United States

Department of

Agriculture

Economic

Research

Service 

Economic

Information

Bulletin

Number 46

March 2009 Cross-Program Effects from TANF

and SSI Cash Assistance

Kenneth Hanson and Margaret Andrews

State Variations in the Food 

Stamp Benefit Reduction 

Rate for Earnings
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Hanson, Kenneth, 1951-

 State variations in the food stamp benefit reduction rate for earnings : 

cross-program effects from TANF and SSI cash assistance.

 (Economic information bulletin ; no. 46)

 1. Food stamps—United States. 2. Supplemental security income 

program—United States.

 3. Temporary Assistance for Needy Families (Program). 4. IncomeUnited States. 

 5. Government aid—Regional disparities. I. Andrews, Margaret S.

 II. United States. Dept. of Agriculture. Economic Research Service. III. 

Title.

HV696.F6

Cover photo credit: Shutterstock.

Recommended citation format for this publication:

Hanson, Kenneth, and Margaret Andrews. State Variations in the Food Stamp 

Benefit Reduction Rate for Earnings: Cross-Program Effects from TANF and SSI 

Cash Assistance. EIB-46. U.S. Dept. of Agriculture, Economic Research Service. 

March 2009.
United States

Department

of Agriculture

www.ers.usda.gov

A Report from the Economic Research Service

Abstract

The Food Stamp Program reduces benefits to households as their earnings rise. This 

reduction is affected by household participation in other Government assistance programs 

(cross-program effects) and by the wide variation in State-specific reduction rates for 

earnings in Temporary Assistance for Needy Families (TANF). This study shows that, 

for food stamp recipients who also received cash benefits through TANF in 2005, an 

extra dollar of earnings led to a change in food stamp benefits ranging from a reduction 

of 36 cents to an increase of 9 cents. On average across all States, the overall reduction 

rate for food stamp benefits and TANF cash benefits was about 70 percent, or about 

double the benefit reduction rate for a household that received only food stamp benefits. 

Even with this high benefit reduction rate, households received larger net incomes 

by working and earning income. Cross-program effects and State-level variability in 

food stamp benefits are important considerations in integrating Government assistance 

programs into a support system for low-income households. 

Keywords: Food Stamp Program benefit formula; Effective Benefit Reduction Rates; 

food stamp benefit effects from TANF earning deductions, effective tax rates.

About the authors: Kenneth Hanson and Margaret Andrews are economists with the 

Economic Research Service of the U.S. Department of Agriculture. 

Kenneth Hanson and Margaret Andrews

State Variations in the Food 

Stamp Benefit Reduction Rate 

for Earnings

Cross-Program Effects from TANF and 

SSI Cash Assistance

Economic

Information 

Bulletin

Number 46

March 2009
ii

State Variations in the Food Stamp Benefit Reduction Rate for Earnings / EIB-46

Economic Research Service / USDA

Contents

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Literature Review: Effective Benefit Reduction Rates . . . . . . . . . . . . . . 2

Econometric Estimates of FSP and TANF Effective Benefit Reduction 

Rates on Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

FSP Cost Impacts from Changes in Income from Other Sources . . . . . . 3

Income Accounting Model Estimates of Effective Benefit Reduction

Rates on Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Incentive Effects on Labor Supply and Program Participation . . . . . . . . 3

FSP Caseload Trends: A Shift from Welfare to Work . . . . . . . . . . . . . . 5

Program Benefit Formulas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

FSP Benefit Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 

TANF Benefit Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 

SSI Benefit Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 

Findings: FSP Effective Benefit Reduction Rates (EBRRs) 

for Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Distribution of FSP EBRRs by Household Circumstance . . . . . . . . . . . 13

 Earnings Without Cross-Program Effects, and TANF or SSI Cash

 Assistance Without Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

 Earnings with Cross-Program Effects from TANF Cash Assistance . 15 

 Earnings with Cross-Program Effects from SSI Cash Assistance . . . 18 

Comparing the FSP EBRR for Earnings with Those from an 

Econometric Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Overall EBRR on Earnings from FSP, TANF, and SSI . . . . . . . . . . . . 21

Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Appendix: FSP EBRR’s Change with Income . . . . . . . . . . . . . . . . . . . . 28
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The Food Stamp Program was renamed 

the Supplemental Nutrition Assistance 

Program in the 2008 Farm Act.

Summary

States have adopted different rates at which to reduce households’ 

Temporary Assistance for Needy Families (TANF) benefits as households 

earn more income. Because Food Stamp Program benefits depend on total 

income, including assistance income, the reduction in TANF benefits affects 

food stamp benefits for those who participate in both programs. Even when 

benefits are reduced because of higher earnings, households are better off 

with the additional earnings because the reduction in benefits is less than the 

increase in earnings.

What Is the Issue?

In 2005, 41 percent of the 10.8 million households participating in the 

Food Stamp Program also received cash assistance from TANF and/or the 

Supplemental Security Income (SSI) program. Of these multiprogram participants, 11 percent also earned some income (500,000 households). For these 

households, the rate at which increases in household earnings reduce food 

stamp benefits depends on the effect of earnings on other assistance programs 

(cross-program effects). Different State-level policies on TANF earnings 

deductions have resulted in variations in food stamp benefits across States. 

The extent of the variation affects the degree to which the Food Stamp 

Program provides a uniform level of benefits to recipients across the country. 

Cross-program effects and State-level differences in food stamp benefits are 

important considerations in integrating government assistance programs into 

a support system for low-income households. This study provides estimates 

of State-specific reduction rates in food stamp benefits as earnings increase, 

as well as estimates of cumulative benefit reduction rates (that is, reductions 

in food stamp, TANF, and SSI benefits combined) as earnings increase. 

The analysis also examines the impact on food stamp benefits of the excess 

shelter cost deduction. Many food stamp recipients spend a large portion of 

their income on shelter (rent/mortgage, utilities, and property taxes). Food 

stamp households can take a deduction for shelter expenses that exceed half 

of their monthly net income. A household’s benefit reduction rate for an 

increase in earnings depends, in part, on whether the household uses the 

shelter deduction.

What Did the Study Find?

State variations in TANF earnings deductions (portion of earnings not 

counted as income) affect the net household income on which food stamp 

benefits are based, resulting in differences in the rate at which food stamp 

benefits are reduced by an increase in earnings. Depending on the State, an 

extra dollar of earnings results in a change to food stamp benefits ranging 

from a reduction of 36 cents (Arkansas, Connecticut, and Wisconsin) to 

an increase of 9 cents (Louisiana, Mississippi, South Carolina, Tennessee, 

Texas, and Wyoming). The other States fall in between. A number fall into 

similar groupings based on TANF earnings deduction rates:

•	Fifteen States have a TANF earnings deduction of 50 percent. Each additional dollar of earned income in these States reduces food stamp benefits 
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Economic Research Service / USDA

by 13.5 cents (CA, FL, MA, ME, NH, NJ, NM, NV, OH, OK, OR, PA, 

RI, UT, and WA).

•	Four States have a TANF earnings deduction of 33.3 percent. Each additional dollar of earned income in these States reduces food stamp benefits 

by 5.99 cents (AK, DE, GA, and KY). 

•	Five States have a TANF earnings deduction of 20 percent. Additional

earned income has no effect on food stamp benefits (AL, MI, NE, SD, 

and VA). In these States, the decrease in food stamp benefits due to extra 

earnings is precisely offset by the increase in food stamp benefits due to 

the earnings-induced reduction in TANF benefits. 

•	Six States have a TANF earnings deduction of less than 20 percent. Each

additional dollar of earned income leads to an increase in food stamp 

benefits (LA, MS, SC, TN, TX, and WY). 

•	Three States (AR, CT, and WI) have a fixed TANF grant amount, which

means that food stamp benefits adjust only by the direct effect of earnings 

on food stamp benefits—there is no cross-program effect on food stamp 

benefits because there are no earnings-induced changes in TANF. 

•	The remaining eighteen States have a TANF earnings deduction that

ranges from zero to one hundred percent. 

Given State policies regarding TANF earnings deductions, the average 

“cumulative” benefit reduction rate on earnings is about 70 percent (for 

nonmaximum use of the shelter deduction). In other words, taking into 

account combined program benefits, a food stamp household that earns an 

additional $1 would lose 70 cents’ worth of food stamp and TANF benefits, 

which combines a 61-percent reduction in TANF benefits with a 9-percent 

reduction in food stamp benefits. The 70-percent reduction is about double 

the effective tax rate on earnings for a food stamp household that does not 

receive TANF cash assistance. Even with this high rate of benefit reduction, 

however, households are better off with the additional earnings because the 

reduction in benefits is less than the increase in earnings. 

How Was the Study Conducted?

We derived the food stamp benefit reduction rates for earnings from the 

food stamp benefit formula under alternative assumptions about whether the 

household receives cash assistance from TANF or SSI. State TANF earnings 

deductions were from the Urban Institute’s Welfare Rules Database for 2005. 

Data from USDA’s Food Stamp Program Quality Control Public Use data 

file for 2005 were used to determine the proportion of the food stamp caseloads that were subject to different benefit reduction rates.
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Introduction

The Food Stamp Program (FSP) is a means-tested entitlement program that 

provides food benefits to low-income Americans. In 2005, 41 percent of the 

10.8 million households participating in the FSP also received cash assistance 

from Temporary Assistance for Needy Families (TANF) or Supplemental 

Security Income (SSI). Of these multiprogram participants, 11 percent 

(500,000 households) earned some income. The amount of food stamps a 

household receives depends on the household’s earnings and cash assistance 

from these other programs. As earnings increase, the total resources available 

to a household increase, but by less than the earnings because benefits from 

the assistance programs decrease.1 With the benefits from TANF and SSI 

affecting the level of food stamp benefits (cross-program effects), multiprogram participation leads to complex formulas for calculating the reduction 

in food stamp benefits due to an increase in total household resources from 

an increase in earnings. (Note that the name of the Food Stamp Program was 

changed to the Supplemental Nutrition Assistance Program in the 2008 Farm 

Act.)

The key element in the formula for calculating the rates of reduction for 

food stamp benefits due to earnings is each assistance program’s earnings 

deduction. The FSP has a 20-percent nationally uniform earnings deduction. 

Similarly, SSI has a nationally uniform earnings deduction of 50 percent 

of earnings above a standard earnings deduction of $65 plus work-related 

expenses due to a disability. Since welfare reform in 1996, States have 

set TANF earnings deductions, which have resulted in variations in crossprogram effects across States.2 

Another element in the FSP benefit formula that affects the benefit reduction 

rates from earnings is the excess shelter cost deduction (for monthly shelter 

costs in excess of 50 percent of net adjusted income after all other deductions are allowed, not to exceed $431 in 2005). When earnings increase for 

a household using the shelter deduction at a nonmaximum value, the amount 

of the shelter deduction is reduced. As a result, net income rises and the food 

stamp benefit amount declines, resulting in a larger benefit reduction rate 

than if the household either does not use the shelter deduction or is using it at 

the maximum. 

In this report, we estimate the impact of a change in earnings on Food 

Stamp Program benefits—the FSP effective benefit reduction rate (FSP 

EBRR)—taking into account cross-program effects from a change in TANF 

and SSI cash assistance due to a change in earnings. We also estimate the 

overall impact of a change in earnings on FSP, TANF, and SSI benefits—the 

overall EBRR—taking into account cross-program effects. We explore the 

impact of the shelter deduction on both sets of calculations. Our estimates do 

not account for adjustments to Federal and State taxes, including the Earned 

Income Tax Credit (EITC), Medicaid, housing subsidies, and child care 

subsidies. 

1Total resources include cash income 

from the private sector of the economy, 

such as earnings, plus cash and noncash 

benefits from government assistance 

programs. Earnings are counted as 

gross wages— that is, they include 

taxes.

 2Assistance for Families with Dependent Children (AFDC), the predecessor to TANF, had a nationally uniform 

earnings deduction of $120 plus 

one-third of remaining earnings for the 

first 4 months of consecutive earnings. 

After 4 months, the earnings deduction 

was $120, and after 8 months it was $90.
2

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Economic Research Service / USDA

Literature Review: 

Effective Benefit Reduction Rates

Calculation and analysis of effective benefit reduction rates, which are also 

known in the economics literature as effective tax rates on earnings (Moffitt, 

2002), have generated considerable research. A summary of this literature 

follows. Our study adds to the literature by providing greater detail on the 

FSP EBRR. We expand the literature with our analyses of the impact of 

State TANF earnings deductions and the FSP shelter deduction on the FSP 

EBRR and the overall EBRR for the FSP, TANF, and SSI on household total 

resources. 

Econometric Estimates of FSP and TANF 

Effective Benefit Reduction Rates on Earnings

A number of studies have estimated what they call an average effective tax 

rate on earnings in terms of TANF and/or FSP benefits by using an econometric model of program benefits as a function of family size, earnings, and 

unearned income. Most analysis has been done for Aid to Families with 

Dependent Children (AFDC), which preceded TANF, and for TANF. For 

instance, McKinnish, Sanders, and Smith (1999) used AFDC data by State 

for 1983-91 to estimate an average EBRR on earnings of 37 percent in 1991. 

Ziliak (2007) reproduced and extended this work using data through 2002. 

He found that the average EBRR on earnings started to fall following welfare 

reform in 1996, down to 15 percent in 2002. Ziliak (2008) is the first to use 

this method to estimate the average EBRR on earnings for the FSP alone. 

Using data from the Food Stamp Program Quality Control Database (FSPQC) by State for 1983-2003, he found that the average EBRR for earnings 

over the period of 1998-2003 was about 17.7 percent. 

For the FSP, the econometric approach uses program data on household 

earned and unearned income, benefits received, and household size to estimate the program’s EBRR on earnings. The regression coefficient on earnings is the EBRR on earnings, averaged by State or for the Nation, for each 

period in the analysis. Implicitly, the EBRR reflects the variety of factors that 

affect a household’s benefits, given its level of earned and unearned income 

and household size, such as program policy (including State options, use of 

deductions, cross-program effects, and other unforeseen circumstances). The 

earnings coefficient measures the relationship of benefits to earnings averaged over all the factors that affect that relationship for the households in the 

database, but it does not allow the analyst to sort out the relative effect of the 

different factors that influence the effective tax rate. In our analysis, we use 

the FSP benefit formula to derive EBRRs on earnings to illustrate some—

but not all—factors that influence the EBRR. We highlight the influence of 

cross-program effects with TANF and SSI cash assistance and the influence 

of the shelter deduction on the FSP EBRRs for earnings. After deriving our 

FSP EBRRs for earnings, we compare them with estimated FSP EBRR by 

Ziliak (2008). 
3

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Economic Research Service / USDA

FSP Cost Impacts from Changes in Income 

from Other Sources

 A series of studies for USDA’s Food and Nutrition Service (FNS) (e.g., 

1997 and 2004) have established “rules of thumb” that indicate the change 

in FSP benefits issuing from a change in income from other sources. The 

2004 study, using data for 2002, projected that FSP benefits would decrease 

by 21.6 percent of the dollar increase in TANF cash benefits and by 10.2 

percent for SSI benefits. The FNS rules-of-thumb cost impact depends on 

the proportion of benefits from the interacting program that go to FSP households and the average EBRR for FSP households participating in the interacting program. The average EBRR was 30.8 percent for TANF and 30.3 

percent for SSI. These percentages were derived from microsimulation with 

the FSP-QC data and are similar in concept to those calculated in our study.3 

While these studies assess the impact of changes in benefits from other 

programs on the FSP, they do not assess the impact of a change in earnings 

on FSP benefits with cross-program effects with TANF or SSI, which is the 

focus of our analysis.

Income Accounting Model Estimates of 

Effective Benefit Reduction Rates on Earnings 

A household income accounting model derives EBRRs for specific household circumstances such as family structure and State of residence. For 

instance, Coe et al. (1998) estimated the EBRR on earnings for households 

participating in TANF, food stamps, and EITC in 1997 for a single mother 

with two children living in 1 of 12 States. Coe found that, as a recipient went 

from no work to a minimum-wage part-time job, the EBRR on earnings 

was 12 percent. The EBRR increased to 28 percent as the worker went from 

a part-time to a full-time minimum-wage job and up to 65 percent as he/

she went from a full-time minimum-wage job to a $9-per-hour job. Shaviro 

(1999) included additional programs (child care, housing, and Medicaid) and 

a fuller treatment of taxes in an analysis of a single mother in 11 States to 

find EBRRs of 80-90 percent as households moved from part- to full-time 

jobs or moved from low to higher wages. Such high EBRRs were also found 

by Hepner and Reed (2004), MaCurdy and McIntyre (2004), and Carasso and 

Steuerle (2005). 

The phaseout of the EITC is a focus of analysis in these studies. The impact 

of the FSP benefit adjustment to the increased earnings is included in all of 

the studies, but is not highlighted. Nor do these studies address the State variation in the FSP-TANF relationship or the variation in the FSP EBRR with 

respect to a household’s use or nonuse of the shelter deduction. As MaCurdy 

and McIntyre (2004) pointed out, “A more careful representation of the food 

stamp rules would be necessary if the focus were on food stamp policy” (p. 

23, footnote 2). 

Incentive Effects on Labor Supply 

and Program Participation

The labor supply incentive effects from FSP EBBRs to an increase in earnings have been found to be small (Moffitt, 2002). A change to the FSP 

maximum benefit amount or a change in the rate of benefit reduction for 

3The average, which is across the FSP 

recipients who also participate in the 

interacting program, accounts for the 

variation in the EBRR due to the excess 

shelter cost deduction and the maximum and minimum benefit levels.
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Economic Research Service / USDA

an increase in earnings has weak effects on work. The findings reported 

by Moffitt were based on studies by Fraker and Moffitt (1988), Hagstrom 

(1996), and Keane and Moffitt (1998).4 These studies were based on data 

from 1979 and 1984. Given the work-support focus of public assistance since 

welfare reform in 1996, it is likely that the labor supply effects from the FSP 

in combination with TANF have changed. 

Blank, Card, and Robins (2000) found that changes in EBRRs had little or no 

effect on labor supply from these low-income households. Instead, they find 

that current welfare programs include strong work requirements and time 

constraints, which tend to reduce the incentives for nonrecipients to work 

less and enter the program, and to reinforce the incentives for participants to 

increase their work effort. Matsudaira and Blank (2008) found that changes 

to State TANF earnings deductions since welfare reform had little effect on 

labor supply. Steuerle (2006) pointed out that psychological and sociological 

motives for labor supply and program participation decisions may be more 

important than the economic motives alone, making it difficult to generalize 

about changes in program financial incentives on labor supply behavior. 

4Fraker and Moffitt (1988) modeled the 

labor supply response to joint AFDCFSP participation for single mothers. 

They found that “the Food Stamp 

Program in total reduces the labor supply of participants by about 9 percent, 

but marginal changes in the program’s 

maximum benefit amount and benefit 

reduction rate have only small effects 

on hours or work in the U.S. population of female heads” (p. 47). Keane 

and Moffitt (1998) extended this earlier 

work on multiple program participation 

and labor supply for single mothers. They found that simultaneously 

reducing both AFDC and FSP benefit 

reduction rates for earnings induced 

some nonworking recipients to work 

and some newly eligible recipients to 

participate and reduce their labor supply. The increase in labor supply from 

existing recipients more than offset the 

reduction in labor supply from new 

recipients. The contribution of the FSP 

to the labor supply response was not 

separable. Hagstrom (1996) found a 

small labor supply response to the rate 

of benefit reduction from earnings for 

married couples in the program.
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FSP Caseload Trends: 

A Shift from Welfare to Work

The share of FSP recipients with earnings has increased since the mid-1990s, 

from 22.5 percent of households in 1996 to 27.2 percent in 2000, and to 

29.3 percent in 2005, about 3.2 million households (USDA-FNS, 2006(a)). 

During the late 1990s, labor force attachment among low-income households 

increased due to a strong economy and incentives to work introduced by 

1996 welfare reform legislation. The work incentives continued into the early 

2000s, but the 2001 recession (March to November) and the sluggish labor 

market conditions in the early 2000s limited employment opportunities for 

low-income household members. 

While the share of FSP households with earnings increased, the share of FSP 

households with TANF cash assistance decreased from 37 percent in 1996 to 

14.5 percent in 2005. Among FSP households with children, the percentage 

receiving TANF cash assistance fell from 60.6 percent in 1996 to 26.3 

percent in 2005, whereas the percentage with earnings increased from 31.8 

percent in 1996 to 45 percent in 2005. The rising share of FSP households 

with earnings and the decreasing share with TANF cash assistance reflect the 

movement from welfare to work by single mothers since welfare reform in 

1996.5 

The share of FSP households with TANF cash assistance and earnings 

decreased from 5.2 percent in 1996 to 2.7 percent in 2005 (290,000 households), due to a reduction in TANF caseloads. Of FSP households that 

received TANF cash assistance, 18.4 percent had earnings in 2005, up from 

14.2 percent in 1996 but down from 25 percent in 2000. Similarly, the share 

of FSP households with SSI and earnings has remained relatively stable, 

starting at 1.6 percent in 1996, going up to 2.5 percent in 2000 and 2001, 

and going back down to 1.9 percent in 2005 (210,000 households). Of FSP 

households that received SSI, 7.3 percent had earnings in 2005, up from 6.7 

percent in 1996 and down from 7.8 percent in 2000. Although SSI encourages participants to work if possible and offers earnings deductions, a relatively low percentage of SSI participants worked, compared with those in 

FSP households with TANF cash assistance.6 

In 2005, 41 percent of the 10.8 million households participating in the FSP 

also received cash assistance from TANF or SSI. Of these multiprogram 

participants, 11 percent also received earnings in 2005 (500,000 households). Although the number of households receiving food stamps that were 

working and participating in these other programs is small, they are of policy 

significance, given the interest in promoting work among adult members 

of low-income households and recent policy changes that have affected the 

treatment of earnings by Government assistance programs.

6Since preparation of this report, food 

stamp caseload data through 2007 

became available. The trends discussed 

in this section have persisted. The share 

of FSP households with earnings increased to 29.8 percent in 2007 (about 

3.5 million households), while the 

share of FSP households with TANF 

cash assistance fell to 12.1 percent in 

2007 (1.4 million households). The 

share of FSP households with TANF 

cash assistance and earnings decreased 

to 2.5 percent in 2007 (292,000 households), which implies that 20.9 percent 

of households that received TANF cash 

assistance had earnings. Similarly, the 

share of FSP households with SSI cash 

assistance and earnings decreased to 

2.2 percent in 2007 (252,000 households), which implies that 7.9 percent 

of households that received SSI cash 

assistance had earnings.

5For single mothers, the employment 

rate increased from 65.9 percent to 75.5 

percent from 1996 to 2000, but fell 

back to 71.2 percent in 2005 (U.S. Department of Labor, April 2006, table 4).
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Program Benefit Formulas

Program benefits issued to a household are based on a measure of household 

net income, which is the sum of all sources of “countable” income, net of 

program deductions. In general, the FSP, TANF, and SSI include the same 

sources of countable income. All three programs have an earnings deduction, 

which differs by program. The FSP also has a number of other deductions, 

whereas TANF and SSI do not. In addition, food stamp benefits do not count 

as income for TANF or SSI, but the cash assistance from TANF and SSI 

count as income for the FSP.

FSP Benefit Calculation

To be eligible for benefits, a household must have a gross income at or 

below 130 percent of the poverty guideline, unless the household contains 

an elderly or disabled member, in which case it is not subject to the gross 

income criterion. Gross income is the cash or money income from all countable sources for all household members. Also, net income must be at or 

below 100 percent of the poverty guideline for all households including the 

elderly and disabled.7 Net income is calculated by subtracting the deductions 

listed below from gross income, as follows: 

1. Earned income deduction of 20 percent of the combined monthly gross 

earnings of household members; gross earnings include wages and salaries, as well as self-employed net income. 

2. Standard deduction of 8.31 percent of the applicable net income limit 

based on household size (as set by the poverty guidelines), with a 

minimum deduction of $134 prior to Fiscal Year (FY) 2009 and a 

minimum of $144 starting in FY 2009 as a result of the 2008 Farm Act.8 

3. Medical deduction for nonreimbursed medical expenses for elderly or 

disabled members of the household that are greater than $35 per month. 

4. Dependent care deduction for certain expenses for care of children or 

other dependents while other household members work, seek employment, or go to school. Prior to FY 2009, there was a maximum monthly 

deduction of $200 per child younger than age 2, plus $175 per dependent 

age 2 or older, to be in effect through 2008. As a result of the 2008 Farm 

Act, the cap has been removed starting in FY 2009.

5. Child support payment deduction for legally obligated child support 

payments to somebody who is not a member of the household. 

6. Excess shelter expense deduction equal to monthly unsubsidized shelter 

costs that exceed 50 percent of gross income, net of all other deductions. 

Shelter costs include rent, mortgage payments, utility bills, property taxes, 

and insurance, net of housing subsidies.9 A maximum deduction of $388 

for households without an elderly or disabled member was set in 2005. 

The use or nonuse of the shelter deduction influences the EBRR for earnings. The shelter deduction is based on the principle that a household is 

expected to spend no more than 50 percent of its adjusted income on shelter 

7Eligibility also involves rules that 

impose limits on the value of vehicles 

and assets (USDA-FNS, 2006a). 

8Starting in FY 2003, the 2002 Farm 

Act replaced the $134 standard deduction for all households with a deduction 

that varies according to household size 

and is adjusted annually for cost-ofliving increases. It sets the deduction 

at 8.31 percent of the applicable net 

income limit based on household size. 

No household will receive less than the 

deduction in place in 2002 ($134 for the 

continental United States) or more than 

the standard deduction for a household 

of six. Starting in FY 2009, the 2008 

Farm Act increased the minimum standard deduction to $144.

9A standard utility allowance is available to households that incur heating or 

cooling expenses separately from their 

rent or mortgage and to households that 

receive direct or indirect assistance under the Low Income Home Energy Assistance Act of 1981 (LIHEAA). Some 

States allow homeless households a set 

amount for shelter costs.
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costs. If shelter costs exceed this amount, then the excess can be deducted 

from income, up to a maximum value. Adjusted income to which the shelter 

costs are compared is cash income net of all other deductions. In 2005, a 

majority of FSP households (68.5 percent) used the shelter deduction, with 

19.7 percent of those using the maximum deduction. Harkness and Newman 

(2002), using the 1999 American Housing Survey, found that 38 percent of 

food stamp recipients received housing assistance. This finding suggests that 

housing assistance may be the reason that many FSP recipients do not use the 

shelter deduction. Also, in 2005, 13.6 percent of FSP households had zero 

gross income and did not need the deduction. 

The food stamp benefit formula is used to compute the level of benefits 

on the basis of a household’s earned and unearned cash income, allowable deductions, and a 30-percent statutory benefit reduction rate from 

a maximum benefit. For an algebraic expression of the formula, see the 

box, “Food Stamp Benefit Formula” (p. 8). The level of monthly food 

stamp benefits is calculated by subtracting 30 percent of household net 

income, if any, from the maximum benefit amount for the household size. 

The maximum benefit is based on 100 percent of the cost of the Federal 

Government’s Thrifty Food Plan, and it varies by household size. For 2005 

in the continental United States, the maximum benefit amount ranged from 

$149 for a household of one to $898 for a household of eight. Prior to the 

2008 Farm Act, there was a minimum benefit of $10 for one- and two-person 

households. The 2008 Act replaces the $10 minimum benefit for one- and 

two-person households with an amount equal to 8 percent of the maximum 

benefit for a one-person household. No minimum benefit is set for larger 

households. The statutory benefit reduction rate of 30 percent of net income 

reflects the assumption that a household is expected to spend 30 percent of its 

net income on food. 

The food stamp benefit formula is equation 1 in the box. After various 

substitutions, the benefit formula becomes equation 4 or 7, depending on the 

shelter deduction. If the shelter deduction is zero or the maximum amount, 

then equation 4 can be used to determine a household’s benefit amount. If 

the shelter deduction is between zero and the maximum amount, equation 

7 is the relevant one. The appropriate equation can be used to determine 

the change in benefit that results from a change in income from the relevant 

source (TANF, etc.). It is in the context of these equations that we derive the 

FSP EBRR for earnings for households that also receive TANF and SSI cash 

assistance. 

Simplified reporting and transitional benefits are two State options in the 

FSP that modify the standard benefit calculation (Trippe et al., 2004). Both 

options reduce or eliminate the need for recipients to report income changes 

that do not make them ineligible for the program. Consequently, benefits are 

not always adjusted as income changes during the certification period. For 

households participating in the FSP under these options, the EBRRs temporarily fall to zero, overriding the rates that would exist under the standard 

benefit formula. At the time of recertification, households in the FSP under 

the simplified reporting option would have benefits recalculated to adjust 

them to the new level of earnings.
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Food Stamp Benefit Formula

(1) B = max [Bmin , Bmax - rYnet ]

where,

B: Dollar value of food stamp benefits received by a household, monthly

Bmin: Minimum food stamp benefit 

Bmax: Maximum food stamp benefit, which varies with household size 

r: Statutory benefit reduction rate from maximum benefits, r = 0.3 

Ynet: Household monthly cash income net of deductions

Net income (Ynet) is gross countable cash income net of FSP deductions, not gross income net of taxes:

(2) Ynet = YG - DE - DS - DD - DM - DH - DC

where:

YG: Gross countable cash income 

DE: Earnings deduction 

DS: Standard deduction

DD: Dependent care deduction, net of subsidies and subject to a maximum 

DM: Medical deduction, expenses for the elderly and disabled net of subsidies

DH: Excess shelter cost deduction, net of subsidies and subject to a maximum 

DC: Child support payment deduction 

Gross income Yg is all sources of countable cash income without deductions and without tax deductions: 

(3) YG = YEarn + YTanf + YSSI + YOther

where: 

YEarn: Earnings of wages and salaries plus self-employed income 

YTanf: Temporary Assistance for Needy Families (TANF) cash assistance 

YSSI: Supplemental Security Income (SSI) cash assistance 

YOther: Other sources of cash income

Substitute (3) into (2) and (2) into (1), substitute for DE with the earnings deduction rate (e). For eligible households that receive more than Bmin the result is:

(4) B = Bmax + rDH - r(1-e)YEarn + r[DS + DD + DM + DC] - r[YTanf + YSSI + YOther]

where: 

e: Earnings deduction rate, e = 0.2

The shelter deduction is constrained by a maximum deduction and by a minimum of zero:

(5) DH = min{Dmax, max[Dh,0]}

Where (note the distinction in subscript h and H),

(6) Dh = CH - 0.50 [YG - DS - DE – DD – DM - DC] 

where:

CH: Shelter cost (including utilities) net of housing subsidies

Assuming the shelter deduction is Dh and not zero or the maximum, substitute (6) into (4), explicitly include 

subsidies with the deductions, and rearrange terms to get:

(7) B = Bmax + r CH + 1.5r[DS + DD + DM + DC] - 1.5r[YTanf + YSSI + YOther] - 1.5r(1-e)YEarn
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10 We use the Urban Institute’s Welfare 

Rules Database to specify State TANF 

earnings deductions (Urban Institute, 

2007). For some States we use the 

earnings deductions that apply after a 

household member has been working 

for about a year. What we refer to as 

an earnings deduction is also called an 

earnings disregard.

TANF Benefit Calculation

A State may provide TANF benefits to a family that it defines as needy if that 

family includes a minor child (younger than 18) or a pregnant person. This 

basic rule has technical qualifications related to the age of the minor child 

if the child is attending school, the living circumstances of unwed mothers 

younger than 18, legal alien status, and other stipulations. The major financial eligibility rules are an asset limit, gross income limit, and net income 

limit, all set by the States. The gross income limit pertains to the sum of 

earned and unearned income. Under the net income test, some earnings are 

deducted from gross income to determine countable net income. The portion 

of earnings deducted for the net income eligibility test may be smaller than 

the portion deducted in determining a recipient’s benefits. 

States set the earnings disregards for eligibility and benefit determination 

to provide a work incentive to TANF recipients and to offset the costs of 

working. The rules for TANF earning deductions vary by State, and they 

take a range of values (see table 1).10 The fixed dollar deduction (column 2 

in table 1) is the amount of earnings a household can receive without having 

any reduction in TANF benefits. Many States also deduct a percentage of 

additional earnings that exceed the fixed deduction (column 3 in table 1). 

Most FSP households that work and participate in TANF earn more than the 

fixed deduction. States are often more generous in their earnings deductions 

in the first months of work, and after a period of about 4-12 months, the earnings deductions are reduced. Our analysis is focused on the cross-program 

effects, with the percentage of earnings deductions that apply after about a 

year of earning. 

Twenty-five States, including the District of Columbia, used both fixed 

and percentage deductions; 18 States used a percentage deduction only; 6 

States used a fixed deduction only; and 2 States had no earnings deduction 

and a flat grant amount. The percentage deductions ranged from zero to 100 

percent, with 15 States using 50 percent, 4 States using 33.3 percent, and 5 

States using 20 percent. For 14 States, the fixed deduction or the percentage 

deduction changed over the length of time the recipient worked. The earned 

income deduction used by AFDC when it was replaced by TANF continues 

to be used by three States. The deduction consists of a $120 fixed deduction 

plus a 33-percent deduction for 4 months, a $120 fixed deduction for the next 

4 months, and a $90 fixed deduction thereafter. 

State TANF earnings deductions, set by States following the 1996 welfare 

reform legislation, have taken a range of values relative to the previous 

nationwide earnings deduction for AFDC (33 percent). A majority of States 

(31) have increased the earnings deduction relative to the AFDC rule, 

whereas 16 States have lowered the earnings deduction. Four other States 

have maintained a 33-percent earnings deduction. There is no obvious 

explanation for why some States have become more generous with the earnings deductions while others have reduced them. One hypothesis is that 

Democrat-leaning States tend to be more generous, but empirical evidence 

does not support this claim. Using data from the University of Kentucky 

Center for Poverty Research (2007) on State Government party affiliation, 

we found that 17 out of 25 (68 percent) Democrat-leaning States (including 
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...continued

Table 1

State earnings deductions for Temporary Assistance for Needy Families (TANF), 2005

State

Fixed

monthly 

amount

Share

of earnings Summary of complex earnings deduction

Dollars Percent

Alabama 0 20.0 100% for first 3 months, 50% for next 6 months, 20% thereafter

Alaska 150 33.0 Valid for 12 months, then $150 and 25% for next 12 months, and then 5% 

less each year

Arizona 90 30.0

Arkansas 0 100.0 No disregards, flat grant amount

California 225 50.0

Colorado 0 66.7 Reported deductions are for 12 months, then $120 and 33% for next 4 

months, $120 for next 8 months, $90 thereafter 

Connecticut 0 100.0 100%, up to the Federal poverty level

Delaware 120 33.3 Reported deductions are for 4 months, $120 for next 8 months, $90 

thereafter 

Washington, DC 160 66.7

Florida 200 50.0

Georgia 120 33.3 Reported deductions are for 4 months, $120 for next 8 months, $90 

thereafter 

Hawaii 200 56.0

Idaho 0 40.0

Illinois 0 66.7

Indiana 0 75.0

Iowa 0 70.0 20% of gross earnings plus 50% of earnings net of diversions

Kansas 90 40.0

Kentucky 120 33.3 100% for 2 months, $120 and 33.3% for 4 months, $120 for next 8 

months, then $90

Louisiana 120 0.0

Maine 108 50.0

Maryland 0 40.0

Massachusetts 120 50.0 For recipients not exempt from work requirements. For recipients exempt 

from work requirements, replace the reported percent with 33.3

Michigan 200 20.0

Minnesota 0 36.0

Mississippi 90 0.0 100% for first 6 months, $90 thereafter

Missouri 90 66.7 Reported deductions are for first 12 months, then $90 thereafter 

Montana 200 25.0

Nebraska 0 20.0

Nevada 0 50.0 100% for 3 months, 50% for months 4-12, $90 or 20% (whichever is 

greater) thereafter

New Hampshire 0 50.0

New Jersey 0 50.0 100% for 1 month, 50% thereafter

New Mexico 125 50.0 Reported deductions and 100% of earnings from work in excess of 34 

hours per week for 2 years

New York 90 45.0

North Carolina 0 27.5 100% for 3 months, 27.5% thereafter

North Dakota 180 27.0 $180 or 27%, whichever is greater, plus 50% of remainder for 6 months, 

35% for months 7-9

Ohio 250 50.0

Oklahoma 120 50.0

Oregon 0 50.0

Pennsylvania 0 50.0

Rhode Island 170 50.0

South Carolina 100 0.0 50% for 4 months, $100 thereafter
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11Information on party affiliation of the 

Governor and the percentage of upper 

and lower houses of the State Congress 

that are Democrats and Republicans 

were used to create a composite measure of the State as being Democrat- or 

Republican-leaning. If two or more of 

the three arms of State Government 

were predominantly Democrat, we 

treated the State as Democrat-leaning 

and vice versa. We did the analysis for 

1997, 2003, and 2005 and arrived at the 

same conclusions. 

Washington, DC) had a more generous earnings deduction than did AFDC 

rules, while 8 did not.11 Similarly, 14 out of 26 (54 percent) Republicanleaning States had a more generous earnings deduction, while 12 did not. 

Using a Chi-squared test, we do not reject the null hypothesis, at standard 

levels of statistical tests (1, 5, or 10 percent), that there is no statistical difference in the proportion of Democrat- and Republican-leaning States that have 

chosen a TANF earnings deduction greater than the AFDC earnings deduction (Snedecor and Cochran, 1967). The way that States have set the TANF 

earnings deduction as an incentive to work does not seem to be affected by 

political party affiliation. 

The amount of TANF cash assistance is set by the State. Most States have 

continued pre-TANF maximum cash benefit schedules, while 18 States have 

raised their cash benefit levels since 1995 (Urban Institute, 2007). Cash 

benefits in all but two States are calculated in one of two ways. In 35 States, 

a family’s benefit is the difference between countable net income and the 

maximum benefit for a family of its size. In 14 States, a family’s benefit is 

the difference between countable net income and a specified standard, which 

is greater than the maximum benefit, but the benefit amount cannot be greater 

than the maximum benefit. Two other States, Arkansas and Connecticut, set 

benefits at either the maximum or 50 percent. 

SSI Benefit Calculation

SSI is a means-tested Federal program for cash transfers to people who are 

65 or older, blind, or have a disability. Some States offer a supplement. For 

adults, a disability exists if the person has a physical or mental problem that 

prevents performance of “substantial” work and that is expected to last at 

least a year or to result in death. The test for substantial work is whether a 

person is able to engage in work that can earn $700 per month, with impairment-related expenses subtracted. When deciding if a child is disabled, the 

Social Security Administration looks at how his or her disability (physical or 

mental) affects everyday life, in that he or she must have severe functional 

limitations. 

Table 1

State earnings deductions for Temporary Assistance for Needy Families (TANF), 2005--continued

State

Fixed

monthly 

amount

Share

of earnings Summary of complex earnings deduction

Dollars Percent

South Dakota 90 20.0

Tennessee 150 0.0

Texas 120 0.0 $120 and 90% of remainder for 4 months (up to $1400), $120 thereafter

Utah 100 50.0

Vermont 150 25.0

Virginia 134 20.0 $134 for families of 1-4 members, $153 for 5-member families, $175 for 

larger families

Washington 0 50.0

West Virginia 0 40.0

Wisconsin 0 100.0 No disregards, flat grant amount

Wyoming 200 0.0

Average 85.9 41.7

Source: Urban Institute, Welfare Rules Database, Query the database, 2005 data. 
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An eligible individual cannot have a monthly net income in excess of the 

current Federal benefit rate (maximum benefit amount). The amount is the 

same for all States and is subject to annual increases dictated by cost of living 

adjustments. Since 1997, countable assets must be less than $2,000 for an 

individual and $3,000 for a couple. After summing gross income from countable sources, a number of deductions are made to arrive at net income for 

benefit calculations, as follows: 

(1) Standard deduction of $20.

(2) Earnings deduction of $65 of earned income (in addition to the $20 if no 

unearned income). 

(3) Earnings deduction of work-related expenses due to disability or blindness (monthly). 

(4) Earnings deduction of one-half of the remaining earned income, after 

deductions 1-3.

(5) Income set aside under a plan for achieving self-support (PASS).

The level of SSI cash assistance is set by subtracting net income from the full 

Federal benefit rate (maximum benefit amount). In 2005, the individual full 

Federal benefit rate was about $600 per month, while, for an eligible couple, 

it was about $900 per month. 
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12The FSP EBRRs are derived from 

either equation 4 or 7 (see box ”Food 

Stamp Benefit Formula,” p. 8), depending on the use or nonuse of the shelter 

deduction. The 2005 FSP-QC data 

are used for the caseload distribution 

by circumstance (USDA-FNS, Sept. 

2006(b))

Findings: FSP Effective Benefit Reduction 

Rates (EBRRs) for Earnings

The way that FSP EBRRs for earnings with and without cross-program 

effects from TANF and SSI cash assistance are derived is explained in this 

section. Data from the FSP-QC are used to determine the distribution of FSP 

households with these sources of income across the circumstances that result 

in different FSP EBRRs for earnings. EBRRs on earnings depend on whether 

the household’s benefits are at the minimum or maximum (Bmin or Bmax) or 

an intermediate level and whether the household uses the shelter deduction 

(and if so, whether it does so at the maximum or some lesser level). With 

the estimated FSP EBRRs for earnings over the different circumstances, we 

calculate a weighted average for comparison with the national average FSP 

EBRR estimated by Ziliak (2008), using an econometric model. Finally, our 

estimated FSP EBRRs for earnings with cross-program effects from TANF 

and SSI cash assistance are combined with estimates of TANF EBRRs and 

SSI EBRRs for earnings, to provide an estimate of the EBRR on earnings in 

terms of these program benefit reductions. 

Distribution of FSP EBRRs by 

Household Circumstance

Discussion of the distribution of FSP EBRRs by household circumstance is 

divided into three parts: 

 (1) FSP EBRRs for FSP households with earnings but no TANF or SSI cash 

assistance. This calculation provides a basis for comparing what happens 

to the FSP EBRRs for earnings when FSP households also receive cash 

assistance from TANF or SSI. 

(2) FSP EBRRs for TANF and SSI cash assistance without earnings. 

(3) FSP EBRRs for earnings when FSP households also receive TANF or 

SSI cash assistance.

Earnings Without Cross-Program Effects, and TANF 

or SSI Cash Assistance Without Earnings

Table 2 provides a detailed breakout of the incidence of FSP EBRRs for 

earnings without cross-program effects from TANF or SSI cash assistance, 

from TANF cash assistance, and from SSI cash assistance.12 The first five 

two-column blocks in table 2 identify the relevant FSP EBRR for a change 

in gross income (for the income source in the corresponding row) and the 

percentage of caseload under the circumstance of the column heading. The 

FSP EBRR depends on, first, whether benefits are at the maximum (Bmax), 

minimum (Bmin), or an intermediary level, and second, whether the household is not using the shelter deduction (DH=0) or using it at the maximum 

(DH=Max) or a lesser level. The last block of three columns, at the right side 

of table 2, displays the average EBRR and the percentage of total FSP caseload for each source of income. 
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13The additional earnings for FSP 

households using the shelter deduction at the maximum level could 

be large enough that the use of the 

shelter deduction shifts to a less-thanmaximum amount, which would shift 

the FSP EBRR for earnings from the 

lower value of -0.24 to the larger value 

of -0.36. Our analysis assumes the additional earnings are small enough that 

such a shift in the FSP EBRR does not 

occur. 

The average FSP EBRR for earnings without cross-program effects is -0.24, 

averaged over the circumstances of the household’s use or nonuse of the 

shelter deduction and whether it receives the minimum or maximum benefit 

amount or some intermediate amount. The FSP EBRRs for earnings without 

cross-program effects fall into three groups: -0.36 for 43.0 percent of FSP 

households with earnings, -0.24 for 36.1 percent of these households, and 

zero for 20.9 percent of these households. The -0.36 FSP EBRR for earnings 

occurs when the FSP household uses the shelter deduction at a nonmaximum 

level and is derived from equation 7. It is larger than the -0.24 FSP EBRR 

(derived from equation 4) that occurs when the FSP household is either not 

using the shelter deduction or using it at the maximum level. For an FSP 

household using the shelter deduction at less than the maximum amount, the 

additional earnings lead to a lower shelter deduction, which increases net 

income and reduces benefits; consequently, the FSP EBRR for earnings is 

larger.13 For FSP households with zero net income and maximum benefits, 

we assume that the additional earnings do not lead to positive net income, so 

that the FSP EBRR for earnings is zero and the additional earnings do not 

affect benefits. At some level of earnings, the additional earnings will cause 

the FSP household’s net income to shift from zero to a positive value and 

benefits to decline at an EBRR of -0.24 or -0.36, depending on the shelter 

deduction. This shift in circumstance is illustrated in the appendix, where 

the impact of incremental increases in earnings (from zero to an amount 

that makes the household ineligible) on benefits issued is illustrated. For a 

one- or two-person FSP household with minimum benefits, we assume the 

additional earnings are small enough that the household remains eligible for 

the minimum benefits and the FSP EBRR is zero, but the additional earnings 

could cause the household to be ineligible and lose its benefits. 

The average FSP EBRR for TANF cash assistance is estimated to be -0.299. 

The FSP EBRR for TANF cash assistance fall into three groups: -0.45 for 

43.9 percent of FSP households with TANF cash assistance, -0.30 for 33.8 

Table 2 

Food Stamp Program effective benefit reduction rates without cross-program effects, 2005 

Ynet = 0 Ynet> 0

B = Bmax B = Bmin Bmin < B < Bmax 

 EBRR

Share Share EBRR Share EBRR Share for Share Number Share

Sources of of of for of for of 0 < DH < of Average of of

gross income EBRR cases EBRR cases DH max cases DH = 0 cases DH max cases EBRR cases total cases

Percent Percent Percent Percent Percent Thousands Percent

Earnings (YE) only, 0 18.4 0 2.5 -0.24 14.7 -0.24 21.4 -0.36 43.0 -0.241 2697.7 24.9

 no TANF or SSI 

TANF cash assistance 0 21.6 0 0.8 -0.30 9.8 -0.30 24.0 -0.45 43.9 -0.299 1,583.9 14.6

SSI 0 10.9 0 5.9 -0.30 0.1 -0.30 14.7 -0.45 68.3 -0.352 2,871.6 26.5

Ynet = Household monthly cash income net of deductions.

B = Benefit amount; Bmax = Maximum benefit amount; Bmin =Minimum benefit amount.

DH = Housing deduction.

EBRR = Effective benefit reduction rate.

YE = earned income.

TANF = Temporary Assistance for Needy Families.

SSI = Supplemental Security Income.

Notes: An EBRR measures the rate of reduction in Food Stamp Program benefits from an increase in cash income. Cases with zero gross income 

(13.64 percent, or 1,479,983 cases) are included in the Ynet = 0, Bmax category. 

Source: Derived by USDA-ERS using caseload data from FSP-QC data for 2005, USDA-FNS. 
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14The remaining 21,800 households 

with earnings received both TANF and 

SSI, creating multiprogram crossprogram effects. We do not assess their 

FSP EBRRs in this section. 

percent of these households, and zero for 22.4 percent of these households. 

Similarly, the average FSP EBRR for SSI cash assistance is estimated to be 

-0.352, and falls into three groups: -0.45 for 68.3 percent of FSP households 

with SSI cash assistance, -0.30 for 14.8 percent of these households, and 

zero for 16.8 percent of these households. The FSP EBRR for TANF and SSI 

cash assistance without cross-program effects with earnings are the same and 

are larger than the FSP EBRR for earnings without cross-program effects 

because of the 20-percent earnings deduction. 

Earnings with Cross-Program Effects from TANF Cash Assistance

In 2005, 14.5 percent of FSP households received TANF cash assistance, 

with 18.6 percent of them also earning income from work (294,000 households). Of these households, 93 percent (272,200 households) did not receive 

SSI cash assistance.14 When an FSP household also participates in TANF, 

a change in earnings not only has a direct effect on FSP benefits, but also 

has a cross-program effect from TANF cash assistance on FSP benefits. As 

earnings increase, TANF cash assistance is likely to decrease, but not dollar 

for dollar. TANF earnings deductions determine the reduction in TANF cash 

assistance from an increase in earnings, which have been set by States since 

welfare reform in 1996. The Urban Institute (2007) Welfare Rules Database 

provides information on State TANF Earnings deductions, as summarized in 

table 1. Due to State-specific TANF earnings deductions, the FSP EBRRs for 

earnings with TANF cash assistance are distinguished by State. 

State TANF earnings deductions generally consist of two parts, a fixed 

deduction and a percentage of the remaining earnings (percentage deduction). 

For households with very low earnings, a small change in monthly earnings is less than the State TANF fixed deduction, and TANF cash assistance 

does not adjust for the change in earnings. However, from our tabulation 

of FSP-QC data (table 3), we find that most FSP households have earnings 

greater than the State TANF fixed deduction so that additional earnings are 

subject to the State TANF percentage deduction, as discussed next. 

Table 3

Food Stamp Program effective benefit reduction rates with cross-program effects from TANF and SSI, 2005

 Ynet> 0

Ynet = 0 Bmin < B < Bmax 

B = Bmax B = Bmin YE < YE fixed deduction YE > YE fixed deduction 

 EBRR EBRR EBRR EBRR 

Households Share Share for Share for Share for Share for Share Number 

with earnings of of DH = of DH >0, of DH = of DH >0, of Average of 

and the following EBRR cases EBRR cases max or 0 cases <max cases max or 0 cases <max cases EBRR cases 

Percent Percent Percent Percent Percent Percent

SSI only, no TANF 0 4.2 0 12.3 -0.24 0.9 -0.36 8.1 -0.09 26.9 -0.135 47.7 -0.120 188.0

TANF only, no SSI

New York 0 9.2 0 0.0 -0.24 7.3 -0.36 0.0 -0.075 58.3 -0.1125 25.1 -0.090 12.7

California 0 5.0 0 2.3 -0.24 5.1 -0.36 10.4 -0.09 43.6 -0.1350 33.4 -0.134 80.5

Texas 0 26.8 0 1.7 -0.24 0.0 -0.36 0.0 0.06 6.2 0.0900 65.3 0.062 23.7

Florida 0 36.1 0 0.0 -0.24 15.4 -0.36 9.3 -0.09 16.6 -0.1350 22.6 -0.116 6.8

Illinois 0 17.0 0 0.0 -0.24 0.0 -0.36 0.0 -0.1401 44.6 -0.2102 38.4 -0.143 3.3

Pennsylvania 0 21.0 0 0.0 -0.24 0.0 -0.36 0.0 -0.09 38.9 -0.1350 40.1 -0.089 12.8

TANF = Temporary Assistance to Needy Families; SSI = Supplemental Security Income.

Note: An effective benefit reduction rate measures the rate of reduction in FSP benefits from an increase in cash income.

Source: ERS calculations using FSP caseload data are from FSP-QC for 2005, USDA-FNS. 
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15The direct effect can be zero if earnings are small enough that net income 

remains less than or equal to zero 

(see table 2). Also, the direct effect 

can be zero for a one- or two-person 

household with minimum benefits if 

the household remains eligible for FSP 

benefits with the additional earnings. 

These circumstances are less likely to 

occur and are not discussed.

For working FSP households that also receive TANF cash assistance, earnings have a direct and a cross-program effect on FSP benefits. The direct 

effect takes one of two values, depending on whether the FSP household 

is using the shelter deduction at less than the maximum amount (-0.36) or 

whether it either does not use the shelter deduction or uses it at the maximum 

amount (-0.24).15 First, we consider the situation where the FSP household 

uses the shelter deduction at less than the maximum amount. In this case, the 

FSP EBRR combines the -0.36 direct effect with the cross-program effect of 

earnings on TANF cash assistance. Earnings reduce TANF cash assistance 

by (1-z), where z is the State’s TANF percentage earnings deduction. The 

reduced TANF cash assistance increases FSP benefits by 45 percent (see 

table 2, shelter deduction (DH) at less than the maximum amount, column 

5). Combining the direct and cross-program effects, an increase in earnings 

reduces FSP benefits by -[0.36 - 0.45(1-z)] times the change in earnings. 

Rearranging terms, the FSP EBRR for earnings is [0.09 - 0.45z], which 

varies according to the State TANF percentage earnings deduction. Similarly, 

for FSP households that do not use the shelter deduction or use it at the 

maximum amount, the FSP EBRR for earnings with a cross-program effect 

from TANF cash assistance is -[0.24 - 0.3*(1-z)], or, upon rearranging terms, 

it becomes [0.06 - 0.3z]. 

Table 4 presents the FSP EBRR for earnings by State with the cross-program 

effect from TANF cash assistance (using percentage earnings deduction in 

table 1, column 2) for the two circumstances relative to the FSP household’s 

use or nonuse of the shelter deduction. First, consider the circumstance where 

the FSP household uses the shelter deduction at less than the maximum 

amount. In States where the TANF percentage earnings deduction is 50 

percent, as in Pennsylvania and 14 other States, FSP benefits are reduced by 

13.5 percent of the change in earnings. If, instead, the State TANF earnings 

deduction is 33.3 percent, as in Kentucky and three other States, FSP benefits 

are reduced by 5.99 percent of the change in earnings. When the State TANF 

earnings deduction equals the FSP earnings deduction of 20 percent, as in 

Nebraska and three other States, the direct and cross-program effects offset 

each other and the FSP EBRR is zero (i.e., there is no change in the FSP 

benefits due to increased earnings). For a State with a TANF earnings deduction less than 20 percent, as in Texas and five other States, the FSP EBRR 

is positive, so FSP benefits actually increase with earnings due to the crossprogram effect from TANF. For two States with a fixed TANF grant amount 

(Wisconsin and Arkansas), there is no cross-program effect from earnings 

due to change in TANF cash assistance, and FSP benefits adjust only by the 

direct effect of earnings on FSP benefits. 

Next, consider the circumstances where the FSP household either does not 

use the shelter deduction or uses it at the maximum amount. In States where 

the TANF percentage earnings deduction is 50 percent, as in Pennsylvania 

and 14 other States, FSP benefits are reduced by 9 percent of the change in 

earnings (table 4). For the 50-percent TANF earnings deduction and all other 

percentage earnings deductions, the FSP EBRRs for earnings with crossprogram effects from TANF cash assistance are one-third less when the FSP 

household either does not use the shelter deduction or uses it at the maximum 

amount, relative to using the shelter deduction at less than the maximum 

amount. 
17

State Variations in the Food Stamp Benefit Reduction Rate for Earnings / EIB-46

Economic Research Service / USDA

Table 4

Food Stamp Program effective benefit reduction rate for earnings with 

TANF cash assistance, given State TANF earning deductions, 2005

State Non-max shelter deduction Max or 0 shelter deduction

Alabama 0.0000 0.0000

Alaska -0.0585 -0.0390

Arizona -0.0450 -0.0300

Arkansas -0.3600 -0.2400

California -0.1350 -0.0900

Colorado -0.2102 -0.1401

Connecticut -0.3600 -0.2400

Delaware -0.0599 -0.0399

Washington, DC -0.2102 -0.1401

Florida -0.1350 -0.0900

Georgia -0.0599 -0.0399

Hawaii -0.1620 -0.1080

Idaho -0.0900 -0.0600

Illinois -0.2102 -0.1401

Indiana -0.2475 -0.1650

Iowa -0.2250 -0.1500

Kansas -0.0900 -0.0600

Kentucky -0.0599 -0.0399

Louisiana 0.0900 0.0600

Maine -0.1350 -0.0900

Maryland -0.0900 -0.0600

Massachusetts -0.1350 -0.0900

Michigan 0.0000 0.0000

Minnesota -0.0720 -0.0480

Mississippi 0.0900 0.0600

Missouri -0.2102 -0.1401

Montana -0.0225 -0.0150

Nebraska 0.0000 0.0000

Nevada -0.1350 -0.0900

New Hampshire -0.1350 -0.0900

New Jersey -0.1350 -0.0900

New Mexico -0.1350 -0.0900

New York -0.1125 -0.0750

North Carolina -0.0338 -0.0225

North Dakota -0.0315 -0.0210

Ohio -0.1350 -0.0900

Oklahoma -0.1350 -0.0900

Oregon -0.1350 -0.0900

Pennsylvania -0.1350 -0.0900

Rhode Island -0.1350 -0.0900

South Carolina 0.0900 0.0600

South Dakota 0.0000 0.0000

Tennessee 0.0900 0.0600

Texas 0.0900 0.0600

Utah -0.1350 -0.0900

Vermont -0.0225 -0.0150

Virginia 0.0000 0.0000

Washington -0.1350 -0.0900

West Virginia -0.0900 -0.0600

Wisconsin -0.3600 -0.2400

Wyoming 0.0900 0.0600

Average -0.0976 -0.0651

TANF = Temporary Assistance for Needy Families.

Source: Urban Institute, Welfare Rules Database, Query the database, 2005 data. 
18

State Variations in the Food Stamp Benefit Reduction Rate for Earnings / EIB-46

Economic Research Service / USDA

16We have chosen these States based on 

their large FSP caseload sample size in 

the FSP-QC database. They account for 

50 percent of FSP households with both 

earnings and TANF cash assistance.

For six States, table 3 shows the distribution of FSP households among the 

different FSP EBRRs for earnings with TANF cash assistance under various 

circumstances pertaining to the FSP household’s use of the shelter deduction and receipt of maximum and minimum benefits.16 The table also makes 

the distinction as to whether the earned income is less than the TANF fixed 

deduction (YE < YE fixed deduction), whether there is a 100-percent deduction, or whether the earned income is in the TANF percentage-deduction 

range (YE > YE fixed deduction). The average State FSP EBRRs for earnings, including both direct and cross-program effects, range from –0.09 

to –0.14 for five of the six States. For one State, Texas, the average FSP 

EBRR is a positive 0.062. Among these six States, a large percentage of FSP 

households are subject to the TANF earned-income percentage deduction 

and use the FSP shelter deduction at the maximum amount or zero. Under 

these circumstances, 43.6 percent of FSP households with earnings and 

TANF cash assistance in California have an FSP EBRR of -0.09. In these six 

States, a significant share of FSP households with TANF cash assistance and 

earnings use the FSP shelter deduction at less than the maximum amount; 

consequently, these households have a larger FSP EBRR (by one-third) than 

FSP households that either do not use the shelter deduction or use it at the 

maximum level. That is, a reduction in FSP benefits from an increase in earnings is larger due to the shelter deduction. 

Figure 1 ranks the FSP EBRR for earnings with the cross-program effect 

from TANF cash assistance under the circumstance in which the FSP household uses the shelter deduction at less than the maximum amount. While 

most States have an FSP EBRR between -0.0225 and -0.135, some have 

a zero and even positive FSP EBRR for earnings. Prior to welfare reform 

in 1996, the AFDC percentage earnings deduction was 33 percent, which 

leads to an FSP EBRR of -0.0585, an earnings deduction still used by four 

States. Some States have increased their TANF earnings deduction—which 

results in a larger negative FSP EBRR and a greater reduction in FSP benefits from the increase in earnings—while other States have decreased their 

TANF earnings deduction relative to the pre-welfare reform AFDC earnings 

deduction. 

Earnings with Cross-Program Effects from SSI Cash Assistance 

In 2005, 7.3 percent of FSP households with SSI cash assistance received 

earnings (210,000 households). Of these households, 90 percent (188,000 

households) did not receive TANF cash assistance. The FSP EBRR for earnings with cross-program effects from SSI cash assistance (without TANF) 

combines the cross-program effect of the change in SSI benefits from the 

additional earnings on FSP benefits with the direct impact of the change in 

earnings on FSP benefits. The first row of results in table 3 reports the FSP 

EBRRs for earnings with cross-program effects from SSI cash assistance. 

The cross-program effect from SSI cash assistance depends on the SSI earnings deduction that applies to the additional earnings. As can be seen by the 

distribution of FSP households with SSI cash assistance and earnings in table 

3 (YE > YE fixed deduction), 74.6 percent of theses households (adding the 

26.9 percent of cases that used the shelter deduction at the maximum or did 

not use it and 47.7 percent of cases that used the shelter deduction at less than 

the maximum) have enough earnings that the 50-percent earnings deduction 
19

State Variations in the Food Stamp Benefit Reduction Rate for Earnings / EIB-46

Economic Research Service / USDA

applies to any additional earnings. The FSP EBRR for earnings also depends 

on the FSP household’s use or nonuse of the shelter deduction. For instance, 

assume that the household uses the FSP shelter deduction between zero and 

the maximum value and that it receives less than the maximum benefits. 

Under these circumstances, SSI cash assistance decreases by 50 percent of 

the additional earnings, which increases FSP benefits by 45 percent of the 

decrease in SSI cash assistance (see table 2 for the 45-percent FSP EBRR for 

SSI cash assistance). Consequently, the cross-program effect from a reduction in SSI cash benefits due to the additional earnings increases FSP benefits 

by 22.5 percent of the earnings. The direct effect from the additional earnings 

under these circumstances will decrease FSP benefits by 36 percent of earnings (see table 2). The net result (36 minus 22.5) is a reduction in food stamp 

benefits of 13.5 percent of the additional earnings. As seen from the first row 

of table 3, this FSP EBRR for earnings with cross-program effects from SSI 

cash assistance occurs for 47.7 percent of FSP households that receive SSI 

cash assistance and have earnings. 

The other blocks of columns in the first row of table 3 present the FSP 

EBRRs for earnings with cross-program effects from SSI cash assistance for 

other circumstances pertaining to the use or nonuse of the FSP shelter deduction, receipt of maximum and minimum FSP benefits, and whether the houseReduction rates

-0.360

-0.359- -0.150

-0.149- -0.100

-0.099- -0.001

0.000

0.001- 0.100

Note: An effective benefit reduction rate for earnings is the rate of reduction in food stamp benefits from an increase in earnings 

(as a fraction of earnings).

Source: ERS calculations using Urban Institute data on TANF earnings deduction for 2005 and the Food Stamp benefit formula.

Figure 1

State Food Stamp Effective Benefit Reduction Rates for earnings with cross-program effects from 

TANF cash assistance, with nonmaximum shelter deduction, 2005

-0.135

-0.135

-0.135

-0.135 -0.21

-0.36

-0.36

-0.36

-0.21

-0.21

-0.225

-0.248

-0.135

-0.135 -0.135

-0.135

-0.135

-0.06

-0.06

-0.06

-0.09

-0.09

-0.09

0.09

0.09

0.09

0.09

0.09

0.09

-0.09 -0.135

-0.022 -0.022 -0.032

-0.072

-0.045

-0.034

-0.135

-0.112

0.635

0

0

0

0

0
20

State Variations in the Food Stamp Benefit Reduction Rate for Earnings / EIB-46

Economic Research Service / USDA

17For the 21,781 FSP households 

with earnings that also receive cash 

assistance from both TANF and SSI, 

we have calculated an FSP EBRR of 

positive 0.0736, assuming a TANF 

percentage-earnings deduction of 50 

percent along with the 50-percent earnings deduction for SSI, given that 52 

percent of these households do not use 

the shelter deduction and 43 percent 

use the shelter deduction at less than 

the maximum level and receive less 

than the maximum benefit amount.

18National average FSP EBRRs were 

calculated to be -.20 in 2000 and 2001 

and -.205 in 2002. 

hold’s earnings are greater than or less than the SSI fixed earnings deduction. 

For instance, 26.9 percent of FSP households with SSI cash assistance and 

earnings have an FSP EBRR for earnings of -0.09 when the FSP shelter 

deduction is either not used or used at the maximum level. In this case, FSP 

benefits are reduced by 9 percent of the additional earnings.

Comparing the FSP EBRR for Earnings 

with Those from an Econometric Model

We estimate an average national FSP EBRR for earnings with our approach 

and compare it with an estimate by Ziliak (2008), using an econometric 

model. Our average national FSP EBRR for earnings is a weighted average 

over the different circumstances of a household’s receiving earnings only 

or earnings with TANF and/or SSI cash assistance, taking into account 

the household’s nonuse or use of the shelter deduction and whether the 

household receives the maximum or minimum shelter deduction or some 

intermediate value. Table 5 reports these average national FSP EBRRs for 

2003-2005.17 We include an estimate for 2003 for comparison with Ziliak’s 

estimate, the last year of his analysis. In 2003, our estimated average national 

FSP EBRR for earnings is -.211 (vs. Ziliak’s -.152). It is slightly more negative at -.218 in 2004 and at -.220 in 2005. The average national FSP EBRR 

has been rising since 2000 as the FSP caseload has shifted towards more 

households with earnings only and fewer with TANF cash assistance and 

earnings.18 

Ziliak followed an econometric tradition for estimating effective tax rates for 

AFDC/TANF, which are equivalent to effective benefit reduction rates. For 

the FSP, the approach is to use the FSP-QC data to estimate an econometric 

model of food stamp benefits relative to earnings, unearned income, and a set 

of dummy variables for family size. Ziliak estimates the coefficients of the 

model by State and over time (1983-2003). The earnings coefficient is the 

FSP EBRR. Given State caseload shares, a weighted average national FSP 

EBRR for earnings is calculated to be -.152 in 2003. 

The econometric model that Ziliak used results in an average national 

EBRR (-.152) that is 28 percent less negative than the one estimated in our 

Table 5

Weighted average national Food Stamp Program effective benefit reduction rates for earnings

2003 2004 2005

Share of Number of Share of Number of Share of Number of

Average cases with cases with Average cases with cases with Average cases with cases with

EBRR earnings earnings EBRR earnings earnings EBRR earnings earnings

Percent Thousands Percent Thousands Percent Thousands

Earnings only, 

 no TANF or SSI -0.239 80.8 2046.5 -0.240 82.9 2400.2 -0.241 84.8 2697.7

Earnings with SSI, 

 no TANF -0.107 6.7 168.8 -0.122 6.2 178.6 -0.120 5.9 188.0

Earnings with TANF, 

 no SSI -0.090 11.4 289.8 -0.109 10.2 296.2 -0.092 8.6 272.2

Earnings with TANF 

 and SSI 0.074 1.1 27.5 0.074 0.7 21.4 0.074 0.7 21.8

Weighted average -0.210 100.0 2532.6 -0.217 100.0 2896.3 -0.219 100.0 3179.7

EBRR = Effective benefit reduction rate.

TANF = Temporary Assistance for Needy Families.

SSI = Supplemental Security Income.
21

State Variations in the Food Stamp Benefit Reduction Rate for Earnings / EIB-46

Economic Research Service / USDA

19The EITC, which would further 

increase household income from the 

change in earnings, is not included in 

our analysis.

analysis (-.211). One technical difference in the two approaches is that Ziliak 

excludes households with an elderly person, whereas we do not. Households 

with an elderly person account for only 2.7 percent of households with earnings in 2003. With sensitivity analysis, we find little effect of excluding the 

elderly on our average national FSP EBRR for earnings, with a change from 

-.211 percent to -.212 percent. 

We suggest that our estimated average national FSP EBRR for earnings is 

larger (in absolute value, i.e., more negative) than the Ziliak estimate because 

our analysis omitted some factors that reduce the response of FSP benefits to 

additional earnings that are implicitly taken into account in the econometric 

model of Ziliak. The most important factors, we believe, are the State options 

for simplified reporting and transitional benefits, introduced in 2000. Both 

options allow States to maintain benefit levels set at the time of certification, 

even when earnings increase during the household’s certification period. This 

would reduce (make smaller in absolute value, i.e., less negative) Ziliak’s 

estimated FSP EBRR for earnings relative to ours. Another possibility, but 

one we feel is small, is that we do not account for an increased use of the 

child care deduction as earnings increase. 

Overall EBRR on Earnings from FSP, TANF, and SSI

The FSP EBRR for earnings can be combined with an EBRR for TANF or 

SSI cash assistance to derive an overall EBRR on earnings as benefits from 

these programs declined in response to an increase in earnings. The change 

in household total resources, when the household participates in the FSP and 

TANF or SSI, is the change in earnings net of the change in FSP benefits 

and TANF or SSI cash assistance.19 Table 6 provides State estimates for 

the overall EBRR for different assumptions about the use or nonuse of the 

shelter deduction. The map in Figure 2 illustrates the State variation in the 

overall EBRR due to State variation in TANF earnings deductions, assuming 

the nonmaximum use of the shelter deduction. 

Across all States, the average (not weighted by State caseload) overall EBRR 

with TANF cash assistance is -.684 for nonmaximum use of the shelter 

deduction and -.653 for either maximum use or nonuse of the shelter deduction. This average overall EBRR rate combines a TANF EBRR of -.59 with 

an FSP EBRR of -.095 or -.063, with the larger FSP EBRR for the use of 

the shelter deduction at less than the maximum amount. As a result, the 

household loses about 70 percent of its earnings, mostly as a reduction in 

TANF cash assistance. When a household receives TANF cash assistance, 

the reduction in FSP benefits is relatively small. If the household does not 

receive TANF cash assistance, then the FSP EBRR goes from about -.06 to 

-.24 or -.09 to -.36, depending on the shelter deduction (see table 2). Note 

that we have used the TANF earnings deductions that apply after the household member has been working for a number of months (see table 1). If the 

TANF participant is just starting to work, the TANF earnings deduction is 

larger, resulting in a lower TANF EBRR and lower overall EBRR on earnings and a higher level of total resources. 

A lower TANF earnings deduction results in a larger TANF EBRR, and 

hence larger overall EBRR. The FSP EBRR is smaller for a larger TANF 

EBRR, partially offsetting the increase in the overall EBRR from a larger 
22

State Variations in the Food Stamp Benefit Reduction Rate for Earnings / EIB-46

Economic Research Service / USDA

Table 6

Overall EBRR on earnings 

Overall EBRR Overall EBRR

on earnings on earnings

Non-max Max or 0 TANF/

State shelter deduction shelter deduction SSI EBRR

Earnings, no TANF or SSI -0.360 -0.240 0.0000

SSI -0.635 -0.590 -0.5000 

TANF 

Alabama -0.800 -0.800 -0.8000

Alaska -0.729 -0.709 -0.6700

Arizona -0.745 -0.730 -0.7000

Arkansas -0.360 -0.240 0.0000

California -0.635 -0.590 -0.5000

Colorado -0.543 -0.473 -0.3330

Connecticut -0.360 -0.240 0.0000

Delaware -0.727 -0.707 -0.6670

Washington, DC -0.543 -0.473 -0.3330

Florida -0.635 -0.590 -0.5000

Georgia -0.727 -0.707 -0.6670

Hawaii -0.602 -0.548 -0.4400

Idaho -0.690 -0.660 -0.6000

Illinois -0.543 -0.473 -0.3330

Indiana -0.498 -0.415 -0.2500

Iowa -0.525 -0.450 -0.3000

Kansas -0.690 -0.660 -0.6000

Kentucky -0.727 -0.707 -0.6670

Louisana -0.910 -0.940 -1.0000

Maine -0.635 -0.590 -0.5000

Maryland -0.690 -0.660 -0.6000

Massachusetts -0.635 -0.590 -0.5000

Michigan -0.800 -0.800 -0.8000

Minnesota -0.712 -0.688 -0.6400

Mississippi -0.910 -0.940 -1.0000

Missouri -0.543 -0.473 -0.3330

Montana -0.773 -0.765 -0.7500

Nebraska -0.800 -0.800 -0.8000

Nevada -0.635 -0.590 -0.5000

New Hampshire -0.635 -0.590 -0.5000

New Jersey -0.635 -0.590 -0.5000

New Mexico -0.635 -0.590 -0.5000

New York -0.663 -0.625 -0.5500

North Carolina -0.759 -0.748 -0.7250

North Dakota -0.762 -0.751 -0.7300

Ohio -0.635 -0.590 -0.5000

Oklahoma -0.635 -0.590 -0.5000

Oregon -0.635 -0.590 -0.5000

Pennsylvania -0.635 -0.590 -0.5000

Rhode Island -0.635 -0.590 -0.5000

South Carolina -0.910 -0.940 -1.0000

South Dakota -0.800 -0.800 -0.8000

Tennessee -0.910 -0.940 -1.0000

Texas -0.910 -0.940 -1.0000

Utah -0.635 -0.590 -0.5000

Vermont -0.773 -0.765 -0.7500

Virginia -0.800 -0.800 -0.8000

Washington -0.635 -0.590 -0.5000

West Virginia -0.690 -0.660 -0.6000

Wisconsin -0.360 -0.240 0.0000

Wyoming -0.910 -0.940 -1.0000

Average -0.681 -0.648 -0.5831

Maximum -0.910 -0.940 0.0000

Minimum -0.360 -0.240 -1.0000

EBRR = Effective benefit reduction rate.

TANF = Temporary Assistance for Needy Families.

SSI = Supplemental Security Income.

Source: Urban Institute, Welfare Rules Database, Query the database, 2005 data. 
23

State Variations in the Food Stamp Benefit Reduction Rate for Earnings / EIB-46

Economic Research Service / USDA

TANF EBRR. For instance, a TANF earnings deduction of 50 percent results 

in an overall EBRR of -.635 for nonmaximum use of the shelter deduction. 

The TANF EBRR is -.5, while the FSP EBRR for the nonmaximum use 

of the shelter deduction is -.135. A 33.3-percent TANF earnings deduction 

results in an overall EBRR of -.727 for the non-maximum use of the shelter 

deduction. In this case, the TANF EBRR is -.667, while the FSP EBRR for 

the nonmaximum use of the shelter deduction is -.06, less than the -.135 FSP 

EBRR with a 50-percent TANF earnings deduction.

For all States, the overall EBRR with SSI cash assistance is -.635 for a 

nonmaximum use of the shelter deduction and -.59 for either the use of the 

shelter deduction at the maximum amount or nonuse of the shelter deduction. 

This overall EBRR combines an SSI EBRR of -.50 with an FSP EBRR of 

-.135 or -.09, with the larger FSP EBRR for the use of the shelter deduction 

at less than the maximum amount. As a result, the household loses about 60 

percent of its earnings, mostly as a reduction in SSI cash assistance. 

Reduction rates

-0.360

-0.361- -0.543

-0.544- -0.663

-0.664- -0.745

-0.746- -0.800

-0.801- -0.910

Figure 2

State overall EBRR for earnings with food stamp benefits and TANF cash assistance, 

with nonmaximun shelter deduction, 2005

Note: Overall EBRR for earnings is the rate of reduction in food stamp benefits from an increase in earnings (as a fraction of

earnings).

Source: ERS calculations using Urban Institute data on TANF earnings deduction for 2005 Food Stamp benefit formula, and TANF

benefit formula.

-0.635

-0.772 -0.762

-0.759

-0.727

-0.727

-0.727

-0.712

-0.36

-0.36

-0.36

-0.745

-0.772

-0.8

-0.91

-0.91 -0.91

-0.91

-0.91

-0.91

-0.8

-0.8

-0.8 -0.69

-0.69

-0.69

-0.69

-0.8

-0.635

-0.635

-0.635

-0.635

-0.635

-0.543

-0.543

-0.543

-0.543

-0.498

-0.635

-0.635

-0.635

-0.635

-0.635

-0.635

-0.635
24

State Variations in the Food Stamp Benefit Reduction Rate for Earnings / EIB-46

Economic Research Service / USDA

Discussion

This report illustrates that cross-program effects can have a large impact 

on effective benefit rate reductions. In all cases, however, even with the 

highest benefit reduction rates calculated here, households realized larger net 

incomes by working and earning income. Though the formula is complex, 

an additional dollar of earnings still added more to a household’s net income 

than was subtracted by the reduction in assistance benefits. Such crossprogram effects are an important consideration in integrating Government 

assistance programs into a support system for low-income households. 

This report also illustrates the State variation in the effect of earnings on food 

stamp benefits to recipients who participate in TANF. The FSP is commonly 

thought of as a program with eligibility rules and benefits that are nationally 

uniform. However, the 1996 welfare reform that transferred authority to the 

States for AFDC—succeeded by TANF—has resulted not only in variable 

TANF benefit reduction rates, but also, through cross-program effects, in 

variable FSP benefit reduction rates. As a result, working households may 

receive different amounts of food stamps across States. The variability of 

Food Stamp Program benefits is a consideration in designing nationwide 

support systems for low-income households. 
25

State Variations in the Food Stamp Benefit Reduction Rate for Earnings / EIB-46

Economic Research Service / USDA

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26

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Economic Research Service / USDA

Ohls, James C., and Harold Beebout. The Food Stamp Program: Design 

Tradeoffs, Policy, and Impacts. Washington, DC: Urban Institute Press, 

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Shaviro, Daniel N. “Effective Marginal Tax Rates on Low-Income 

Households.” Employment Policies Institute, February 1999. http://www.

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Snedecor, George, and William Cochran. Statistical Methods. Ames, Iowa: 

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UploadedPDF/1000944_EP_040306.pdf

Trippe, Carole, Liz Schott, Nancy Wemmerus, and Andrew Burwick. 

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Appendix: FSP EBRRs Change with Income

The effective rate at which FSP benefits adjust to a change in gross income 

from earnings differs from the minus-30-percent statutory rate on net 

income due to the earnings and shelter deductions and the cross-program 

effects from TANF and SSI cash assistance. A variety of EBRRs arise from 

the complexity of the FSP benefit formula, which adjusts for household 

circumstances in order to provide benefits according to a household’s need 

for nutritional assistance. In this appendix we illustrate by example how 

EBRRs vary as a household’s income increases from zero to the maximum 

amount allowed for program eligibility, by incremental increases in earned 

and unearned income. All of the examples are illustrated for a single-parent 

family with two children, shelter expense of $400 per month, and no other 

deductible expenses. The examples use maximum food stamp benefit and 

deduction levels and rules that were in effect in 2005.20 Scenarios A and B 

show how FSP EBRRs change with the level of unearned and earned income 

(without cross-program effects from TANF or SSI).21 The unearned income 

could be from either TANF or SSI cash assistance. Scenarios C and D introduce cross-program effects with TANF and SSI cash assistance. Scenarios A 

and B are illustrated in figure A-1 and scenarios C and D in figure A-2. 

In all the scenarios, it is the underlying changes in net income (not actually 

illustrated in the figures) that drive the change in food stamp benefits. Net 

income does not change dollar-for-dollar with gross income. For example, 

when gross income comes in the form of earnings, each additional dollar 

creates a $0.20 earnings deduction, so that net income goes up by only $0.80. 

Similarly, the amount of shelter deduction a household can take depends 

on its income. In certain income ranges, each additional dollar of income 

reduces the amount of shelter costs that a household can deduct by $0.40-

$0.50. Because of the standard deduction, there is always a range of income 

(at least from $0.0 to $134.0) where net income is zero and the EBRR is 

zero.22 Other deductions increase that range.

For Earnings and TANF or SSI Cash Assistance 

Without Cross-Program Effects

Scenario A in figure A-1 shows how the food stamp benefit would change for 

progressive increases in unearned income (such as TANF or SSI cash assistance). The standard deduction and the shelter deduction keep net income at 

zero until unearned income reaches a total of $400. In this income range, FSP 

benefits do not change with increasing gross income and remain at the $393 

maximum. With income increases beyond $400, each dollar of unearned 

income reduces the food stamp benefit by $0.45, and the EBRR remains at 

-0.45 until the shelter deduction is exhausted at a gross income of $940.23 

With unearned income increasing beyond $940, the EBRR equals the statutory rate (-0.3) and food stamp benefits fall by $0.30 for each new dollar of 

unearned income until benefits fall to zero at the net income eligibility limit 

of $1,306, which occurs at a gross income of $1,440. 

Scenario B in figure A-1 contrasts the situation for progressive increases in 

earned income. In this case, the combination of the standard, shelter, and 

earned income deductions maintain net income at the zero level until earn20The maximum benefit in 2005 for 

a family of three was $393 and the 

maximum shelter deduction was $388. 

The gross income eligibility cutoff was 

$1,698 and the net income eligibility 

cutoff was $1,306. The $400 shelter expense is between the mean and median 

value in the 2005 FSP-QC data.

21Fraker and Moffitt (1988) also 

describe how the effective benefit 

reduction rates change for an increase 

in earnings, as do Ohls and Beebout 

(1993, pp. 42-44).

22Similarly, when a one- or two-person 

eligible household’s net income has 

reached the point where it is receiving 

the minimum benefit, small changes in 

deductions and subsidies will not have 

an impact.

23 Beyond this point housing cost is no 

longer greater than 50 percent of net 

income, and the household is no longer 

able to take an excess shelter cost 

deduction.
29

State Variations in the Food Stamp Benefit Reduction Rate for Earnings / EIB-46

Economic Research Service / USDA

ings reach $510. At that point, each new dollar of earned income increases 

the earnings deduction by $0.20, but reduces the shelter deduction by $0.40. 

The combined effect is to increase net income by $1.20 and reduce the food 

stamp benefit by $0.36. The EBRR remains at -0.36 until earned income 

reaches $1,170, where the household no longer qualifies for a shelter deduction. After that point, only the earned income deduction can be applied, and 

the EBRR is -0.24 until the household loses eligibility at a gross income 

of $1,698. At this point there is a “notch effect” (Ohls and Beebout, p. 45), 

where an additional dollar of income results in complete loss of benefits, a 

drop of $25, and an implied EBRR of infinity. 

For Earnings with Cross-Program Effects from TANF 

or SSI Cash Assistance 

In figure A-2, the basic earned income situation, Scenario B, is compared 

with the situation of a household with earnings receiving TANF or SSI cash 

assistance whose benefits are also reduced by additional earnings. In both 

these cases, each additional dollar of earnings directly reduces FSP benefits, 

while also having cross-program effects that increase FSP benefits, partially 

offsetting the direct effect. The net result at times can be quite complicated 

and additional earnings can, in some cases, increase food stamp benefits, but 

in most cases they decrease the benefits. 

Scenario C illustrates cases where a household is eligible for a maximum 

TANF cash assistance of $800 and there is a 50-percent earnings deduction 

beyond a $225 fixed deduction.24 Unlike Scenario B, where the household 

has no income besides earnings, the TANF scenario begins with the household’s receiving lower food stamp benefits due to the TANF cash assistance. 

However, as earnings increase and TANF cash assistance is reduced, the gap 

between Scenario B and C narrows. At earnings of $1,580 and TANF cash 

assistance of $120, gross income reaches the maximum level for program 

eligibility ($1,700), and benefits fall to zero. Under Scenario C, where TANF 

benefits are being reduced, the FSP EBRR is -0.09, given that the shelter 

deduction is zero.

24Scenario C is for the earnings deduction set by California.

0

410450490530570610650690730770810850890930970

101010501090113011701210125012901330137014101450149015301570161016501690

Gross income, $ per month

Scenario A: Benefits with unearned income Scenario B: benefits with earned income

Benefits, $ per month

0

50

100

150

200

250

300

350

400

450

Figure A-1

FSP benefits with earned and unearned income, for a family of three in 2005

EBRR = -.36

EBRR = -.30

EBRR = -.45

EBRR = -.24
30

State Variations in the Food Stamp Benefit Reduction Rate for Earnings / EIB-46

Economic Research Service / USDA

Scenario D illustrates the case of a household eligible for a maximum SSI 

benefit of $600. In this situation, the SSI benefit is not affected by the first 

$85 in earnings; after that, benefits are reduced by $0.50 for each dollar 

earned.25 Up to $980 of earnings, SSI benefits are being reduced by earnings 

and the shelter deduction is in effect, so that the EBRR is -0.135. At $980 of 

earnings, the shelter deduction goes to zero, and the EBRR goes to -0.09 as 

SSI cash assistance continues to be reduced. At earnings of $1,290, SSI cash 

assistance goes to zero, but FSP benefits continue to be positive and the FSP 

EBRR goes to -0.24, given that the shelter deduction is zero. At earnings of 

$1,700, the gross income limit for program eligibility, FSP benefits fall from 

$25 to zero. 

x

400440480520560600640680720760800840880920960

1000104010801120116012001240128013201360140014401480152015601600164016801720

Earned income, $ per month

Scenario B: benefits with earned income

Scenario C: benefits with earnings and TANF (max benefit of $800) with $225 fixed plus 50% earnings deduction

Scenario D: benefits with earnings and SSI (max benefit of $600) with $85 fixed plus 50% earnings deduction

0

50

100

150

200

250

300

350

400

450

Benefits, $ per month

Figure A-2

FSP benefits with earned income and TANF or SSI for a family of three, 2005

EBRR = -.135 EBRR = -.09

EBRR = -.09

EBRR = -.24

25SSI has a $65 earnings deduction and 

a $20 standard deduction that applies to 

earnings if there is no other income.