Benefits Cliff

Concerns about earning too much and exceeding program income limits was noted as a significant impediment to seeking a job or promotion. Many of the individuals 43px55testifying before the panel expressed a desire to earn more money and gain better work skills; yet they were constrained by fears that higher wages would cause them to exceed the income limits of the government programs they relied upon, disqualifying them from receiving such benefits in the future.

Many feared that accepting marginally better jobs with slightly better wages – while losing program benefits – would be more costly in the long run. In many cases, such a Catch 22 scenario could also threaten someone’s access to life-saving programs. Overall, the desire to rise out of poverty situations was significantly impacted by this “benefits cliff.”

Devin started volunteering for non-profit organizations, later securing a paid position with them. In moving to Erie, he was able to find work; however, that work impacted his eligibility to receive benefits. Devin began a journey of navigating government benefit programs and systems.

The result is a continuation of a cycle in which poverty wage jobs with few benefits and little room for upward mobility become fixed in family life.

Cole used to receive food stamps and was well-aware of the income thresholds for eligibility for programs. He feared making too much money and exceeding income guidelines would result in losing health care and other benefits. The income cut off for programs was a real impediment to breaking free from poverty.

The fear of gaining skills and earning more money, but facing a net loss due to program ineligibility, remains a real issue and a barrier for growth for both individuals and the commonwealth. The report, “Getting Poorer While Working Harder: The ‘Cliff Effect,’” described workers as trapped in situations where they must deny promotions and pay raises to remain eligible for program benefits (Crandall, 2019).

The Foundation for Economic Education’s “If You Accept This Raise, You Fall Off the Welfare Cliff,” posted a math problem to illustrate this issue:

At $12 per hour, the salary enables a person to access tax credits, food assistance, child care and medical benefits worth $41,465, with taxable income of $21,121 (Baetjer, 2016). In the situation where an employer wants to give a promotion and raise pay to $15 an hour; the net salary increase is $5,451 to $27,572 after tax, but at that level the individual loses eligibility for programs worth $8,336 (Baetjer, 2016).

Helen had previously worked at McDonald’s as a maintenance person making poverty wages of $7.25 per hour at the state minimum wage. She received a 20-cent raise in the 18 months she was employed there but was laid off after the franchise owner sold the business. Once disability payments stabilized her income, however, she no longer qualified to stay in the shelter system, as her income was now “too high” for a single adult.

For low-income women with children, earning more than 130 percent of poverty by just a few dollars could result in loss of their food budget. This is because the few extra dollars per hour does not account for the maximum monthly allotment that is necessary to feed their families. In fact, the “benefits cliff” hurdle has been acknowledged by DHS such that in 2018, changes were made to SNAP eligibility for a specific population of students at community colleges by expanding the definition of “eligible student” under SNAP, allowing formerly ineligible, low-income students to qualify for benefits.

Child Care Works Subsidized Child Care Program

Child Care Works is a subsidized childcare program that helps low income families pay for childcare. The program is funded with both state and federal dollars. In some cases, the subsidy does not cover the whole cost of a childcare program. In those circumstances, families may have to pay the difference between the subsidy and the program cost. Under the Child Care Works program, child care can be provided in a variety of settings, which includes care provided by family members. Below, you will find information on income eligibility for the child care subsidy.

Dealing with the benefits cliff is not new and it is not a Pennsylvania-specific problem. Other states have examined this issue and it has caught the attention of policymakers on the national level.

A recent paper published by the National Conference of State Legislatures examined the issue in depth (National Conference of State Legislatures, 2019). Using case studies from several states, with details about how the benefits cliff impacts various programs, the study produced specific policy options (National Conference of State Legislatures, 2019).

These include:

• Mapping benefits cliffs: Understanding the relationship between wages and the benefits cliff is an important step to addressing the problem. Other states have established a self-sufficiency standard to establish an amount needed to ensure a proper transition from programs (National Conference of State Legislatures, 2019).
• Aligning eligibility levels: Too many families fail to grasp the impact of program eligibility levels and therefore face a harsh reality when income exceeds program limits (National Conference of State Legislatures, 2019). Multiple states handle asset limits and income disregards. States have made efforts to adjust program administration (National Conference of State Legislatures, 2019).
• Making work pay: Some states have used tax credits to help offset a reduction in benefits or create pathways to smooth the transition from a reliance on benefits to work (National Conference of State Legislatures, 2019).
• Increasing family economic security through asset adjustment: Few families living at the edge of economic sustenance can handle unexpected bills (National Conference of State Legislatures, 2019). One way to help is to create asset security mechanisms including escrow accounts and individual development accounts (National Conference of State Legislatures, 2019).
• Fostering culture and system changes in public and private sectors: Engaging employers in an understanding of the benefits cliff on workers is a critical element to employee success (National Conference of State Legislatures, 2019). Helping workers adjust to the benefits cliff can be an important part of the business strategy (National Conference of State Legislatures, 2019).

For many Pennsylvanians, handling the benefits cliff becomes the most significant barrier to self-sufficiency (National Conference of State Legislatures, 2019).