care reform law enacted in March 2010. The three primary goals of this legislation are:
1. Make affordable health insurance available to more people. The law provides consumers with subsidies (premium tax credits) that lower insurance costs for households with incomes between 100% and 400% of the federal poverty level. 2. Expand the Medicaid program to cover all adults with income below 138% of the
federal poverty level. Alabama has not expanded its Medicaid program.
3. Support innovative medical care delivery methods designed to lower the costs of health care generally.
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Head Start is a federal program that promotes the school readiness of children from birth to age five who are from low-income families by enhancing their cognitive, social, and
emotional development. Head Start programs provide a learning environment that supports children's growth in many areas such as language, literacy, and social and emotional
important teachers. These programs help build relationships with families that support family well-being and many other important areas.
Many Head Start programs also offers Early Head Start, which serves infants, toddlers, and pregnant women and their families who have incomes below the Federal poverty level. Slide 34
The Office of Child Care supports low-income working families by improving access to affordable, high-quality early care and afterschool programs. States administer the program and use it to leverage additional early education investments to serve children and families. Slide 35
The Alabama Section 8 Program is federally funded and has a core mandate to provide housing for families with very low income. Beneficiaries of this program receive funds that help families find housing units from private landlords. Since its inception, the program has helped
thousands of low-income family's secure quality and affordable housing. The program uses a subsidy system. A family’s public housing agency (PHA) pays a housing subsidy directly to the family’s landlord. The benefiting family then pays the difference of the actual rent and the subsidy.
To qualify for the Alabama Section 8 Program, applicants must meet eligibility requirements, which are based on the family’s gross income, family size, nationality, and area of residence. Many of the local PHAs have a waiting list and only accept applications within a certain window of time.
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The Temporary Assistance for Needy Families (TANF) program, which is time limited, assists families with children when the parents or other responsible relatives cannot provide financially for the family’s basic needs. The federal government provides grants to states to run the TANF program. These programs are designed to:
● provide assistance to families so that children may be cared for in their home or in the home of a relative.
● end dependence of needy parents on government benefits by promoting job preparation, work, and marriage.
● prevent and reduce out-of-wedlock pregnancies and establish annual numerical goals for preventing and reducing the incidence of these pregnancies.
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The JOBS program is Alabama’s work and training program for TANF recipients. The JOBS Program involves a two-hour assessment to determine the client’s present
circumstances including education, training, skill levels, current employment, and work history. The client and the case manager develop a strategy to move the client toward self-sufficiency. A best practice is that the client write their plan, so that it reflects their voice and their
investment.
Clients are required to participate in 20 to 35 hours of training per week depending on several factors including the age of the youngest child and whether the recipients are a two-parent family or not.
Supportive Services such as childcare and transportation are authorized as needed.
Contact between the client and case manager is ongoing for tracking and guidance purposes. All plans and processes remain fluid during the process. Other resources provided by TANF JOBS address foundational needs like GED preparation and skills training, job readiness and job search assistance, access to domestic violence referral and assistance, and access to healthy after-school and summer programs.
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● We define economic mobility as the ability of an individual or family to improve their economic status.
● An important way to improve economic mobility and resilience is through workforce development.
● Individuals lose public benefits when their income increases above an eligibility threshold, creating what is referred to as benefits cliffs.
● Unlike deductions and exemptions, which reduce the amount of taxable income, tax credits reduce the actual amount of tax owed.
