Several little-noticed provisions of the recently-enacted law that extended the Bush-era tax cuts fundamentally alter how the Supplemental Security Income (SSI) and Medicaid programs treat tax refunds and other tax credits, making it easier for people with special needs to maintain their benefits.

The Supplemental Security Income (SSI) program provides a small cash benefit to people with special needs who meet very stringent income and asset requirements – most SSI beneficiaries also receive Medicaid coverage. An SSI recipient’s monthly cash benefit is reduced by $1 for each dollar of unearned income a beneficiary receives and by $0.50 for each dollar of earned income that a beneficiary receives for working. Unearned income includes gifts, food and shelter, and other one time payments like inheritances and lottery winnings, and, until these changes took effect, unearned income also included tax refunds and some tax credits. This meant that a SSI beneficiary could lose his benefits if he received a large tax refund.

Under the new law, tax refunds are no longer considered countable income for SSI or Medicaid purposes. Furthermore, any money received through a tax refund will not be a countable resource for 12 months following receipt of the funds, and SSI and Medicaid recipients will be under no obligation to segregate the funds from their other resources (SSI recipients can only keep $2,000 of resources and still qualify for benefits). Because of the change in the law, an SSI beneficiary can now retain his tax refund, even if it puts him over the $2,000 resource limit, for up to one year from the date of receipt, which is welcome news for beneficiaries who usually have to count every penny in order to avoid a disruptive loss of benefits.

The new law also changes the treatment of several other important tax credits. Under previous rules, Making Work Pay, Earned Income, Advanced Earned Income, and Child Tax Credits were all excluded as countable income for SSI and Medicaid purposes, but if the income was retained, it had to be spent within nine months of receipt. Now, the 12-month rule applies to all of these tax credits and, furthermore, First-Time Home buyer Tax Credits that were previously countable as income and as a resource are now exempt and subject to the same countability rules as the other tax credits.

In one more piece of good news, the law applies to any refunds or credits received after December 31, 2009, which means that, in limited cases, applicants who were initially denied SSI or Medicaid benefits due to receipt of a tax refund or credit may actually be retroactively eligible for benefits. The Centers of Medicare and Medicaid Services have also indicated that seniors and other people seeking Medicaid coverage for long-term care will not be subject to transfer-of-asset penalties if they give away their tax refunds or credits during the 12-month grace period.

Taxpayers with disabilities may qualify for a number of IRS tax credits and benefits. Parents of children with disabilities may also qualify. These seven tax credits and other benefits are available if you or someone else listed on your federal tax return is disabled:

1. Standard Deduction

Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.

2. Gross Income

Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income.

3. Impairment-Related Work Expenses

Employees, who have a physical or mental disability limiting their employment, may be able to claim business expenses in connection with their workplace. The expenses must be necessary for the taxpayer to work.

4. Credit for the Elderly or Disabled

This credit is generally available to certain taxpayers who are 65 and older as well as to certain disabled taxpayers who are younger than 65 and are retired on permanent and total disability.

5. Medical Expenses

If you itemize your deductions using Form 1040 Schedule A, you may be able to deduct medical expenses. See IRS Publication 502, Medical and Dental Expenses.

6. Earned Income Tax Credit

Earned Income Tax Credit (EITC) is available to disabled taxpayers as well as to the parents of a child with a disability. If you retired on disability, taxable benefits you receive under your employer’s disability retirement plan are considered earned income until you reach minimum retirement age. The Earned Income Tax Credit is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability who have no qualifying children, but are older than 25 and younger than 65 do — in fact — qualify for EITC. Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.

7. Child or Dependent Care Credit

Taxpayers who pay someone to come to their home and care for their dependent or spouse may be entitled to claim this credit. There is no age limit if the taxpayer’s spouse or dependent is unable to care for themselves.

For more information on tax credits and benefits available to disabled taxpayers, see Publication 3966, Living and Working with Disabilities or Publication 907, Tax Highlights for Persons with Disabilities available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).