Taxation, state benefits could be impacted by direct cash reparations payments in Evanston
Concerns about the taxability of direct cash reparations payments and the impact they could have on the recipients’ eligibility for state aid programs remain part of the discussion surrounding the expansion of Evanston’s reparations program.
Evanston City Council unanimously approved the formation of a direct cash payment option in March but questions about the taxability of direct funds have plagued the program. Forms for those applying to the program have been updated to inform applicants of the risks when making their decisions.
“It’s sort of you choose at your own peril,” Corporation Counsel Nicholas Cummings said. “If you want the full cash payment, there is that risk. We’ve made you aware of that risk. We’re still working to make sure that it is exempt in the future but as of right now I don’t have a definitive answer when it comes to state entitlement benefits.”
Cummings told the reparations committee during its June 1 meeting that according to advice from a tax attorney, there could be issues with taxing at the state level. While he said the attorney is “fairly confident” the federal government would exclude the payments from taxation and consider them as restitution, the tax attorney was unable to give a definitive answer as to whether the state would view the payments as income or not.
“That would put in danger those who are recipients of SNAP, TANF, Medicaid, those sort of entitlement benefits,” Cummings said. “If they reach a certain income threshold, they would no longer be eligible for those benefits.”
Cummings said that the state did communicate they use the same definition of income as the federal government and if that is the case, the payments should be excluded from taxation. When speaking with a representative from Gov. J.B. Pritzker’s office, Cummings was assured that SNAP benefits wouldn’t be impacted but Medicaid eligibility could.
If the direct cash payments were to be considered in aid eligibility, legislation would need to be passed at the state level to protect recipients from being removed from public aid programs. Conversations between Mayor Daniel Biss and the governor’s office have discussed this possibility, according to Cummings.
Illinois Public Aid code already exempts other restitution payments such as those given to Japanese Americans who were interred in camps during World War II. Cummings said reparations to Black Americans could be given the same liberties but would need to be addressed in the next state legislative session.
“What we don’t want is people losing benefits as a result of trying to actually help them,” Cummings said. “You give them a cash payment and now they can’t get health insurance.”
The threshold for those applying for aid programs is dependent upon household size. For a one-person household, it sits at just about $36,000 of annual income. With direct cash payments expected to be $25,000, recipients could make at most $11,000 annually to ensure their benefits aren’t impacted.
City staff has suggested disbursing payments over time as opposed to a lump sum to avoid these issues. Councilmember and Committee Member Krissie Harris supports this idea, saying that spreading payments over two years could be helpful. She said there could also be benefits people are receiving that the city wouldn’t even know could be impacted by a lump sum payout.
Cummings also said payments may need to be disbursed in three or four smaller payments to keep recipients eligible for other benefits. Committee Chair Robin Rue Simmons said she’d like to see this as an option as opposed to being used in all cases, in order to make the program more individualized to meet each recipient’s needs.
The city is asking recipients about their income in order to ascertain the best way forward. Committee member Bonnie Lockhart worried this could be seen as invasive and said the city should exercise caution asking for this kind of information.
“At some point, we can only do so much. It will be up to the residents as well to be responsible for trying to remember that,” Harris said. She added the city can collect that data but might need a hold harmless agreement to say the city is doing its best, but it’s up to the person receiving the money to look at their financial circumstances.
Committee member Carlis Sutton suggested looking into using forgivable loans to get people the funding. Cummings said this was previously considered but wasn’t pursued because the city would have to put up collateral.
Simmons requested staff prioritize those who chose direct payments and don’t have benefits that could be impacted, a step Cummings said nothing at this point is preventing.
The city is working to hire a staff member dedicated to reparations work in order to speed up the process.
