Wednesday, May 31, 2017

Making Work Pay - The Earned Income Disregard Explained

The following was written by Peter Zurflieh, legal services attorney at the Community Justice Project and CLIP Co-Chair.  Increasing the Earned Income Disregard for TANF families was adopted as a CLIP priority for 2017.

While studies by Pathways PA, CLIP, and, most recently the PA Legislative Budget and Finance Committee, convincingly dispel the myth that public benefit programs are rife with "benefit cliffs" that make families worse of when they go to work (these studies all show that families are better off financially when they go to work, despite partial loss of benefits), it is true that public benefits programs could do more to make families even better off when they work. One way to do this is by increasing earned income disregards (EID), i.e., the amount of a family's earnings it is allowed to "keep." 

CLIP and Making Work Pay (MWP)PA have advocated for a "phased in" increase in the TANF earned income disregard that would do just that.  The "EID" in PA is currently 50%. This means that one half of a TANF family's earned income is disregarded when computing the family's monthly TANF grant. So, if the grant is $403 per month and the family earns $500 per month, only $250 of the earnings are counted. This $250 is subtracted from the $403 full monthly TANF grant, leaving the family with $153 per month in TANF. But, when you add to this the $500 in earnings, the total monthly income for the family is $653 per month, a net increase in income of $250 per month.

The problem is that it doesn’t take very many hours of employment even at minimum wage to make the family completely ineligible for TANF, even with the disregard. The CLIP/MWP PA proposal would address this problem by disregarding more of the family's earnings, allowing the parent to work more hours and/or receive a higher wage before losing eligibility for TANF.

The CLIP/MWP PA proposal, which is being considered for introduction in the PA Senate, would increase the disregard from 50% to 60% of earnings initially; would increase it again after two years to 67%; and then increase it again two years later to 75%.  Increasing the TANF Earned Income Disregard is the kind of measure that “makes work pay” and helps families feel like they are getting ahead by working.