Benefits cliffs (the “cliff effect”) refer to the sudden and often unexpected decrease in public benefits that can occur with a small increase in earnings. This happens when families receive benefits through a public assistance program, earn a raise and then become ineligible to continue receiving benefits despite being unable to sustain their household. Sometimes the cliff effect looks more like a slope or plateau. When lost benefits outpace a wage increase, many families “park” or fall off the cliff’s edge, stalling progression in their jobs and careers. The cliff effect is illustrated below.
Benefits cliffs are complex, and there isn’t a one-size-fits-all solution, but policymakers have options to mitigate them.
The individual in this example is a single parent with one preschooler and one child in school, with wages starting at $8 per hour and increasing to $24 per hour. The red line demonstrates the point at which income equals the costs of basic needs. This parent experiences three cliffs, with the most dramatic cliff coming with a wage increase of 50 cents, from $15 per hour to $15.50 per hour. The total impact is a 25% decrease in annual net resources, dipping well below the break-even line.
Public Assistance Programs and Benefits Cliffs
Public assistance programs help low-income families meet their basic needs, such as housing, food and utilities. In 2021, 37.9 million people (11.6% of the nation’s population) were living below 100% of the federal poverty level. Public assistance benefits can be impacted by changes to income, and families often find themselves suddenly ineligible.
The latest U.S. Census Bureau data available (2021) indicates:
- 28.4 million people live in a household that received some type of means-tested assistance (including school lunch).
- 5.9 million people live in a household that received means-tested cash assistance.
- 16.6 million people live in a household that received SNAP benefits.
- 23.7 million people live in a household in which one or more persons were covered by Medicaid.
- 6 million people lived in public or subsidized housing.
Many public assistance programs are funded by the federal government and administered by states and localities. The federal government often imposes minimum or maximum eligibility qualifications and/or grants states flexibility to establish program requirements within a federal range. The requirements and the amount of state flexibility vary by program. For purposes of this resource, NCSL looked at income eligibility because benefits cliffs are generally a consequence of increases in income.
Federal Income Eligibility Requirements in Public Assistance Programs
Housing Choice Voucher Program
Federal housing choice vouchers, established by Section 8 of the Housing Act of 1937, help low-income families secure safe, stable and affordable housing. Families find housing and use vouchers to subsidize the rent. Vouchers are administered by local public housing agencies with federal funds provided by the U.S. Department of Housing and Urban Development. Eligibility for a housing voucher is determined by the local public housing agency based on total annual gross income and family size. A family's income generally may not exceed 50% of the area median income for the county or metropolitan area in which they live. By law, a public housing authority must provide 75% of available vouchers to applicants whose incomes do not exceed 30% of the area median income.
HUD administers federal aid to local housing agencies that manage public housing for low-income residents. Public housing ranges from publicly owned single-family homes to apartments and provides decent and safe rental housing to eligible low-income families. Eligibility is limited to low-income families and individuals based on annual gross income, qualification as elderly, a person with a disability or as a family, and U.S. citizenship or legal immigration status. Income limits are set by HUD with lower income limits at 80% and very low-income limits at 50% of the area median income for the county or metropolitan area.
Family Self-Sufficiency Program
FSS enables HUD-assisted families to increase earned income and reduce dependency on cash assistance and rental subsidies. For each participating family, an interest-earning escrow account is established by a public housing agency. Increases in rent because of increased earned income result in a credit to the escrow account. FSS Coordinators in each program help families obtain jobs and services including child care, transportation, job training, substance abuse treatment, and/or financial education. Once a family graduates from the program, they may claim the funds and use them for any purpose.
Low-Income Home Energy Assistance Program
States, territories and federally recognized tribes and tribal organizations may apply for direct LIHEAP grants. These jurisdictions provide energy or utility assistance to households in financial need and set income-eligibility limits for the program. Limits must be capped at 1) no more than the greater of 150% of the federal poverty guidelines or 60% of the state median income and 2) no less than 110% of the federal poverty guidelines.
Food and Nutrition Assistance
Supplemental Nutrition Assistance Program
SNAP provides families experiencing food insecurity with financial assistance to purchase most types of groceries. SNAP eligibility is determined by income level, employment, disability status and age. Households must meet both a gross income limit of 130% of the federal poverty guidelines and a net monthly income limit of 100% of the federal poverty guidelines to be eligible to receive SNAP benefits. Able-bodied adults ages 18-49 years old and without dependents are required to work at least 20 hours per week to receive benefits for more than three months in a 36-month period.
Supplemental Nutrition Program for Women, Infants & Children
WIC offers free nutritious food, breastfeeding support, nutrition education and health care referrals for pregnant women, mothers and infants and children under the age of 5. Applicants must have income at or below an income level or standard set by the state agency administering the program. The state agency’s income standard must be set between 100% and 185% of the federal poverty guidelines.
National School Lunch Program
The federal National School Lunch Program provides nutritionally balanced, low- or no-cost lunches each school day to children in public schools, nonprofit private schools and residential child care institutions. The program is administered by states and funded by the U.S. Department of Agriculture. Children are eligible for reduced price meals at 185% of the federal poverty level and free meals at 130% of the federal poverty level.
Direct Cash Assistance
Temporary Assistance for Needy Families
TANF is a federal block grant program to states and territories to provide financial assistance and related support for low- and very low-income families with children. States have broad flexibility to design TANF programs and may determine income thresholds up to 200% of the federal poverty guidelines. Benefits are time-limited and often include job training, education, child care and cash assistance.
Supplemental Security Income
SSI provides monthly payments to adults and children with a disability or blindness who have income and resources below specific financial limits. SSI payments are also made to people aged 65 and older without disabilities who meet the financial qualifications. Individuals must meet asset and income limits. Asset limits are $2,000 for an individual or child or $3,000 for a couple. Income limits for 2022 are $861 per month in unearned income and $1,767 per month in earned income.
Child Care and Development Fund
CCDF helps low-income families afford child care to attend work, work-related training and/or school. Family income must be at or below 85 percent of the state median income and family assets cannot exceed $1 million. State agencies have the flexibility to set the maximum income for eligibility, but it cannot exceed 85 percent of the state median income. Every state is required to have two tiers of eligibility unless the initial eligibility threshold is set at 85% of the state median income.
The Affordable Care Act of 2010 allowed states the option to expand Medicaid to cover most low-income Americans under the age of 65. Eligibility for children is at least 133% of the federal poverty level in every state (although most states cover children to higher income levels). States can also extend eligibility to adults with incomes at or below 133% of the federal poverty level. Most states have chosen to expand coverage to adults, and those that have not may choose to do so at any time.
Children’s Health Insurance Program
CHIP provides health coverage to uninsured children in families whose incomes are too high to qualify for Medicaid and too low to afford private health coverage. Income limits vary by state and range from as low as 170% of the federal poverty level up to 400% of the federal poverty level.
Many public assistance programs require recipients to be engaged in paid work or other employment-related activities a certain number of hours to receive benefits. Typical activities include private- or public-sector employment (subsidized or unsubsidized), job seeking, community service, internships, apprenticeships and educational programs. These requirements can vary by state and program.
Exemptions to work requirements are another variable. Qualifications, such as caring for a young child, having a disability or enrollment in school or a training program, could exempt a recipient from work requirements.
State Policy Strategies and Considerations
In 2019, NCSL partnered with the federal Administration for Children and Families and the W.K. Kellogg Foundation on a project titled, “A Whole Family Approach to Jobs: Helping Parents Work and Children Thrive.”
The program worked with the six New England states and brought together public- and private-sector stakeholders from workforce development, human services, early childhood, education and other policy areas. State leaders developed program, policy and system solutions to help parents achieve greater economic stability through employment, while supporting their children’s well-being and optimal development.
This partnership identified five overarching policy strategies for states to consider. All are related to benefits cliffs.
1. Mapping Benefits Cliffs
One of the first steps in addressing benefits cliffs is to understand where and how they happen. A financial self-sufficiency standard is defined as the income necessary for a family to meet its basic needs without public or private assistance. Some states use 200% of the federal poverty guidelines; however, most have taken a more nuanced approach and factor in the cost of living by geography, household size and ages of children.
Benefits calculators help caseworkers and families receiving benefits identify cliffs on an individual or family level and understand how income increases could impact their benefits. By illuminating how employment-related income impacts public supports, benefits calculators help families make informed decisions related to their family well-being, especially when paired with career coaching and access to workforce training and education. They also help frontline employees and government officials understand the interplay of benefits and income. The results help identify cliffs, as well as the policy or practice levers that could be pulled to prevent or mitigate the cliff effect.
2. Aligning Eligibility Levels
Lack of understanding and transparency related to program eligibility thresholds is a major reason families experience a sudden reduction or complete loss of benefits. For some programs, eligibility is set by federal statute and is fixed. For others, states have the flexibility to define eligibility through income and asset definitions. States have looked at options to lessen the impact of federal policies and allow for asset development. These include increasing the asset limit for families receiving TANF or SNAP; disregarding a defined amount or type of income, increases in income for a limited time or the value of vehicles owned; aligning rules across programs; and broad-based categorical eligibility.
3. Making Work Pay
Work supports are policies and programs that help people experiencing barriers to work enter and succeed in the workforce. The most common work supports are tax credits, child care and pathways to work, career and self-sufficiency. Many family-support programs, especially child care, do double duty as work-support programs.
Federal and state tax credits (e.g., earned income tax credit or child tax credit) can help offset a decline in public benefits. States can create refundable or nonrefundable state tax credits to supplement what is available through the federal government. A nonrefundable tax credit means a taxpayer gets a refund only up to the amount owed. A refundable tax credit means taxpayers can receive refunds that exceed the amount of tax owed.
To help workers move to higher-wage jobs, states can identify high-growth occupations and opportunities for wage progression and the relationship to benefits cliffs, then develop strategies to smooth wage transitions. Numerous states have mapped career pathways, enabling students and workers to see how they can progress step-by-step to higher-wage, higher-skilled occupations.
4. Increasing Economic Security Through Asset Development
Unexpected situations, such as an emergency car repair or lost wages due to caring for an ill family member, lay bare the precarious financial situation of many families receiving public assistance. In response, states are exploring ways to help families develop financial assets and begin to lay the groundwork for greater economic security for themselves and their children.
Escrow accounts enable families to build assets by accumulating funds as the participant’s income increases. These accounts allow a certain portion of increased income to be deposited into a savings account without impacting benefits or services. Deposits are sometimes matched by federal grants, state appropriations or local philanthropy.
Individual Development Accounts allow low-income individuals to save money for education, starting a business or buying a home. The accounts are operated by community organizations or state or local governments. Personal investments are matched by community organizations through grants from the federal government and other sources.
5. Fostering System Changes in the Public and Private Sectors
The Whole Family Approach to Jobs workgroup on benefits cliffs emphasized the importance of culture and systems change to create greater economic opportunity for families. In the private sector, employers play a critical role in illuminating how benefits cliffs limit employment and career advancement for workers, and therefore also constrain business growth. In the public sector, and in organizations using public funds, understanding how cliffs constrain opportunity can help systems work with families more effectively.
To learn more about these policy strategies, read Moving on Up: Helping Families Climb the Economic Ladder by Addressing Benefits Cliffs.
Enacted State Legislation (2021-2022)
NCSL’s Economic Mobility Enacted Legislation Database provides weekly updates on legislation, including legislation related to benefits cliffs. The legislation generally fits into at least one category: committees, studies and task forces, eligibility and continuity of benefits, tax credits, work requirements and job training, and outreach and awareness. Since 2021,16 states and D.C. have enacted legislation related to benefits cliffs. NCSL focused on 2021 and 2022 legislation to highlight the post-pandemic efforts of state lawmakers to help families and individuals achieve economic security and mobility.
Enacted Legislation Addressing Benefits Cliffs
Committees, Studies and Task Forces
In 2021 and 2022, Four states established committees to examine the impact of benefits cliffs and explore options to address them.
- Kentucky (HJR 57, 2021) established a work group to assess the feasibility of implementing a bridge insurance program, review current TANF expenditures, and consider opportunities for public-private partnerships to better meet the needs of public assistance beneficiaries.
- Kentucky (H 708, 2022) directs the development of a benefits cliff calculator, the establishment of a Community Jobs Initiative pilot program, and the establishment of a benefits cliff task force with the Legislative Research Commission to conduct a comprehensive study of benefits cliffs in Kentucky and make recommendations to assist benefit recipients in transitioning to work and new career opportunities.
- Louisiana (HCR 35, 2022) requested a study and recommendations to the legislature concerning means by which to eliminate benefits cliffs in public assistance programs.
- Maine (H 654, 2022) created the Essential Support Workforce Advisory Committee to examine the effects of benefits cliffs on essential support workers.
- Montana (HJ 29, 2021) requested an interim study of benefits cliffs in public assistance programs and impacts on individuals and businesses.
Eligibility and Continuity of Benefits
Ten states have eased or aligned eligibility levels, streamlined the enrollment processes for recipients or enacted policies to encourage continuity of benefits.
- Colorado (S 52, 2022) raised the income limits for Medicaid and CHIP.
- Colorado (H 1259, 2022) allows the board of human services to utilize eligibility processes from other public assistance programs when promulgating eligibility rules for TANF and requires that when determining income requirements for the TANF program, the department of human services must use the lowest income conversion ratio for converting weekly and biweekly income to a monthly amount.
- Colorado (H 1380, 2022) requires the department of human services to implement a work management system across all counties to interface with the Colorado benefits management system used to process and approve applications for essential state public assistance programs such as SNAP, Medicaid, and TANF and integrates eligibility and enrollment for SNAP with eligibility criteria for the Colorado low-income energy assistance program to increase access.
- Illinois (H 88, 2021) prohibits persons from being deemed ineligible for TANF based upon a conviction for any drug-related felony.
- Indiana (H 1361, 2022) provides that a TANF assistance group that has qualified for and is receiving assistance under TANF does not become ineligible for assistance due solely to an increase in the value of the group’s resources if the resources are valued at no more than 10,000 dollars; prohibits the value of a child’s primary residence from being considered in calculating TANF eligibility; and prohibits the consideration of up to a $15,000 increase in earnings once a household has been determined eligible for the Child Care and Development Fund voucher program.
- Indiana (H 1009, 2022) prohibits the consideration of up to a $15,000 increase in earnings once a household has been determined eligible for TANF assistance.
- Maine (H 538, 2021) eliminated the asset test requirement for SNAP recipients.
- Maine (H 44, 2021) repealed full-family termination of TANF benefits when one parent falls out of eligibility compliance.
- Massachusetts (H 4012, 2021) prohibits a family’s assets from being used to deny the family TANF assistance but allows income generated by the assets to be treated as countable income.
- Nebraska (L 108, 2021) increased the gross income eligibility limit and the asset cap requirement for SNAP. This allows more people to increase their earnings without fear of losing their benefits.
- Nebraska (L 485, 2021) provides for transitional child care assistance as families’ incomes increase.
- Nebraska (L 533, 2021) prohibits assets in or income from an educational savings account, income from postsecondary education scholarships or grants, income from postsecondary educational work-study programs, assets from other certain qualified accounts, income from participation in grant-funded research, and income from any school readiness tax credits from being used to determine eligibility for TANF, SNAP, low-income home energy assistance program or child care subsidy program assistance.
- Nevada (A 138, 2021) prohibits drug-related felonies from being used to deny otherwise eligible individual benefits under SNAP or TANF.
- New Jersey (A 2362/S 2036, 2022) requires DHS to request a waiver from the USDA regarding the time limit on benefits for able-bodied adults without dependents who participate in SNAP.
- Virginia (H 2035, 2021) modified the subsidized Full Employment Program by allowing participants to continue receiving TANF assistance, requiring wages received through FEP to be disregarded for purposes of calculating TANF, and removing the requirement that a person be unable to find unsubsidized employment to participate in FEP.
- Washington (H 1755, 2022) provides TANF recipients with time limit extensions when state unemployment reaches 7%.
NCSL tracks enacted legislation on state earned income tax credits and child tax credits. Currently, 34 states, the District of Columbia, Guam and Puerto Rico have an earned income tax credit, and 12 states have a child tax credit. States have also explored tax credits for social security benefits.
- Utah (H 86, 2021) enacted a nonrefundable tax credit for social security benefits that are included in the claimant's federal adjusted gross income.
- Utah (S 59, 2022) expands eligibility for the social security benefits tax credit by increasing the threshold for the income based phaseout and enacts a nonrefundable state earned income tax credit.
Work Requirements and Job Training
Two states have explored opportunities to align or support public assistance recipients with work and job training.
- California (A 461, 2021) requires that, for the purpose of calculating the number of hours a TANF recipient is participating in welfare-to-work activities, the number of hours for self-employment activities be based solely on the number of hours the recipient is engaged in self-employment activities.
- California (S 609, 2021) requires the department of social services, to the extent permitted by federal law, to include adult education and career technical education programs in the list of programs deemed to meet the employment and training exemption set forth in federal SNAP regulations.
- Texas (S 770/H 1791, 2021) created a self-sufficiency fund for use by public community and technical colleges, community-based organizations and state extension agencies to provide job training programs to individuals identified as at risk of becoming dependent on public assistance benefits.
Outreach and Awareness
One state has provided support for outreach and awareness activities to inform individuals and families about access to public assistance benefits and eligibility.
- California (A 543, 2021) requires colleges to provide educational information about SNAP and student eligibility requirements to all incoming students.
- California (A 396, 2021) requires the department of social services to issue a letter that clarifies the state and federal eligibility requirements for a campus-based program to be state-approved local educational programs that increase employability that qualifies for a SNAP student eligibility exemption and clarifies the application and approval process for a campus-based program to be approved by the department.
- California (S 20, 2022) requires the student aid commission to determine a student's SNAP eligibility and provide written notice to students of their exemption and that they may be eligible for benefits.
- Washington, D.C. (R 856, 2022) declares an emergency regarding the need to establish a pilot program to combat the economic consequences of COVID-19 by assisting households experiencing benefits cliffs.