Under Section 728 of Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TURCA), federal tax refunds received after December 31, 2009 are not treated as income or resources (for a period of 12 months after receipt) for purposes of determining eligibility for all federal or federally-assisted programs, including Medicaid and the Children’s Health Insurance program (CHIP). Section 728 of TURCA also provides that tax refunds are not to be taken into account in determining the amount provided under any program subject to this provision, including Medicaid and CHIP.

Definition of Income Under Medicaid and CHIP

Tax refunds and advance payments are not counted as income when determining eligibility under Medicaid or CHIP for the recipient of the payment, or for any other individual. Therefore, in addition to not counting the refund or payment as income to the individual recipient, any payment made is not countable as income for a spouse or other family members when determining Medicaid or CHIP eligibility.

Treatment as a Countable Resource Under Medicaid and CHIP

Tax refunds are not counted as available resources for a period of 12 months following the month of receipt of the payment. However, if any portion of the payment is still retained by the individual after the 12-month period expires, the retained portion then becomes a countable resource for both Medicaid and CHIP.

Transfers of Assets Under Medicaid (Not Applicable to CHIP)

TURCA prohibits applying penalties to individuals who, in applying for long term care benefits under the Medicaid program, transfer assets for less than fair market value during the period in which tax refunds or advance payments are not countable either as income or resources. However, if given away after the end of the exempt period, payments would be subject to transfer penalties.

Treatment of Trusts Under Medicaid (Not Applicable to CHIP)

Section 728 also precludes counting federal tax refunds placed in trusts as available during the 12 month exempt period. Assessing a transfer penalty, or counting such payments placed in a trust during the exempt period as available income or resources, would effectively treat the refunds or payments in a manner that could affect Medicaid eligibility and/or benefits, which is not permitted under the law. However, if placed in a trust after the end of the exempt period, payments would be subject to being counted under the Medicaid trust provisions.

Post-Eligibility Treatment of Income Under Medicaid (Not Applicable to CHIP)

Tax refunds are not countable as income for purposes of the post-eligibility treatment of income provisions applicable to institutionalized individuals and certain individuals eligible for services under a home and community-based waiver. Counting these payments as income would result in increasing the individual’s income after eligibility was established, which in turn would result in Medicaid reducing its payment to the provider. Therefore, the amount of benefits payable by Medicaid on behalf of the individual would effectively be reduced. Such a reduction would violate the requirements of section 728.

Disregarding State Tax Refunds 

Section 728 does not apply to any refunds of State or local taxes. However, States have the authority to disregard both as income and resources State and local tax refunds in the same manner such federal tax refunds are disregarded under section 728.

The federal bulletin mandating the treatment of federal tax refunds as described above is attached here –

Download (PDF, 97KB)

For additional information concerning Medicaid applications and appeals, visit:

NJ Medicaid Applications


For additional information concerning Medicaid and public benefits planning, visit:

NJ Medicaid and Public Benefits Planning