Lump Sum Payment

A lump-sum payment is a one-time only payment such as an insurance settlement, a lawsuit settlement, an inheritance, lottery winnings, or retroactive Social Security Disability benefits (not SSI) which is received while on public assistance.

When should I notify the Department of Social Services (DSS) that I expect to receive or have received a lump-sum payment?

From the time you first apply for public assistance and for as long as you receive it, you must report all of your income and any changes to it. DSS requires that you report a lump sum as soon as you receive it.

What should I do if I am expecting a lump sum?

If you are expecting a lump-sum payment, call us immediately and we will review your options with you. If you are working with an attorney, make sure they are knowledgeable in public assistance rules! It is important to call us BEFORE YOU RECEIVE THE LUMP SUM in order to possibly avoid penalties. The consequences can be dire!

What happens if you receive a lump sum while on public assistance or apply for public assistance after you received and spent a lump-sum payment?

  • If you had a public assistance case open when you received the lump sum, you may not be eligible again until the lump sum penalty period is over.
  • If you did not have a public assistance case open when you received the lump sum, you should not be disqualified due to a penalty period. However, if you reapply for public assistance your resources must be below $2,000 ($3,000 if the household includes someone 60 or over)
  • If you are applying for Safety Net benefits, it’s not enough to show you spent the money. You will have to show how you supported yourself and keep receipts.

Do the rules on lump-sum payment apply to everyone in my household?

No. Rules on lump-sum payments only apply to individuals in your household who receive public assistance. If someone in your household receives a lump sum, but that person is not part of your public assistance case, it will not count against you.

Also, special rules apply to retroactive SSI benefits paid to you or your children. Please feel free to call our office if this applies to you.

How will your public assistance be affected if you receive a lump sum payment?

If you get a lump sum payment, you may be allowed to keep a portion of the lump sum which together with your other countable resources does not go over the $2000 resource limit ($3,000 if the household includes a member 60 or over). 

Any remaining amount will be counted toward your public assistance in the month that you get the lump sum.

If the remaining amount is still more than your public assistance, you have a choice:

  • TURN OVER the lump sum payment to DSS to keep your case open.
  • OR KEEP the lump sum which will probably cause your case to close for a certain amount of time. See below.

If I keep the lump sum, how long will my case be closed?

DSS expects you to live off the lump sum at the same rate as if you were on public assistance. So the money will first apply to the $2000 resource limit, then the rest against your monthly needs.  This will cause the case to close for a certain period of time. This closure period is figured by dividing the lump sum (in the month you receive it) by your monthly public assistance for your household. That period will be called the lump-sum disqualification period.

For example:

  • If you receive a lump-sum payment of $5,000 and
  • Your monthly public assistance for your household is $500 and
  • You already have $2000 saved in resources then,
  • DSS would divide $5,000 by $500 to get 10 months. Your household would be ineligible for public assistance for 10 months, during which time you are expected to live off the lump sum.

Is there a way to reduce this ineligibility period?

Yes, but you must show DSS documentation that you spent the money on one or more of the following within 90 days of receipt of the lump sum:

  • Purchase of a vehicle needed for work-related travel,  worth up to $9300 
  • Set up a separate bank account to purchase vehicle for employment search or work, up to $4650
  • Set up a separate college tuition account up to $1400 for 2-year post secondary school
  • Purchase a burial plot
  • Purchase funeral agreement up to $1500

Are there other circumstances and changes that can shorten the ineligibility period?

  • Something happens that would have made you eligible for a larger public assistance grant: eg.a rent increase or a special need such as a pregnancy
  • You have a good excuse for spending the lump sum such as: a family emergency, family medical expense that would have been covered by Medicaid, unusually high fuel or shelter expenses, or the money is stolen

When does DSS start counting the lump sum payment as income?

In the month you receive it. If you received the lump sum in August, but did not report it until October, DSS will charge you for the public assistance overpayment.

Does a lump-sum payment affect eligibility for Food Stamps (S.N.A.P.)?

There is no lump sum income rule for the Food Stamp program. That means that there is no Food Stamps penalty due to the receipt of a lump sum payment. Households that were receiving cash public assistance and Food Stamps but lose their eligibility for public assistance due to the receipt of a lump sum payment, must have their eligibility for Food Stamps determined separately. Usually those households that were in receipt of public assistance will have very low income and are categorically eligible for Food Stamps. For those households that are categorically eligible for food stamps, resources (the lump sum payment) do not count.

Does a lump-sum payment affect your eligibility for Medicaid?

Those households who lose their eligibility for public assistance due to the receipt of a lump sum payment must have their eligibility for Medicaid determined separately. The general rule under the Medicaid program for lump sum payments is that it is considered to be income in the month received.  Additionally, the disabled and elderly have a resource limit (e.g. a single disabled Medicaid recipient is allowed $13,800 in resources) Non-disabled families and individuals do not have a resource limit in determining Medicaid eligibility. The rules concerning Medicaid eligibility can be very confusing. If you receive a notice from your DSS case worker proposing to discontinue your Medicaid because you received a lump sum payment, please call our office.

SUMMARY

  • If you are on public assistance, lump sums must be reported to DSS.
  • Do not spend the lump sum until you speak to an advocate knowledgeable in public assistance rules. You could be in danger of losing benefits for a long time!
  • Call us BEFORE YOU RECEIVE THE LUMP SUM, to possibly avoid penalties. Lump sum rules are very complicated and require experienced legal advice in order to avoid harsh consequences.