Value of IRS Information for 

Determining Eligibility for the Low 

Income Subsidy Program (LIS) of the 

Medicare Prescription Drug Program 

(Medicare Part D) 

Department of the Treasury 

Office of Tax Analysis 

December 2008 
DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 

ASSISTANT SECRETARY DEC 2 9 2008 

Ms. Bea Disman 

Chair of the SSA Medicare Implementation Task Force 

and Regional Commissioner 

Social Security Administration 

26 Federal Plaza, Room 40-102 

New York, NY 10272 

Dear Ms. Disman: 

I am attaching a copy of a study, Value ofIRS Information for Determining Eligibility for 

the Low Income Subsidy Program (LIS) ofthe Medicare Prescription Drug Program (Medicare 

Part D), which the Treasury Department has prepared at your request and with your cooperation. 

Under the Medicare Prescription Drug Program (Medicare Part D), Medicare enrollees 

with incomes and assets below certain levels may be eligible for extra Low Income Subsidy 

(LIS) benefits. The Social Security Administration (SSA) has statutory responsibility for 

informing potential LIS beneficiaries about eligibility for the extra benefits. If potential 

beneficiaries do not file applications for the LIS benefits, the SSA must continue to expend 

resources to contact them to ensure that they are aware that they may be eligible for LIS benefits. 

This study was undertaken to detenmne the extent to which otherwise confidential tax 

information from the Internal Revenue Service (IRS) could provide additional information about 

income and, through imputation, about assets. This would help to narrow the pool of Medicare 

beneficiaries who the SSA believes may be eligible for extra LIS benefits under Medicare Part 

D. IRS data can indicate that some individuals are not eligible but cannot determine if the 

remaining individuals are actually eligible. 

Because the income measure used in determining LIS eligibility is different conceptually 

from income shown on income tax returns, data from individual income tax returns are not 

optimal for excluding beneficiaries from LIS eligibility. Rather, the payment data from thirdparty information returns submitted to the IRS must be used. Because confidentiality of tax 

information is critically important, any changes to the statutory restrictions on disclosure of that 

information should not be made without a careful weighing ofthe benefits of less costly LIS 

outreach, higher LIS enrollment, and fewer unnecessary contacts against the potential adverse 

effects on taxpayer compliance and the costs of processing that IRS data. If disclosure for this 

purpose is deemed to be appropriate, the amount and type of tax information that is authorized to 

be disclosed by new legislation should be limited to what is essential to achieve its limited 

purpose. 

ASSISTANT SECRETARY

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C.

DEC 2 9 2008

Ms. Bea Disman

Chair of the SSA Medicare Implementation Task Force

and Regional Commissioner

Social Security Administration

26 Federal Plaza, Room 40-102

New York, NY 10272

Dear Ms. Disman:

I am attaching a copy of a study, Value ofIRS Information for Determining Eligibility for

the Low Income Subsidy Program (LIS) ofthe Medicare Prescription Drug Program (Medicare

Part D), which the Treasury Department has prepared at your request and with your cooperation.

Under the Medicare Prescription Drug Program (Medicare Part D), Medicare enrollees

with incomes and assets below certain levels may be eligible for extra Low Income Subsidy

(LIS) benefits. The Social Security Administration (SSA) has statutory responsibility for

informing potential LIS beneficiaries about eligibility for the extra benefits. Ifpotential

beneficiaries do not file applications for the LIS benefits, the SSA must continue to expend

resources to contact them to ensure that they are aware that they may be eligible for LIS benefits.

This study was undertaken to detennine the extent to which otherwise confidential tax

information from the Internal Revenue Service (IRS) could provide additional information about

income and, through imputation, about assets. This would help to narrow the pool of Medicare

beneficiaries who the SSA believes may be eligible for extra LIS benefits under Medicare Part

D. IRS data can indicate that some individuals are not eligible but cannot determine if the

remaining individuals are actually eligible.

Because the income measure used in determining LIS eligibility is different conceptually

from income shown on income tax returns, data from individual income tax returns are not

optimal for excluding beneficiaries from LIS eligibility. Rather, the payment data from thirdparty information returns submitted to the IRS must be used. Because confidentiality of tax

information is critically important, any changes to the statutory restrictions on disclosure of that

information should not be made without a careful weighing ofthe benefits of less costly LIS

outreach, higher LIS enrollment, and fewer unnecessary contacts against the potential adverse

effects on taxpayer compliance and the costs of processing that IRS data. If disclosure for this

purpose is deemed to be appropriate, the amount and type of tax information that is authorized to

be disclosed by new legislation should be limited to what is essential to achieve its limited

purpose.
ItIt isis important important toto recognize recognize that that the the use use of of IRS IRS information information could could lead lead toto the the incorrect incorrect 

exclusion exclusion of ofsome some individuals individuals who who are are actually actually eligible eligible for for LIS LIS benefits. benefits. Some Some IRS IRS third-party third-party 

information information returns returns might might bebe erroneous erroneous for for several several different different reasons. reasons. IfIf the the IRS IRS data data were were used used 

toto pre-screen pre-screen beneficiaries, beneficiaries, those those screened screened out out incorrectly incorrectly would would not not receive receive the the personalized personalized 

outreach outreach efforts efforts that that are are believed believed toto bebe essential essential for for aa high high rate rate of of LIS LIS enrollment. enrollment. 

While While cognizant cognizant of of the the foregoing foregoing concerns, concerns, the the results results of of the the study study show show that that the the use use of of 

IRS IRS data data would would help help toto reduce reduce the the group group of of potential potential LIS LIS eligibles eligibles substantially, substantially, with with the the 

reduction reduction dependent dependent onon the the amount amount ofIRS ofIRS data data actually actually used. used. If If only only third-party third-party information information 

returns returns (Forms (Forms 1099 1099 and and K-1) K-l) for for the the actual actual beneficiary beneficiary were were used used and and the the higher higher income income and and 

asset asset thresholds thresholds applicable applicable toto married married couples couples were were used used regardless regardless of of actual actual marital marital status, status, the the 

number number of of potential potential LIS US eligibles eligib les could could bebe reduced reduced byby about about 4848 percent percent from from 13.6 13.6 million million toto 7.1 7.1 

million million individuals. individuals. IfIf marital marital status status information information from from income income tax tax returns returns were were used used for for those those 

who who had had filed fi led income income tax tax returns, returns, the the number number of potential potential LIS LIS eligibles eligibles could could bebe reduced reduced byby 5151 

percent percent toto 6.6 6.6 million million individuals. individuals. The The target target group group could could bebe reduced reduced further further ifif the the third-party third-party 

information information documents documents were were obtained obtained for for the the spouses spouses of of married married beneficiaries beneficiaries and and ifif income income and and 

imputed imputed asset asset information information for for both both spouses spouses were were aggregated. aggregated. The The exact exact extent extent of of the the additional additional 

targeting targeting would would need need toto bebe determined determined inin an an extension extension of of this this study. study. 

The The study study indicates indicates that that aa reasonable reasonable case case can can bebe made made for for disclosure disclosure of of tax tax return return 

information information for for screening screening out out some some potential potential LIS LIS beneficiaries. beneficiaries. However, However, providing providing tax tax return return

information information for for pre-screening pre-screening isis not not permitted permitted under under current current law law and and would would require require aa legislative legislative 

change. change. Also, Also, the the IRS IRS would would have have toto bebe reimbursed reimbursed for for itsits additional additional work, work, just just asas itit isis currently currently

reimbursed reimbursed for for supplying supplying tax tax return return information information after after a a LIS LIS application application actually actually has has been been filed. filed. 

Ifitit were were deemed deemed appropriate appropriate toto use use IRS IRS data data for for pre-screening, pre-screening, consideration consideration should should bebe given given toto 

less less detailed detailed disclosure disclosure than than is is currently currently disclosed disclosed for for those those who who actually actually apply apply for for LIS LIS benefits. benefits. 

The The SSA, SSA, the the IRS, IRS, and and the the Treasury Treasury Department Department should should jointly jointly develop develop aa plan plan that that would would 

disclose disclose only only the the minimum minimum amount amount oftax tax return return necessary necessary for for pre-screening. pre-screening. 

IfIf you you have have questions questions about about the the results results of of the the study, study, please please contact contact Allen Allen Lerman Lerman (202­

622-1325) 622-1325) in in the the Office Office of of Tax Tax Analysis, Analysis, who who had had primary primary responsibility responsibility for for preparing preparing this this study. study.

Sincerely, Sincerely,

6"\.~' . vW'l • 

Eric Eric Solomon
 Solomon


Assistant Assistant Secretary Secretary (Tax (Tax Policy)
 Policy)


Attachment Attachment

2
 2

 Value of IRS Information for Determining Eligibility for the Low Income Subsidy 

Program (LIS) of the Medicare Prescription Drug Program (Medicare Part D) 

Executive Summary
 

Under the Medicare Prescription Drug Program (Medicare Part D), social security 

beneficiaries with incomes and assets below certain levels may be eligible for extra Low Income 

Subsidy (LIS) benefits. The Social Security Administration (SSA) has statutory responsibility 

for informing potential LIS beneficiaries about eligibility for the extra benefits. If potential 

beneficiaries do not file applications for the LIS benefits, the SSA must continue to expend 

resources to contact them to ensure that they are aware that they may be eligible for LIS benefits. 

From its own records and other records available to it, the SSA is not able to identify eligible 

individuals with precision. The SSA is only able to identify individuals with wages plus 

retirement income from Federal government sources that are below the income threshold for 

unmarried individuals. Using that information, prior to the beginning of the Part D program, the 

SSA identified 18.6 million individuals, of which only 6.2 million had actually applied by 

March, 2007 (and of whom only 2.2 million were found to be eligible). It has been estimated 

that an additional 2 million individuals of the remaining 12.4 million are actually eligible for LIS 

benefits. Without additional income and asset information, the SSA must expend resources to 

contact all 12.4 million individuals. Additional income and asset information might reduce the 

target population, and a smaller target population would reduce outreach costs, permit more 

individualized outreach efforts, or both. 

This study was undertaken to determine the extent to which otherwise confidential tax 

information from the Internal Revenue Service (IRS) could provide additional income 

information and, through imputation, some asset information, which would help to narrow the 

pool of Medicare beneficiaries who the SSA believes may be eligible for extra LIS benefits 

under Medicare Part D. The IRS data can indicate that some individuals are not eligible, but it 

cannot determine if the remaining individuals are actually eligible. 

This study’s estimates of the aggregate number of Medicare beneficiaries who – based on 

income and assets – are not eligible for LIS benefits narrows the pool of individuals who may be 

eligible for extra Part D benefits. The reduction in the number of potential eligibles that IRS data 

- 1 -
 

would permit may be helpful in making the policy judgment of whether the benefits from the use 

of IRS data justify another exception to the general rule of confidentiality of tax information. 

LIS eligibility is based on both income and assets as calculated under the methodology 

specified by the SSA, and the relevant income measure is different conceptually from income 

shown on income tax returns. Hence, data from tax returns submitted to the IRS are not optimal 

for excluding beneficiaries from LIS eligibility. Rather, the payment data from third-party 

information returns submitted to the IRS must be used. These are the same data that currently 

are permitted, by statute, to be disclosed to the SSA to verify the income and assets of 

beneficiaries who actually apply for LIS benefits. These third-party information returns include 

the name and address of every payor to the beneficiary, together with the exact type and amount 

of each payment. Providing this detailed level of taxpayer data to the SSA before a LIS 

application is not consistent with the overall statutory provisions which generally require the 

confidentiality of tax information. Because confidentiality of tax information is critically 

important, this type and extent of disclosure should not be permitted without a careful weighing 

of the benefits of less costly LIS outreach, higher LIS enrollment, and fewer unnecessary 

contacts with those not actually eligible against the costs of processing the IRS data and the 

potential adverse effect on taxpayer compliance. If disclosure for this purpose is deemed to be 

appropriate, the amount and type of tax information that is authorized to be disclosed outside the 

IRS by new legislation should be limited to what is necessary to achieve its limited purpose. 

In order to estimate the benefits from the use of tax information for screening out 

potential LIS beneficiaries, information about a statistically valid random sample of potential 

beneficiaries was examined. The SSA selected a sample from its records, IRS added information 

from third-party information returns, and the data were combined and summarized to determine, 

under the relevant definitions, the income and assets for each sampled individual. 

The results show that the use of IRS data would help to reduce the group of potential LIS 

eligibles substantially, with the reduction dependent on the amount of IRS data actually used. 

If only third-party information returns (Forms 1099 and K-1) were used, the number of 

potential LIS eligibles could be reduced by about 48 percent from 13.6 million to 7.1 million 

individuals, provided that the higher income and asset thresholds applicable to married couples 

were used. (If the lower thresholds applicable to unmarried individuals were used, the pool 

- 2 -
could be reduced by 61 percent to 5.3 million individuals. However, use of the unmarried 

thresholds would incorrectly screen out many individuals who are married.) 

If marital status information from income tax returns were also used for those who had 

filed income tax returns, and if the married thresholds were applied for married filers and 

nonfilers and the single thresholds were used for unmarried filers, the number of potential LIS 

eligibles could be reduced by 51 percent to 6.6 million individuals, even if the incomes and 

resources of both spouses were not combined. 

The target group could be reduced further if marital status information from both the IRS 

and the SSA were used and if the income and asset information for both spouses were combined 

for married individuals. The exact extent of the additional targeting would need to be 

determined in an extension of this study, but a simulation based on conservative assumptions 

about spousal income and assets suggests that an additional million or more individuals could be 

screened out. 

Based on these results, a reasonable case can be made for disclosure of tax return 

information in advance of an actual LIS application. However, providing tax return information 

for pre-screening would require a legislative change. Also, the IRS would have to be reimbursed 

for its additional work, just as it is currently reimbursed for supplying information after a LIS 

application actually has been filed. 

It is important to recognize that the use of IRS information could lead to the incorrect 

exclusion of some individuals who are actually eligible for LIS benefits. The IRS third-party 

information returns that would be used to eliminate some beneficiaries who the SSA believes 

may be eligible for LIS benefits may be erroneous for several different reasons. Moreover, due 

to changes in marital status and deaths after tax return filing, it is likely that there would be more 

erroneous determinations of ineligibility if spousal information were used. When a beneficiary 

actually applies for LIS benefits and is determined to be ineligible based on data from the IRS, 

the beneficiary has an opportunity to challenge that incorrect determination. However, if the IRS 

data were used to pre-screen beneficiaries, any beneficiary incorrectly screened out would not 

know that he or she had been screened out. Since these are beneficiaries who have not applied 

for LIS benefits, they would not receive the personalized outreach efforts that are believed to be 

- 3 -
essential for a high rate of LIS enrollment. Nevertheless, they would continue to benefit from 

generalized SSA outreach programs. 

If it were deemed appropriate to use IRS data for pre-screening the large group of 

potential LIS eligibles, consideration should be given to less detailed disclosure of tax return 

information than is currently disclosed for those who actually apply for LIS benefits. For prescreening, the SSA would not use the more detailed information that is necessary to verify actual 

LIS applications. Disclosure of detailed information could be reduced if the IRS performed 

some of the calculations currently performed by the SSA and then disclosed to the SSA only (a) 

the summary income and asset amounts, (b) an indicator of whether the individual’s income and 

assets exceeded the relevant thresholds, (c) that the IRS had some third-party information about 

the individual, (d) that the individual had actually filed a Federal income tax return, and (e) 

marital status (for income tax return filers). If an individual subsequently filed a LIS application, 

the summary income and resource amounts as well as the thresholds might have to be adjusted 

by the SSA based on information about additional income or resources shown on the LIS 

application. However, detailed payor-by-payor third-party information would have to be 

disclosed to the SSA only if a LIS applicant disputed SSA’s rejection of the LIS application. 

While having the IRS rather than the SSA perform the calculations to combine 

information from various sources into total income and assets for each potential beneficiary 

would reduce the amount of disclosure of tax information, such procedures would represent a 

fundamental change in the role of the IRS. Traditionally, under provisions of the Internal 

Revenue Code, the IRS has extracted certain tax return information and provided it to other 

government agencies. The IRS has not devoted its resources to processing tax return information 

for other agencies. Performing the calculations for the LIS program might set a precedent to 

performing similar calculations for other programs and agencies. Such processing would 

increase the workload of the IRS and would divert resources from its primary mission of tax 

administration. Although the IRS’ costs presumably would be reimbursed by the SSA (or other 

agencies), such work would use scarce, specialized IRS personnel and resources that could not 

be replaced easily or quickly. 

If it is deemed that further disclosure of tax information for pre-screening is appropriate, 

the SSA, the IRS, and the Treasury Department should develop a plan, based on new statutory 

- 4 -
authority to release the necessary information, that they jointly believe to be most efficient in 

supplying the necessary information to the SSA while disclosing the minimum amount of tax 

return information. 

- 5 -
- 6 -
 

 

 

Value of IRS Information for Determining Eligibility for the Low Income Subsidy Program 

(LIS) of the Medicare Prescription Drug Program (Medicare Part D) 

Background 

Since 2006, there has been a voluntary prescription drug program under Medicare 

(Medicare Part D). Part D enables Medicare beneficiaries to enroll in drug plans sponsored by 

private health insurance companies. Similar to the longstanding, 40-year old Medicare Medical 

Insurance program (Medicare Part B), participants generally pay about one-quarter of the 

program’s costs, with the remainder being paid from the General Fund of the United States 

government. The Medicare Prescription Drug program, however, includes provisions for 

participants with limited incomes and assets to pay a smaller share of the costs of the program 

through lower monthly premiums and smaller (or no) annual deductibles and/or co-payment 

amounts for their prescriptions. This special program is known as the Low Income Subsidy 

(LIS). The Centers for Medicare and Medicaid Services (CMS) of the Department of Health and 

Human Services (HHS) has estimated that about 6.1 million beneficiaries would meet the income 

and asset requirements if they actually applied for the LIS program.1 

Some Medicare beneficiaries are enrolled to receive LIS benefits automatically because 

they are receiving Medicaid or Supplemental Security Income (SSI) benefits, or are in a 

Medicare Savings Program. Other Part D beneficiaries must file an application to obtain the 

extra benefits of the LIS program. The Social Security Administration (SSA) makes eligibility 

determinations for those who file an application. The SSA also has the statutory responsibility 

for conducting outreach to identify eligible individuals and educate them about the availability 

of the LIS program. 

As part of the LIS application, potential beneficiaries provide information about their 

income and their assets.2

 The application informs applicants that their income and asset 

1

 Department of Health and Human Services, Office of Inspector General. Identifying Beneficiaries Eligible for the 

Medicare Part D Low-Income Subsidy, OEI-03-06-00120. November, 2006. Page 3. 

2

 SSA-1020: Application for Help with Medicare Prescription Drug Plan Costs. Assets considered for Part D 

eligibility exclude the applicant’s residence, vehicles, personal possessions, burial plots, and irrevocable burial 

contracts. 

- 7 -
 

 

information will be verified from other sources including use of data from the IRS. The IRS data 

generally are from reports by third parties who have made payments to the beneficiaries. These 

information returns from third parties are used because they are more comprehensive and 

provide more information about assets than do income tax returns. Also, third-party information 

returns provide information about beneficiaries who may not be required to file their own 

Federal income tax returns. 

Because tax information is confidential except for disclosures that are specifically 

authorized by the Internal Revenue Code (Code), the Medicare Prescription Drug Improvement 

and Modernization Act (MMA) – which enacted Medicare Part D in December, 2003 – amended 

the Code to authorize the IRS to provide the SSA with tax information for those who actually file 

a LIS application. Under section 6103(l)(7)(D)(ii) of the Internal Revenue Code, as amended by 

MMA, the IRS may provide the SSA with specified items of tax information to assist in 

verifying income and assets once an individual has filed an application with the SSA. The Code 

does not, however, authorize the IRS to share such tax information for all Medicare 

beneficiaries – that is, those who have not yet filed a LIS application – which would assist the 

SSA in targeting its outreach efforts for the LIS program. 

Initially, the SSA relied on Federal sources to target the potentially eligible population. 

The data the SSA used were from the SSA, the Office of Personnel Management, the 

Department of Veterans Affairs, the Railroad Retirement Board, and the Office of Child 

Support Enforcement (OCSE) of the Department of Health and Human Services. The SSA 

realized that using these data sources would result in an overestimate of the number of 

individuals who might qualify for the subsidy. The data from those sources provided information 

on individuals’ earnings and income from various government programs (mainly retirement 

income), but it provided only very limited information about individuals’ assets or non-wage or 

non-retirement income. Absent that additional data, the SSA can neither accurately estimate the 

total number of individuals eligible for LIS benefits nor narrowly target individuals for more 

directed outreach. As a result, in 2005, prior to the beginning of the Part D program, the SSA 

mailed a LIS application to approximately 18.6 million Medicare beneficiaries whose income 

from sources available to the SSA indicated potential eligibility for the LIS program. It was 

believed that this 18.6 million included all potential LIS beneficiaries. The SSA continues to 

- 8 -
 

 

 

 

 

send LIS applications to “attainers” (current social security beneficiaries reaching age 65 or the 

24th month of entitlement to disability benefits) and new filers for social security benefits.3 

Of the 18.6 million LIS applications that the SSA solicited originally in 2005, only 

about 6.2 million had actually submitted applications through March, 2007. Of those who 

submitted applications, 4.0 million were found to be ineligible, and the remaining 2.2 million 

were enrolled in the LIS program. However, based on an estimate from the CMS, about 4 

million additional beneficiaries were eligible for LIS.4 Thus, out of the original potentially 

eligible group of 18.6 million individuals, 12.4 million did not file LIS applications.5 It is not 

known how many did not file because they determined that their income or assets were too 

great to be eligible, and how many actually are eligible but did not file because of lack of 

knowledge about the LIS program or its benefits. 

The SSA is obligated to use its outreach programs to inform potential LIS eligibles of 

the available benefits and to encourage and assist them in filing LIS applications. The SSA 

believes that better estimates of the actual number of eligibles who have not filed a LIS 

application would be useful in developing and implementing more efficient outreach plans that 

would result in higher levels of LIS enrollment. 

Both the Inspector General of HHS and the United States Government Accountability 

Office (GAO) have issued reports highlighting that, in their opinions, the lack of availability of 

3 Section 1860D-1(c)(1) of the Social Security Act (enacted concurrently with the amendment to IRC 

6103(l)(7)(D)(ii) as part of MMA, P.L. 108-173) provides "The Secretary shall conduct activities that are designed 

to broadly disseminate information to part D eligible individuals (and prospective eligible individuals) regarding the 

coverage provided under this part. Such activities shall ensure that such information is first made available at least 

30 days prior to the initial enrollment period described in subsection (b)(2)(A)." This requirement is also stated in 

the MMA’s legislative history. Page 472 of Conference Report 108-391 (Nov. 21, 2003) states: "It is the intent of 

the conferees that [SSA] should engage in outreach activities to encourage eligible individuals to apply for subsidies 

under this section." 

4

 In January, 2008, the CMS issued a revised estimate indicating that there were 2.6 million eligible individuals who 

had not enrolled in LIS. See “Final LIS.xls” included in “EnrollmentRelease_CurrentYear.zip” available at 

www.cms.hhs.gov/PrescriptionDrugCoGenIn/01_Overview.asp 

5 The 13.6 million individuals cited on page 2 and used throughout this report is higher than 12.4 million individuals 

who did not file applications in the original SSA solicitation because of additional individuals who became eligible 

subsequently. 

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the IRS information continues to limit the SSA’s ability to reach and enroll eligible 

beneficiaries efficiently.6 

This study has been undertaken to determine the usefulness of IRS tax information for 

(1) better estimating the number of individuals eligible for the LIS program and (2) for 

eliminating specific Medicare beneficiaries who the SSA (based on its limited information) 

currently believes may be eligible, thereby reducing the number of individuals on whom the 

SSA needs to expend outreach resources. The results provide information to help assess the 

the benefits of additional disclosure of tax return information. 

Organization of the Study 

 The study processed data from the SSA and the IRS for a statistically valid, random 

sample of the 13.6 million social security beneficiaries who the SSA believes may be eligible 

for the LIS program based on the income known to the SSA but who had not applied for LIS 

benefits as of March, 2007. The sample size was 202,533 individuals, or 1.5 percent (1-in-67), 

of the 13.6 million of the possible eligible individuals who had not filed LIS applications. The 

sample was drawn in October, 2007. 

For each member of the sample, the SSA sent the IRS identifying information, wages 

and salaries, Social Security and Railroad Retirement benefits, government benefit/pension 

income, and whether or not CMS records indicated that the individual had creditable Medicare 

Part D drug coverage.7 

For each individual in the sample, the IRS located all of the relevant third-party 

information returns that had been submitted under that individual’s Social Security number. 

The third-party information returns consisted of the Forms 1099 for various types of income 

and the Schedules K-1 from partnerships, estates, trusts, and S corporations.8

 These are the 

6

 Department of Health and Human Services, Office of Inspector General. Identifying Beneficiaries Eligible for the 

Medicare Part D Low-Income Subsidy, OEI-03-06-00120. November, 2006. United States Government 

Accountability Office. Medicare Part D Low-Income Subsidy: Additional Efforts Would Help Social Security 

Improve Outreach and Measure Program Effects, GAO-07-555. May, 2007. 

7

 For various technical reasons, earnings from self-employment were not included. Given the population under 

consideration, this omission may not be significant. However, its inclusion would reduce the target population for 

outreach purposes. 

8

 Forms W-2 (Wage and Salary Statements) were not included because the SSA uses wage and salary information 

from earnings information from OCSE of HHS. The OCSE data are derived from information submitted to state 

- 10 -
 

 

 

 

 

 

 

identical information returns that would be supplied to the SSA if the beneficiary had actually 

filed a LIS application and that would be included in the computation of the income and asset 

amounts upon which approval or rejection of the LIS benefits for the applicant would be 

based.9

 Since the SSA did not know the marital status of the individual, for each sampled 

individual the IRS also included an encoded indicator of whether the individual had actually 

filed an individual income tax return and, if so, whether the return was filed jointly with a 

spouse. After the SSA and IRS data were combined for each sampled individual, the social 

security numbers and other identifying information were removed from the file, and the order 

of individuals in the files was scrambled. 

The combined information from the SSA and the IRS was processed in the same 

manner as the information supplied after submission of an actual LIS application to determine 

the sampled individual’s income and assets under the specific definitions used for the LIS 

program.10 The information from the initial SSA record and the information returns for each 

individual were combined during processing into a single record for each individual, which 

contained the items of income information from the SSA, an indicator of income tax filing status, 

and the results of the income and asset calculations, as specified by LIS rules that are used for 

LIS eligibility determination. The summary records for each sampled individual were sent to the 

Treasury Department’s Office of Tax Analysis for analysis. The results of the analysis were 

weighted to represent the entire population. 

For purposes of the LIS program, income and assets are defined somewhat differently 

than for Federal income tax purposes. For example, in the LIS program, the first $780 of 

earned income is disregarded, and only one-half of the excess of earned income over $780 is 

unemployment insurance agencies. Inclusion of information from Forms W-2 (Wage and Salary Statement) would 

have led to double-counting of wages and salaries. 

9 The SSA may also include other income and resources information provided by the applicant on the LIS 

application. 

10 In order to avoid duplication of the detailed computer programs that SSA uses to compute both income and assets 

under the specific definitions used for the LIS program, IRS contracted with SSA to process the raw data, but the 

results were not in individually identifiable form and access to the data was restricted to the SSA employees 

required to see it during computer processing. To further eliminate the possibility of unintentional disclosure, after 

the IRS added tax information to the Social Security information for each sampled individual, the Social Security 

numbers were removed, and the order of the records were scrambled. Thus, no individually identifiable tax 

information was provided to the SSA. 

- 11 -
 

 

 

counted. Also, many types of passive income, such as interest received and dividend income, 

are not counted as income for purposes of the LIS program. Rather, they are either considered 

to be assets or are used to impute assets. The combined information for each individual was 

used to compute “countable income” and “countable resources” as defined by the LIS program 

and that are used to determine LIS eligibility. The details of the composition and computation 

of each these final items are shown in the Appendix. 

The study used the income and resource (asset) data for each individual and the 

thresholds that would have been used for LIS applications filed in 2007. That is, the IRS data 

were for tax year 2005. 

Social security beneficiaries are eligible for the LIS program if their “countable 

income” and “countable resources” are both less than threshold levels, which vary by marital 

status and the number of their dependents. For 2007 applications, the countable income 

threshold was $15,315 for unmarried beneficiaries and $20,535 for married beneficiaries. The 

countable income threshold increased by $5,220 for each additional dependent, as defined for 

LIS purposes. The countable resource threshold was $11,710 for an unmarried beneficiary and 

$23,410 for a married couple (both including a $1,500 per person burial allowance). Since no 

information about dependents was available for the sampled individuals, no adjustments to the 

thresholds were made for dependents.11 

Additional tax return information from the IRS may help to better define the overall 

size of the population actually eligible for the LIS program, but for any given individual, the 

use of IRS data may lead to erroneous results, either incorrectly eliminating an individual 

from, or incorrectly including an individual in, the LIS eligible population. The possible 

reasons for incorrect results from the use of IRS data are summarized in Table 1. The extent of 

erroneous results is not known. For the purposes for which the SSA has requested this study, 

incorrect exclusions from the LIS-eligible population are much more problematic than 

incorrect inclusions. An individual who is incorrectly excluded from the LIS eligible 

population will also be excluded from the SSA’s targeted outreach programs, including the 

mailing of a LIS application form, and may be less likely to apply for LIS benefits. More 

11 These income and resource (asset) levels are the maximum levels above which there is no entitlement to LIS 

benefits. For LIS eligibles with lower incomes and assets, the actual LIS benefits may vary depending on the levels 

of each individual’s income and resources. 

- 12 -
focused and intensive outreach efforts, especially if widely known, could cause non-contacted 

potential eligibles to believe that they were not eligible. This type of error is one issue that 

must be weighed when considering the benefits of the use of IRS data, especially because 

under a program that uses IRS data to exclude individuals, the individuals will not be on notice 

that they have been screened out incorrectly and, thus, will not have an opportunity to 

challenge and correct the error. It should be noted, however, that even those excluded from 

targeting outreach efforts will benefit from general outreach efforts, including working with 

partners in the local communities, that the SSA also undertakes. 

- 13 -
Table 1 

Situations in Which IRS Data May Produce the Incorrect Result 

Reasons IRS Data May Lead to Incorrect Exclusion from Eligibility 

●	 Unmarried threshold is used for a married individual. 

●	 Dependents are not reflected in income thresholds. 

●	 Resources or income are double-counted: 

− From multiple sales of the same asset during one calendar year; or 

− From distribution an asset from an IRA or 401(k) account and subsequent 

*	 Sale of that during the same year, or 

*	 Imputation of resources from dividend payments attributable to that asset later in 

the same year. 

●	 Some payments shown on Forms 1099 are gross receipts rather than income. 

●	 Amounts are overstated on third-party information returns: 

− Payment amount is incorrect; 

− Payment is attributed to incorrect payee; or 

− Payment is attributed to nominee rather than actual owner. 

Reasons IRS Data May Lead to Incorrect Failure to Exclude from Eligibility 

●	 Married threshold is used for an unmarried individual. 

●	 Income or resources (assets) of spouse are not included. 

●	 Earnings or other income not reported due to intentional noncompliance. 

●	 Certain types of income (such as interest received on seller-financed mortgages) are not 

required to be reported on third-party information returns. 

●	 Cash is not included. 

●	 Value of life insurance policies is not included. 

●	 Value of a second home is not included. 

●	 Income or resources are not reflected on a third-party information return because there was 

not a distribution, sale, dividend, interest payment, or other payment during the calendar 

year. 

●	 Amounts are understated on third-party information returns: 

− Payment amount is incorrect; 

− Payment is attributed to incorrect payee; or 

− Third-party return is not filed by payor. 

- 14 -
 

 

 

 

 

Study Results 

The request from the SSA was to determine the additional targeting that could be 

achieved if IRS data were used together with the data already in the possession of the SSA. 

For most beneficiaries, there is a significant overlap of the data that the two agencies possess. 

Both the SSA and the IRS have information about earned income whether earned as an 

employee or as a self-employed individual. The SSA also has access to more current wage and 

salary information from the OCSE. The IRS has third-party information returns for social 

security, railroad retirement, and benefits to U.S. government retirees or survivors paid through 

the Office of Personnel Management (OPM). The SSA has the same government pension 

information, but the SSA also has access to information about various veterans’ benefits that 

are not subject to income taxes. Since such benefits are not taxable, the IRS does not have 

information about them. The IRS also has third-party information reports about many other 

types of income paid, or gross payments made, to beneficiaries. These include interest, 

dividends, capital gains distributions, gross sales of certain securities and real estate, income 

from partnerships, estates, trusts, and S corporations, and certain other forms of compensation 

including non-employee compensation paid to workers. When using third-party information 

returns from the IRS, it is crucial not to double-count income information held by both the SSA 

and the IRS but to include all income known to either the IRS or the SSA alone. The SSA has 

developed algorithms and software to count all known income once and only once and, under 

SSA regulations, to include that income and categorize it as either countable income or 

countable resources. 

The study determined that the IRS has additional information for 11.3 million, or 83 

percent, of the 13.6 potential LIS beneficiaries based on the SSA information.12 The IRS has 

additional income information for over 60 percent of individuals with no income known to the 

SSA. That percentage generally rises as income known to the SSA increases, reaching about 

90 percent for individuals with $10,000 to $15,000 of SSA-known income. Above $15,000 the 

12 An individual was included in the count of those for whom the IRS has additional information if the IRS has 

Schedules K-1 or Forms 1099 other than Forms 1099 from SSA, RRTA, or the Office of Personnel Management. 

Those 1099s were excluded because the SSA's file already includes such information. Forms W-2 (Wage and Tax 

Statements) were also excluded because the SSA already had information on wages and salaries. For technical 

reasons earnings from self-employment were not included. That exclusion should result in a small understatement 

of the individuals with incomes over the LIS thresholds and, thus, a modest overestimate of the remaining target 

population. 

- 15 -
percentage declines somewhat. Table 2 shows the numbers of beneficiaries, by income level, 

for whom the IRS had additional income data. 

These 11.3 million are the only potential LIS beneficiaries for whom cross-checking 

information with the IRS could show that they were not eligible for LIS benefits. Since the 

IRS does not have additional information about the remaining beneficiaries, their potential 

eligibility cannot be altered through the use of IRS data. 

- 16 -
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 2 

Beneficiaries for Whom IRS Has Additional Information 

By Federal Pension and Earned Income 

IRS Has Additional IRS Does NOT Have 

Potential 

Number of 

Information Additional Information Income Classification 

and Eligibles 

Based on Income Level Number Number SSA Percent Percent (000s) (000s) Information 

(000s) 

ALL INCOME LEVELS 13,570 11,271 83.1 2,299 16.9 

Social Security and Railroad 

Retirement Benefits: 

$0 282 179 63.6 103 36.4 

Under $5,000 994 724 72.9 270 27.1 

$5,000 to $10,000 4,899 3,731 76.2 1,168 23.8 

$10,000 to $15,000 7,280 6,538 89.8 742 10.2 

$15,000 to $20,000 83 72 86.5 11 13.5 

$20,000 and over 31 26 84.4 5 15.6 

Social Security and Railroad 

Retirement Benefits 

plus Wages and Salaries 

plus Other Federal Pensions: 

$0 257 159 61.8 98 38.2 

Under $5,000 942 684 72.6 259 27.4 

$5,000 to $10,000 4,737 3,611 76.2 1,126 23.8 

$10,000 to $15,000 7,339 6,575 89.6 764 10.4 

$15,000 to $20,000 206 172 83.2 35 16.8 

$20,000 and over 89 71 79.5 18 20.5 

Department of the Treasury

 Office of Tax Analsysis
 

- 17 -
 

 

 

Results Using Income and Resource Thresholds Applicable to Unmarried Beneficiaries 

Because the SSA did not have information about marital status or dependents, the SSA 

asked for information about the impact on eligibility of using the additional IRS data together 

with the income and resources thresholds applicable for unmarried beneficiaries without any 

dependents. 

Using IRS data and applying unmarried thresholds to all individuals would reduce the 

estimate of 13.6 million potential LIS eligibles who had not filed as of October, 2007 by 61 

percent to 5.3 million. One third of the ineligibility is due to countable income over the 

threshold; almost one third is from countable resources over the threshold; and slightly over 

one third is due to both income and resources being over the thresholds. Generally, the 

percentage of individuals that would be shown to be ineligible based on tax information 

increases with income that is known to the SSA. There is a large increase in ineligibility when 

income known to the SSA reaches $10,000. Table 3-A shows the numbers and percentages of 

individuals who would be eligible and ineligible when tax information is considered. The table 

also shows whether ineligibility would be due to excess income, resources, or both. 

The data in Table 3-A are classified by income level under three different measures of 

income that are currently available to the SSA. The first measure is total Social Security and 

Railroad Retirement benefits paid during the year. The second measure also includes wages 

and salaries.13 The third and most comprehensive income measure also includes other Federal 

government pension benefits (from the OPM and the VA) in addition to Social Security and 

Railroad Retirement benefits and wages and salaries. 

13 As indicated in the Appendix, for technical reasons, earnings from self-employment were not included in the data 

used for this study. Given the population under consideration and the goal of this study, this omission is probably 

not significant. However, inclusion of self-employment income would result in some reduction in the target 

population for outreach purposes. 

- 18 -
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 3-A
 

Percentages of Potential Low Income Subsidy Eligibles Screened Out Through IRS Data Matching
 

Using Income and Resource Thresholds for Unmarried Individuals,
 

By Reason for Ineligibilty and By Federal Pension and Earned Income
 

Potential Beneficiaries With and Without Creditable Prescrption Drug Coverage
 

Not Eligible Based on IRS Data 

Due to 

Income 

Only 

(000s) 

Due to 

Resources 

Only 

(000s) 

Due to Both 

Income and 

Resources 

(000s) 

Number 

(000s) Percent Number (000s) Percent 

Income 

>= $15,315 

and 

Resources 

<= $11,710 

Income 

< $15,315 

and 

Resources 

> $11,710 

Income 

>= $15,315 

and 

Resources 

> $11,710 

ALL INCOME LEVELS 13,570 5,295 39.0 8,275 61.0 2,889 2,361 3,025 

$0 282 150 53.1 133 46.9 33 47 52 

Under $5,000 994 495 49.8 498 50.2 162 153 183 

$5,000 to $10,000 4,899 2,736 55.8 2,163 44.2 596 1,049 518 

$10,000 to $15,000 7,280 1,909 26.2 5,371 73.8 2,042 1,110 2,219 

$15,000 to $20,000 83 4 5.1 79 94.9 42 1 35 

$20,000 and over 31 0 0.0 31 100.0 13 0 17 

$0 265 143 54.0 122 46.0 30 45 47 

Under $5,000 966 487 50.3 480 49.7 153 152 175 

$5,000 to $10,000 4,743 2,650 55.9 2,093 44.1 562 1,030 501 

$10,000 to $15,000 7,306 1,944 26.6 5,362 73.4 2,029 1,118 2,214 

$15,000 to $20,000 203 55 27.2 148 72.8 76 14 57 

$20,000 and over 86 15 17.8 70 82.2 39 2 29 

$0 257 138 54.0 118 46.0 29 43 46 

Under $5,000 942 474 50.3 468 49.7 149 147 171 

$5,000 to $10,000 4,737 2,649 55.9 2,088 44.1 559 1,030 499 

$10,000 to $15,000 7,339 1,962 26.7 5,377 73.3 2,033 1,124 2,219 

$15,000 to $20,000 206 56 27.0 151 73.0 78 14 59 

$20,000 and over 89 15 17.1 73 82.9 40 2 31

Total 

Number of 

Potential 

Eligibles 

Based on 

SSA 

Information 

(000s) 

Income 

< $15,315 

and 

Resources 

<= $11,710) 

Total Not Eligible Reason Not Eligible 

Eligible 

Based on IRS Data 

Income or Resources 

or Both 

over Thresholds 

Social Security and Railroad 

Retirement Benefits: 

Social Security and Railroad 

Retirement Benefits 

plus Wages and Salaries: 

Social Security and Railroad 

Retirement Benefits 

plus Wages and Salaries 

plus Other Federal Pensions: 

Income Classification 

and 

Income Level 

 Department of the Treasury 

Office of Tax Analysis 

Zero (0) indicates fewer than 500 individuals. 

- 19 -
Using the thresholds for unmarried individuals, 95 percent of individuals with Social 

Security benefits between $15,000 and $20,000 are ineligible as are virtually all those with 

benefits over $20,000. When income and asset information not known to the SSA is 

considered, it is likely that only a tiny fraction of these individuals would be eligible for LIS 

benefits. This information suggests that for all practical purposes individuals with Social 

Security benefits of at least $15,000 could be excluded from the SSA outreach programs 

without the need to use tax information. 

The SSA has information from the CMS about each potential LIS beneficiary’s 

Medicare Part D prescription drug coverage. The database for this study includes an indicator 

of whether the beneficiary is enrolled in Part D or has equivalent prescription drug coverage 

from another source, generally through medical coverage from an employer or former 

employer of the beneficiary or spouse. Tables 3-B and 3-C show the similar information as 

Table 3-A for beneficiaries who have creditable drug coverage (Table 3-B) or do not have 

creditable drug coverage (Table 3-C). 

Only 10.9 million, or 80 percent, of the 13.6 million potential LIS eligible are believed 

to have creditable drug coverage. And, of those with creditable prescription drug coverage, 63 

percent have income or resources that would exclude them from the LIS program whereas 61 

percent of the overall group would be excluded. Of the 2.7 million, or 20 percent, without 

creditable drug coverage, only 51 percent have income or resources that would exclude them 

from the LIS program. 

Because some of the potential LIS beneficiaries are married, eliminating potential 

beneficiaries from the SSA outreach efforts based on the lower income and resource thresholds 

applicable to unmarried individuals would incorrectly prevent the SSA from providing the 

benefits of direct outreach to some married beneficiaries who are actually eligible for LIS 

benefits. In the absence of information about marital status, such improper exclusion from 

outreach efforts can be prevented only by not eliminating anybody unless their income or 

resources exceed the thresholds that would be applicable to married couples. Even those 

higher thresholds would incorrectly exclude some individuals or married couples who have 

dependents. 

- 20 -
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 3-B
 

Percentages of Potential Low Income Subsidy Eligibles Screened Out Through IRS Data Matching
 

Using Income and Resource Thresholds for Unmarried Individuals,
 

By Reason for Ineligibilty and By Federal Pension and Earned Income
 

Only Potential Beneficiaries With Creditable Prescrption Drug Coverage
 

Not Eligible Based on IRS Data 

Due to 

Income 

Only 

(000s) 

Due to 

Resources 

Only 

(000s) 

Due to Both 

Income and 

Resources 

(000s) 

Number 

(000s) Percent Number (000s) Percent 

Income 

>= $15,315 

and 

Resources 

<= $11,710 

Income 

< $15,315 

and 

Resources 

> $11,710 

Income 

>= $15,315 

and 

Resources 

> $11,710 

ALL INCOME LEVELS 10,860 3,980 36.6 6,880 63.4 2,444 1,872 2,564 

$0 157 57 36.5 100 63.5 27 33 40

 Under $5,000 779 376 48.2 403 51.8 136 122 146 

$5,000 to $10,000 3,816 2,096 54.9 1,720 45.1 483 832 405 

$10,000 to $15,000 6,018 1,448 24.1 4,570 75.9 1,756 884 1,930 

$15,000 to $20,000 67 2 3.7 64 96.3 33 1 30 

$20,000 and over 23 0 0.0 23 100.0 9 0 13 

$0 144 53 37.0 91 63.0 24 31 36

 Under $5,000 755 369 48.9 386 51.1 127 121 138 

$5,000 to $10,000 3,694 2,031 55.0 1,663 45.0 454 818 391 

$10,000 to $15,000 6,036 1,474 24.4 4,562 75.6 1,747 890 1,925 

$15,000 to $20,000 165 41 24.6 124 75.4 63 12 50 

$20,000 and over 65 11 17.3 54 82.7 28 1 24 

$0 136 49 36.0 87 64.0 23 30 35

 Under $5,000 734 358 48.8 376 51.2 124 117 135 

$5,000 to $10,000 3,688 2,031 55.1 1,657 44.9 452 817 388 

$10,000 to $15,000 6,066 1,490 24.6 4,576 75.4 1,751 896 1,930 

$15,000 to $20,000 168 41 24.4 127 75.6 64 12 51 

$20,000 and over 68 11 16.6 57 83.4 30 1 25 

Social Security and Railroad 

Retirement Benefits: 

Social Security and Railroad 

Retirement Benefits plus Earned 

Income: 

Social Security and Railroad 

Retirement Benefits plus Earned 

Income plus Other Federal 

Pensions: 

Income or Resources 

or Both 

over Thresholds 

Income Classification 

and 

Income Level 

Total 

Number of 

Potential 

Eligibles 

Based on 

SSA 

Information 

(000s) 

Eligible 

Based on IRS Data 

Income 

< $15,315 

and 

Resources 

<= $11,710) 

Total Not Eligible Reason Not Eligible 

Department of the Treasury 

Office of Tax Analysis 

Zero (0) indicates fewer than 500 individuals. 

- 21 -
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 3-C
 

Percentages of Potential Low Income Subsidy Eligibles Screened Out Through IRS Data Matching
 

Using Income and Resource Thresholds for Unmarried Individuals,
 

By Reason for Ineligibilty and By Federal Pension and Earned Income
 

Only Potential Beneficiaries Without Creditable Prescrption Drug Coverage
 

Not Eligible Based on IRS Data 

Due to 

Income 

Only 

(000s) 

Due to 

Resources 

Only 

(000s) 

Due to Both 

Income and 

Resources 

(000s) 

Number 

(000s) Percent Number (000s) Percent 

Income 

>= $15,315 

and 

Resources 

<= $11,710 

Income 

< $15,315 

and 

Resources 

> $11,710 

Income 

>= $15,315 

and 

Resources 

> $11,710 

ALL INCOME LEVELS 2,710 1,315 48.52 1,395 51.5 445 489 461 

$0 125 92 73.9 33 26.1 6 14 12

 Under $5,000 214 119 55.7 95 44.3 27 31 37 

$5,000 to $10,000 1,083 640 59.1 443 40.9 113 217 113 

$10,000 to $15,000 1,263 461 36.5 802 63.5 285 226 290 

$15,000 to $20,000 17 2 10.9 15 89.1 9 0 5 

$20,000 and over 8 0 0.0 8 100.0 4 0 4 

$0 121 90 74.3 31 25.7 6 13 12

 Under $5,000 211 118 55.7 94 44.3 26 31 37 

$5,000 to $10,000 1,049 618 59.0 431 41.0 108 212 110 

$10,000 to $15,000 1,270 470 37.0 800 63.0 282 228 290 

$15,000 to $20,000 38 15 38.6 24 61.4 14 3 7 

$20,000 and over 20 4 19.3 16 80.7 10 1 5 

$0 120 89 74.2 31 25.8 6 13 12

 Under $5,000 208 116 55.6 92 44.4 26 31 36 

$5,000 to $10,000 1,049 619 59.0 430 41.0 107 212 110 

$10,000 to $15,000 1,273 472 37.1 801 62.9 282 229 290 

$15,000 to $20,000 39 15 38.2 24 61.8 14 3 8 

$20,000 and over 21 4 19.0 17 81.0 11 1 5 

Income Classification 

and 

Income Level 

Total 

Number of 

Potential 

Eligibles 

Based on 

SSA 

Information 

(000s) 

Eligible 

Based on IRS Data 

Income 

< $15,315 

and 

Resources 

<= $11,710) 

Total Not Eligible Reason Not Eligible 

Income or Resources 

or Both 

over Thresholds 

Social Security and Railroad 

Retirement Benefits: 

Social Security and Railroad 

Retirement Benefits plus Earned 

Income: 

Social Security and Railroad 

Retirement Benefits plus Earned 

Income plus Other Federal 

Pensions: 

Department of the Treasury 

Office of Tax Analysis 

Zero (0) indicates fewer than 500 individuals. 

- 22 -
Results Using Income and Resource Thresholds Applicable to Married Beneficiaries 

Using the higher thresholds for married, rather than unmarried, beneficiaries would 

result in fewer – but still a large number of – the SSA’s pool of 13.6 million potential 

beneficiaries appearing to be ineligible for the LIS program. Using the married thresholds, 

only 48 percent, rather than 61 percent, of the SSA’s potential eligible group would be 

eliminated from the need for outreach. Using the married thresholds, 7.1 million beneficiaries 

appear to be eligible, whereas 5.3 million appear to be eligible using the unmarried thresholds. 

Tables 4-A, 4-B, and 4-C are similar to Tables 3-A, 3-B, and 3-C but contain the results 

of applying the married thresholds. 

- 23 -
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 4-A
 

Percentages of Potential Low Income Subsidy Eligibles Screened Out Through IRS Data Matching
 

Using Income and Resource Thresholds for Married Individuals,
 

By Reason for Ineligibilty and By Federal Pension and Earned Income
 

Potential Beneficiaries With and Without Creditable Prescrption Drug Coverage
 

Not Eligible Based on IRS Data 

Due to 

Income 

Only 

(000s) 

Due to 

Resources 

Only 

(000s) 

Due to Both 

Income and 

Resources 

(000s) 

Number 

(000s) Percent Number (000s) Percent 

Income 

>= $20,535 

and 

Resources 

<= $23,410 

Income 

< $20,535 

and 

Resources 

> $23,410 

Income 

>= $20,535 

and 

Resources 

> $23,410 

ALL INCOME LEVELS 13,570 7,053 52.0 6,517 48.0 2,155 2,541 1,821 

$0 282 164 58.2 118 41.8 35 42 40

 Under $5,000 994 567 57.0 427 43.0 159 136 132 

$5,000 to $10,000 4,899 3,240 66.1 1,659 33.9 414 939 306 

$10,000 to $15,000 7,280 3,055 42.0 4,225 58.0 1,505 1,416 1,304 

$15,000 to $20,000 83 26 30.7 58 69.3 27 8 23 

$20,000 and over 31 1 2.4 30 97.6 14 0 15 

$0 265 157 59.1 109 40.9 31 41 37

 Under $5,000 966 557 57.6 410 42.4 148 135 127 

$5,000 to $10,000 4,743 3,132 66.0 1,611 34.0 393 921 297 

$10,000 to $15,000 7,306 3,087 42.3 4,219 57.7 1,497 1,420 1,302 

$15,000 to $20,000 203 98 48.0 106 52.0 49 22 34 

$20,000 and over 86 23 26.9 63 73.1 35 3 25 

$0 257 151 58.9 106 41.1 31 39 36

 Under $5,000 942 542 57.5 401 42.5 146 130 124 

$5,000 to $10,000 4,737 3,130 66.1 1,607 33.9 392 920 295 

$10,000 to $15,000 7,339 3,108 42.4 4,231 57.6 1,500 1,426 1,305 

$15,000 to $20,000 206 99 48.0 107 52.0 50 23 35 

$20,000 and over 89 23 26.1 66 73.9 37 3 26 

Income Classification 

and 

Income Level 

Income 

< $20,535 

and 

Resources 

<= $23,410 

Total Not Eligible Reason Not Eligible 

Eligible 

Based on IRS Data 

Income or Resources 

or Both 

over Thresholds 

Social Security and Railroad 

Retirement Benefits: 

Social Security and Railroad 

Retirement Benefits plus Earned 

Income: 

Social Security and Railroad 

Retirement Benefits plus Earned 

Income plus Other Federal 

Pensions: 

Total 

Number of 

Potential 

Eligibles 

Based on 

SSA 

Information 

(000s) 

Department of the Treasury 

Office of Tax Analysis 

Zero (0) indicates fewer than 500 individuals. 

- 24 -
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 4-B
 

Percentages of Potential Low Income Subsidy Eligibles Screened Out Through IRS Data Matching
 

Using Income and Resource Thresholds for Married Individuals,
 

By Reason for Ineligibilty and By Federal Pension and Earned Income
 

Only Potential Beneficiaries With Creditable Prescrption Drug Coverage
 

Not Eligible Based on IRS Data 

Due to 

Income 

Only 

(000s) 

Due to 

Resources 

Only 

(000s) 

Due to Both 

Income and 

Resources 

(000s) 

Number 

(000s) Percent Number (000s) Percent 

Income 

>= $20,535 

and 

Resources 

<= $23,410 

Income 

< $20,535 

and 

Resources 

> $23,410 

Income 

>= $20,535 

and 

Resources 

> $23,410 

ALL INCOME LEVELS 10,860 5,422 49.9 5,437 50.1 1,849 2,037 1,551 

$0 157 68 43.3 89 56.7 28 30 31

 Under $5,000 779 428 55.0 351 45.0 138 106 107 

$5,000 to $10,000 3,816 2,500 65.5 1,316 34.5 339 739 238 

$10,000 to $15,000 6,018 2,408 40.0 3,609 60.0 1,310 1,157 1,142 

$15,000 to $20,000 67 17 25.8 50 74.2 24 5 21 

$20,000 and over 23 0 2.1 22 97.9 10 0 12 

$0 144 63 43.8 81 56.2 25 28 28

 Under $5,000 755 420 55.6 335 44.4 128 105 102 

$5,000 to $10,000 3,694 2,418 65.5 1,276 34.5 321 725 230 

$10,000 to $15,000 6,036 2,432 40.3 3,604 59.7 1,304 1,159 1,140 

$15,000 to $20,000 165 72 43.8 93 56.2 44 18 31 

$20,000 and over 65 16 25.1 49 74.9 27 2 20 

$0 136 58 42.5 78 57.5 24 27 27

 Under $5,000 734 407 55.5 327 44.5 126 101 100 

$5,000 to $10,000 3,688 2,416 65.5 1,272 34.5 320 724 229 

$10,000 to $15,000 6,066 2,451 40.4 3,615 59.6 1,307 1,165 1,143 

$15,000 to $20,000 168 74 44.0 94 56.0 44 18 32 

$20,000 and over 68 16 24.2 51 75.8 29 2 21 

Social Security and Railroad 

Retirement Benefits: 

Social Security and Railroad 

Retirement Benefits plus Earned 

Income: 

Social Security and Railroad 

Retirement Benefits plus Earned 

Income plus Other Federal 

Pensions: 

Income or Resources 

or Both 

over Thresholds 

Income Classification 

and 

Income Level 

Total 

Number of 

Potential 

Eligibles 

Based on 

SSA 

Information 

(000s) 

Eligible 

Based on IRS Data 

Income 

< $20,535 

and 

Resources 

<= $23,410 

Total Not Eligible Reason Not Eligible 

Department of the Treasury 

Office of Tax Analysis 

Zero (0) indicates fewer than 500 individuals. 

- 25 -
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 4-C
 

Percentages of Potential Low Income Subsidy Eligibles Screened Out Through IRS Data Matching
 

Using Income and Resource Thresholds for Married Individuals,
 

By Reason for Ineligibilty and By Federal Pension and Earned Income
 

Only Potential Beneficiaries Without Creditable Prescrption Drug Coverage
 

Not Eligible Based on IRS Data 

Due to 

Income 

Only 

(000s) 

Due to 

Resources 

Only 

(000s) 

Due to Both 

Income and 

Resources 

(000s) 

Number 

(000s) Percent Number (000s) Percent 

Income 

>= $20,535 

and 

Resources 

<= $23,410 

Income 

< $20,535 

and 

Resources 

> $23,410 

Income 

>= $20,535 

and 

Resources 

> $23,410 

ALL INCOME LEVELS 2,710 1,630 60.2 1,080 39.8 306 504 270 

$0 125 96 77.0 29 23.0 7 13 9

 Under $5,000 214 138 64.6 76 35.4 21 30 25 

$5,000 to $10,000 1,083 740 68.3 343 31.7 76 200 68 

$10,000 to $15,000 1,263 647 51.2 616 48.8 195 259 162 

$15,000 to $20,000 17 8 50.6 8 49.4 3 2 3 

$20,000 and over 8 0 3.3 8 96.7 4 0 4 

$0 121 94 77.3 27 22.7 6 12 9

 Under $5,000 211 136 64.6 75 35.4 20 30 24 

$5,000 to $10,000 1,049 714 68.0 335 32.0 72 196 67 

$10,000 to $15,000 1,270 655 51.6 615 48.4 193 260 162 

$15,000 to $20,000 38 25 65.6 13 34.4 5 4 3 

$20,000 and over 20 7 32.8 14 67.2 8 1 5 

$0 120 93 77.3 27 22.7 6 12 9

 Under $5,000 208 134 64.6 74 35.4 20 30 24 

$5,000 to $10,000 1,049 714 68.0 335 32.0 72 196 67 

$10,000 to $15,000 1,273 657 51.6 616 48.4 193 261 162 

$15,000 to $20,000 39 25 65.1 14 34.9 5 5 4 

$20,000 and over 21 7 32.2 14 67.8 9 1 5 

Income Classification 

and 

Income Level 

Total 

Number of 

Potential 

Eligibles 

Based on 

SSA 

Information 

(000s) 

Eligible 

Based on IRS Data 

Income 

< $20,535 

and 

Resources 

<= $23,410 

Total Not Eligible Reason Not Eligible 

Income or Resources 

or Both 

over Thresholds 

Social Security and Railroad 

Retirement Benefits: 

Social Security and Railroad 

Retirement Benefits plus Earned 

Income: 

Social Security and Railroad 

Retirement Benefits plus Earned 

Income plus Other Federal 

Pensions: 

Department of the Treasury 

Office of Tax Analysis 

Zero (0) indicates fewer than 500 individuals. 

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Results Using Income and Resource Thresholds Applicable to Marital Status 

Although the SSA was not able to supply information about the marital status of the 

13.6 million beneficiaries who it believes might be eligible for the LIS program, the IRS does 

have information about marital status for individuals who have actually filed income tax 

returns. Because third-party information returns are necessary to provide the information 

needed to calculate countable income and countable resources for LIS purposes, and because 

the SSA does receive marital status information when beneficiaries actually apply for LIS 

benefits, the SSA has not needed marital status information from individual income tax returns. 

However, for purposes of better targeting outreach efforts to beneficiaries who have not filed 

LIS applications, the IRS marital status information may be useful – even though it is available 

only for those who do file income tax returns. 

IRS data indicate that 9.3 million, or 68 percent, of the 13.6 million that the SSA has 

identified as potential beneficiaries have actually filed income tax returns. Of those, 5.5 

million filed as “married filing jointly” indicating that they were married.14 Another 3.3 

million filed tax returns using filing statuses that indicated that they were not married.15 

If the thresholds for married individuals are applied to those who have filed joint tax 

returns and to those who have not filed tax returns (and, hence, whose marital status is not 

known) and if the thresholds for unmarried individuals are applied to those who have filed tax 

returns using other filing statuses, the result is that the number of potential LIS eligibles is 

reduced by 51 percent to 6.6 million individuals.16 The reduction to 6.6 million potentially 

eligible individuals is based only on use of marital status dependent thresholds. It does not 

14 For the year in which a spouse dies, the surviving spouse is entitled to file a joint return. In such instances, the 

LIS eligibility determination based on the use of tax information may be incorrect, with the possible error being 

either an incorrect indication of eligibility or ineligibility (if spousal data were also included). Further consideration 

needs to be given to minimizing or eliminating this type of possible error. 

15 The current study distinguished only between taxpayers who filed tax returns using the “married filing jointly” 

filing status and all other filing status. A small percentage of those using filing statuses other than married filing 

jointly used the “married filing separately” filing status. Such individuals are married, and IRS generally has 

information about the social security number of the spouse just as it does for those filing joint tax returns. For 

purposes of this study, married filing separately returns were not distinguished from returns of single persons or 

heads of household, but they could be in the future. It is estimated that correction for married filing separately 

returns would alter the LIS eligibility of fewer than one hundred thousand returns. 

16 If the unmarried (lower) thresholds were applied to those who have not filed income tax returns, the number of 

LIS eligibles would be reduced to 5.9 million – a difference of 0.7 million., although some of these additional 

exclusions would be incorrect. 

- 27 -
 

reflect the inclusion of the income or resources of the spouses of married individuals, as is 

required for eligibility determinations. Thus, it may still overstate the number of potential 

eligibles. 

The details of LIS eligibility and ineligibility using the thresholds appropriate to marital 

status are shown in Table 5 by income tax filing status and by the broadest of the three income 

measures used in the previous tables, that is, the sum of Social Security, Railroad Retirement, 

and other Federal pensions, VA benefits, and wages and salaries. The columns in Table 5 are 

similar to those in Tables 3-A and 4-A, but for each tax filing status group, the thresholds 

appropriate to that status were applied. 

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Table 5
 

Percentages of Potential Low Income Subsidy Eligibles Screened Out Through IRS Data Matching
 

Using Income and Resource Thresholds Appropriate for Marital Status,
 

By Reason for Ineligibilty and By Federal Pension and Earned Income
 

Marital Status 

and 

Total 

Number of Eligible Not Eligible Based on IRS Data 

Income Level Potential Based on IRS Data 

Total Not Eligible Reason Not Eligible 1/ Eligibles 

(Social Security and Railroad Based on Due to Due to Due to Both 

Retirement Benefits 

plus Wages and Salaries 

SSA 

Information 

Number 

(000s) Percent Number (000s) Percent Income Only 

Resources 

Only 

Income and 

Resources 

plus Other Federal Pensions) (000s) (000s) (000s) (000s) 

All Tax Return Filers and 

Nonfilers Combined 

---- All Incomes ---- 13,570 6,616 48.8 6,954 51.2 2,263 2,305 2,386 

$0 257 146 56.8 111 43.2 30 40 41

 Under $5,000 942 519 55.1 423 44.9 150 125 149 

$5,000 to $10,000 4,737 3,012 63.6 1,725 36.4 428 905 393 

$10,000 to $15,000 7,339 2,832 38.6 4,507 61.4 1,561 1,214 1,732 

$15,000 to $20,000 206 87 42.4 119 57.6 56 19 44 

$20,000 and over 89 20 23.0 68 77.0 39 2 27 

No Tax Return Filed 

---- All Incomes ---- 4,236 3,167 74.8 1,068 25.2 310 634 123 

$0 104 92 88.8 12 11.2 2 7 3

 Under $5,000 271 225 83.3 45 16.7 12 27 6 

$5,000 to $10,000 1,635 1,327 81.2 307 18.8 50 231 27 

$10,000 to $15,000 2,166 1,489 68.7 677 31.3 230 365 82 

$15,000 to $20,000 43 29 68.1 14 31.9 7 3 3 

$20,000 and over 17 5 26.1 13 73.9 9 1 4 

Joint Tax Return With Spouse 

---- All Incomes ---- 5,501 2,867 52.1 2,634 47.9 1,012 883 738 

$0 82 35 43.1 47 56.9 14 17 15

 Under $5,000 477 269 56.3 208 43.7 82 66 61 

$5,000 to $10,000 2,144 1,457 68.0 686 32.0 195 378 113 

$10,000 to $15,000 2,656 1,053 39.7 1,603 60.3 675 412 516 

$15,000 to $20,000 96 42 43.7 54 56.3 26 10 18 

$20,000 and over 47 10 22.2 36 77.8 20 1 16 

Other Than Joint Tax Return 

---- All Incomes ---- 3,833 582 15.2 3,251 84.8 940 787 1,524 

$0 70 18 25.3 53 74.7 13 16 23

 Under $5,000 195 25 12.7 170 87.3 56 31 82 

$5,000 to $10,000 959 227 23.7 732 76.3 182 296 254 

$10,000 to $15,000 2,517 290 11.5 2,227 88.5 656 437 1,134 

$15,000 to $20,000 68 17 24.4 51 75.6 22 6 23 

$20,000 and over 25 5 22.4 19 77.6 10 1 8 

Department of the Treasury 

Office of Tax Analysis 

1/ For married taxpayers filing joint returns and for nonfilers, the thresholds are $20,535 (income) and $23,410 (resources). 

For taxpayers filing other than joint returns, the thresholds are $15,515 (income) and $11,710 (resources). 

- 29 -
 

 

Could Eligible Beneficiaries Be Targeted Further? 

One further step could be taken to target married beneficiaries. In the results shown in 

the previous sections, the income and resources (assets) of one spouse have been measured 

against the LIS thresholds. However, under the LIS program, eligibility for a married 

individual is based on whether the combined income and resources of both spouses are less 

than the income and resource thresholds for married individuals. Given that the IRS can 

identify the social security number of the spouses of those who have filed tax returns indicating 

that they are married (those filing as either married filing jointly or married filing separately), 

it may be possible to develop a system that would: extract the third-party information returns 

filed under the spouse’s social security number; extract information from SSA, OPM, and VA 

records for the spouse; combine all of the information for both spouses; recalculate countable 

income and countable resources for the couple; and, finally, compare the recalculated income 

and resources again the LIS thresholds. Similar calculations may be possible for beneficiaries 

who do not file income tax returns but for whom the SSA may have information about marital 

status.17 

To the extent that both spouses receive benefits and have income and resources, it is 

likely that using combined income and resources of married couples would result in 

eliminating substantially more married individuals from the SSA’s original group of 

individuals potentially eligible for LIS benefits. 

The result of calculations using the combined income and resources of both spouses 

would yield a more accurate estimate of the total size of the LIS-eligible population, although 

it probably still would overstate the actual population to the extent that combined income 

would not be known for some of the married potential LIS eligibles who do not file Federal 

income tax returns and understate the actual population to the extent that thresholds would not 

be increased to reflect dependents. 

Crude Estimate of Targeting from Use of Spousal Data 

A very crude estimate of the additional targeting that could be achieved through the use 

of spousal income and resource information can be derived by making some assumptions about 

17 The SSA knows about spouses and can identify them only when the benefits of one person are based on the 

earnings record or benefits of a spouse. 

- 30 -
the extent of spousal income and assets. To obtain one such estimate, it was assumed that the 

combined income of both spouses would be 125 percent of the income of the known spouse and 

that combined resources/assets would be 110 percent. Since there is little reason to believe that 

the spouse for whom we do not have information is the spouse with the lower income or 

resources, the 25 percent and 10 percent, respectively, gross up factors are probably conservative 

and result in overstating the number of individuals who are potentially eligible for LIS benefits. 

It was also assumed that 25 percent of the individuals who did not file Federal income tax returns 

were married. Again, that is a conservative assumption that tends to overstate eligibility since 59 

percent of the group who actually filed tax returns were married. 

Table 6 shows the estimated number of individuals shown to be eligible and ineligible 

based on using the above-mentioned assumptions to estimate the combined income and assets of 

married couples. Under these assumed levels of income and assets, the remaining number of 

potentially eligible individuals would be under 5.6 million, which is 1.0 million fewer than if 

marital status appropriate thresholds were applied but incomes and assets were not grossed-up to 

reflect spousal income and assets (see Table 5). 

These results tend to confirm that using the combined incomes and resources of both 

spouses could substantially reduce the target population and thus further improve the targeting 

that can be achieved without any information about spousal incomes and assets. 

- 31 -
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 6
 

Percentages of Potential Low Income Subsidy Eligibles Screened Out Through IRS Data Matching
 

Including Assumed Spousal Income and Resources,
 

Using Income and Resource Thresholds Appropriate for Marital Status,
 

By Reason for Ineligibilty and By Federal Pension and Earned Income
 

Marital Status 

and 

Income Level 

Total 

Number of 

Potential 

Eligibles 

Eligible 

Based on IRS Data 

Not Eligible Based on IRS Data 

Total Not Eligible Reason Not Eligible 1/ 

(Social Security and Railroad Based on Due to Due to Due to Both 

Retirement Benefits 

plus Wages and Salaries 

SSA 

Information 

Number 

(000s) Percent Number (000s) Percent Income Only 

Resources 

Only 

Income and 

Resources 

plus Other Federal Pensions) (000s) (000s) (000s) (000s) 

All Tax Return Filers and 

Nonfilers Combined 

---- All Incomes ---- 13,570 5,555 40.9 8,015 59.1 2,963 2,258 2,795 

$0 257 141 55.1 115 44.9 32 40 43

 Under $5,000 942 492 52.2 451 47.8 160 133 158 

$5,000 to $10,000 4,737 2,760 58.3 1,978 41.7 562 962 454 

$10,000 to $15,000 7,339 2,084 28.4 5,255 71.6 2,090 1,107 2,059 

$15,000 to $20,000 206 62 30.1 144 69.9 78 14 52 

$20,000 and over 89 16 18.5 72 81.5 42 2 28 

No Tax Return Filed and 

Assumed to be Married 

---- All Incomes ---- 3,177 1,774 55.8 1,403 44.2 543 580 281 

$0 78 68 87.0 10 13.0 2 6 2

 Under $5,000 203 155 76.5 48 23.5 12 28 8 

$5,000 to $10,000 1,226 853 69.6 373 30.4 84 247 43 

$10,000 to $15,000 1,625 685 42.1 940 57.9 425 297 218 

$15,000 to $20,000 32 10 32.3 22 67.7 14 1 6 

$20,000 and over 13 2 17.0 11 83.0 7 0 3 

No Tax Return Filed and 

Assumed to be Unmarried 

---- All Incomes ---- 1,059 696 65.7 363 34.3 163 146 54 

$0 26 23 88.3 3 11.7 1 2 1

 Under $5,000 68 55 81.2 13 18.8 4 7 2 

$5,000 to $10,000 409 317 77.5 92 22.5 24 59 9 

$10,000 to $15,000 542 295 54.5 246 45.5 128 78 40 

$15,000 to $20,000 11 5 49.3 5 50.7 4 1 1 

$20,000 and over 4 1 19.5 4 80.5 2 0 1 

Joint Tax Return With Spouse 

---- All Incomes ---- 5,501 2,504 45.5 2,997 54.5 1,317 745 936 

$0 82 33 39.9 49 60.1 16 17 17

 Under $5,000 477 257 53.8 220 46.2 89 66 66 

$5,000 to $10,000 2,144 1,363 63.6 781 36.4 272 361 148 

$10,000 to $15,000 2,656 813 30.6 1,843 69.4 881 295 667 

$15,000 to $20,000 96 30 31.4 66 68.6 37 6 22 

$20,000 and over 47 8 16.8 39 83.2 22 0 16 

Other Than Joint Tax Return 

---- All Incomes ---- 3,833 582 15.2 3,251 84.8 940 787 1,524 

$0 70 18 25.3 53 74.7 13 16 23

 Under $5,000 195 25 12.7 170 87.3 56 31 82 

$5,000 to $10,000 959 227 23.7 732 76.3 182 296 254 

$10,000 to $15,000 2,517 290 11.5 2,227 88.5 656 437 1,134 

$15,000 to $20,000 68 17 24.4 51 75.6 22 6 23 

$20,000 and over 25 5 22.4 19 77.6 10 1 8 

Department of the Treasury 

Office of Tax Analsysis 

1/ For married individuals, the thresholds are $20,535 (income) and $23,410 (resources). 

For unmarirred individuals, the thresholds are $15,515 (income) and $11,710 (resources). 

- 32 -
Further Observations 

By screening out some Medicare beneficiaries who the SSA believes have low incomes 

but who, from IRS information, actually have incomes and imputed resources over the relevant 

threshold levels, the tax return data from the IRS could help to determine more accurately the 

number of current Medicare beneficiaries who may be eligible for LIS benefits and who the 

SSA should target for various outreach efforts. The more IRS data that are used, the more the 

target population could be reduced. 

Under current law, the IRS discloses information from third-party information returns 

only after Medicare beneficiaries actually apply for LIS benefits. If the IRS provided similar 

information for all of the 13.6 million individuals who the SSA believes may be eligible for 

LIS but who had not applied as of March, 2007, 6.5 million individuals could be eliminated, 

leaving only 7.1 million individuals in need of further outreach by the SSA (see Table 4-A). 

If, in addition, the IRS supplied marital status information for individuals who have filed 

Federal income tax returns, an additional 0.5 million individuals could be eliminated, leaving 

only 6.6 million individuals who require outreach efforts by the SSA to ensure that they have 

an opportunity to apply for LIS benefits (see Table 5). 

 An additional substantial, but undetermined, reduction in the target population could be 

achieved by using a combination of additional information from the SSA and the IRS that is 

not used currently even for those who actually file LIS applications. The SSA could supply 

marital status information for potential eligibles (to the extent that the SSA has such 

information), and the IRS could extract marital status information for all other potential 

eligibles who have filed individual income tax returns. The IRS could extract third-party 

information returns for spouses, and the SSA could supply certain information about the 

spouses that is either not in the IRS databases or which is more readily available in the SSA 

databases. In particular, the SSA has information about nontaxable VA benefits, and the 

information about wages and salaries that the SSA receives from the OCSE is more readily 

available. The IRS could supply data about income from self-employment for those who file 

income tax returns. Finally, the income information for both spouses could be combined to 

determine countable income and countable resources of the couple jointly. Clearly, the use of 

combined income and assets would move more married couples above the LIS thresholds, 

- 33 -
 

thereby further reducing the target population. Of course, each of these changes in the items of 

tax information to be disclosed would require statutory changes to section 6103 of the Internal 

Revenue Code. 

The benefits of using IRS data would, however, be overstated slightly unless the 

thresholds used were adjusted to reflect any dependents of the individual or married couple. 

While it is not believed that such adjustments would have a major impact on the number of 

targeted individuals, not making those adjustments could adversely affect the individuals who 

are eliminated incorrectly. More importantly, potential LIS beneficiaries incorrectly 

eliminated due to data errors or duplication of income or asset information that is inherent in 

certain IRS information would not benefit from direct SSA outreach efforts and might 

incorrectly believe that they are not eligible for LIS benefits. 

Even though the use of IRS tax return information would reduce outreach and 

enrollment costs for the LIS program and increase LIS enrollment, the use of the IRS data 

under current procedures would result in disclosure of very detailed tax data that would 

otherwise be confidential. The disclosure would be for over 13 million individuals and would 

include the name and taxpayer identification number of every payor and the amount and type 

of income received from every payor that filed a third-party information return for the 

beneficiary or the beneficiary’s spouse. 

Among the reasons for the statutory system of confidentiality of tax information is the 

belief that confidentiality promotes higher levels of taxpayer compliance and, consequently, 

higher tax revenues. Thus, there is a trade-off between the benefits of confidentiality of tax 

information and the possible benefits of disclosure for purposes of reducing the costs of 

targeting individuals and encouraging them to apply for LIS benefits. In this instance, the tax 

information would help only to eliminate some individuals who the SSA believes may be 

eligible and, thereby, either reduce the total costs of outreach or, for the same total 

expenditure, enable more vigorous outreach to the targeted group, or both. Any statutory 

change to permit disclosure of tax information for this purpose would be a public policy 

decision based on the relative benefits of confidentiality and disclosure. 

If use of taxpayer data were deemed appropriate for targeting potential LIS 

beneficiaries, consideration should be given to the use of procedures that would reduce the 

- 34 -
disclosure of tax information. If the same procedures were used for prescreening that are used 

currently only after a LIS application has been filed, detailed information from each third-party 

information return would be disclosed to the SSA. Different procedures could reduce the 

amount and detail of data that are disclosed. The following describes one possible alternative 

set of procedures that could be used for prescreening. This alternative set of procedures is 

largely, but not entirely, independent of the extent of IRS information that would be used for 

prescreening. 

•	 The SSA would attempt to expand the use of information already in its possession to 

eliminate some potentially eligible individuals so that IRS data would not be required for 

those eliminated through use of the SSA’s own data. 

−	 The SSA would use its own databases to locate information about the existence of a 

spouse. This is particularly important for the group of potential LIS beneficiaries who 

do not file income tax returns and, hence, for whom the IRS does not have any method 

of associating third-party information returns for both spouses. 

−	 The SSA might also be able to expand the use of earned income information from its 

own earnings records that it currently collects for social security retirement and 

disability benefit purposes, although such use would require a legislative change. 

−	 The SSA would use its own information about spouses, spousal earnings, and spousal 

benefits to eliminate some potential eligibles and reduce the target population even 

before requesting tax information from the IRS. 

•	 The amount of tax information that is disclosed for each individual could be greatly 

reduced if the IRS rather than the SSA did the computation of countable income and 

countable resources (assets). 

−	 The SSA would send to the IRS the data that it possesses, including data that the IRS 

does not have (such as certain nontaxable VA benefits), data that are more readily 

available from the SSA’s databases or to which it has access (such as earnings and 

Federal government pension benefits), and any information about spouses, dependents, 

and dependents of spouses. 

- 35 -
−	 The IRS would add its own information from third-party information returns including 

information about spouses, dependents based on Federal individual income tax 

information, and third-party information for spouses. 

−	 The IRS would use the combined information to calculate countable income and 

countable resources (assets) under procedures specified by the SSA. 

−	 The combined information also would be used to determine the thresholds (based on 

marital status and number of dependents) above which the individual would not be 

eligible for any LIS benefits. 

−	 The IRS would compare the computed income and resources (assets) to the relevant 

thresholds. 

•	 The IRS would send to the SSA the computed countable income and countable resources 

and an indicator of whether the potential beneficiary met the income and resource (asset) 

criteria for LIS benefits. Implicitly, this would also disclose that the IRS had some 

information about the individual and that the individual had filed a Federal income tax 

return (including an indication of filing status). 

•	 If the potential beneficiary did not file a LIS application, no further disclosure would be 

required. 

•	 If a LIS application were filed, the SSA would use any additional information from the 

application to adjust the countable income and resource (asset) amounts and/or the relevant 

threshold levels, would compare the income and resources (assets) to the recomputed 

thresholds, and would make a determination of eligibility or ineligibility. 

•	 Detailed tax information about payments from third parties would have to be disclosed to 

the SSA only if the individual appealed an SSA rejection of an actual LIS application. In 

that very small percentage of cases, the detailed tax information would have to be provided 

to the SSA so that SSA staff could work with the potential beneficiary to resolve possible 

errors or discrepancies and make a final determination of LIS eligibility. The tax 

information that would be disclosed would be what is disclosed currently for all LIS 

applicants but would also include information about the fact of filing an income tax return 

- 36 -
 

 

(if a return were filed), information from the tax return about the existence of a spouse, and 

tax information for the spouse (if any). 

•	 Under this possible set of procedures, for most potential beneficiaries, the tax information 

disclosed to the SSA would be very limited. 

•	 There is precedent for the IRS transmitting indicators of eligibility. Since 2007, the 

Medicare Part B premiums of a small percentage of higher income beneficiaries are 

adjusted based on the income shown on their Federal income tax returns. The IRS uses the 

tax information to calculate income under the modified adjusted gross income concept used 

for premium determination. Then, the IRS transmits to the SSA an indicator of the income 

range of the beneficiary, but the actual income amount is not provided to the SSA. The 

SSA uses the indicator of the income range to adjust the Part B premium. 

•	 The IRS’ processing of the combined SSA and IRS information into countable income and 

countable resources (assets) and then disclosing only the countable income and resources 

(assets) amounts, a few items that would disclose marital status and/or the fact of filing an 

income tax return, and an indicator of eligibility would greatly reduce the disclosure of tax 

information except for the tiny fraction of beneficiaries who disputed an SSA rejection of 

an actual LIS application. 

The IRS’ processing of the combined SSA and IRS information into countable income 

and countable resources (assets) and then disclosing only the results of those calculations 

would represent a change in the mission of the IRS, which is to administer the tax system. 

Historically, the IRS participation in, and assistance to, low-income-based benefit programs 

has been to disclose applicants’ return information to the administering agency to the extent 

authorized by the Internal Revenue Code, and the administering agency determines eligibility. 

In addition, even assuming that the IRS were reimbursed for its processing costs, the 

processing of the extracted information would divert scarce resources that could not be 

replaced easily or quickly and, thereby, could result in lower levels of tax compliance and 

reduced tax receipts. 

In closing, it should be noted that the SSA, the IRS, and its parent agency, the 

Department of the Treasury, have been working together since 2003 on various disclosure 

- 37 -
programs related to the transitional prescription drug program under Medicare Part D, the 

income-related premium adjustment program under Medicare Part B, and the low income 

prescription drug subsidy program under Medicare Part D. The relationship has been 

harmonious, productive, successful, and efficient. Each of these agencies is very sensitive to 

the costs and benefits of information disclosures and exchanges. They have worked together to 

develop systems that provide the information in the least burdensome manner and with the 

least amount of unnecessary disclosure. If the Congress deems that further disclosure of tax 

information for purposes of targeting potential LIS beneficiaries is appropriate, these agencies 

should be given the opportunity to develop the details of the plan that they jointly deem to be 

most efficient in supplying the appropriate information to the SSA while disclosing the 

minimum amount of tax return information. 

************************************** 

This study was prepared by Allen H. Lerman of the Office of Tax 

Analysis. Portia DeFilippes assisted in the preparation of the data. 

- 38 -
 

 

Appendix 

Income and Resources for the Medicare Part D Low-Income Subsidy 

Income and resources (essentially assets) counted for purposes of the Medicare Part D Low 

Income Subsidy (LIS) are defined by statute and must be determined under SSA procedures. 

Beneficiaries with either countable income or countable resources exceeding threshold levels are 

not eligible for the LIS. 

Earned income, unearned income, and resources (assets) must be determined separately. In 

addition, resources consist of the sum of those items that can be found directly and those that 

must be imputed from the income they generate. 

This Appendix explains the computation of income and resources for purposes of the Medicare 

Part D Low Income Subsidy (LIS). 

A. Countable Income Computation 

The total countable income of an individual who is potentially eligible for the low income 

subsidy includes earned income and unearned income. Earned income consists of total wages 

and net earnings from self-employment. Unearned income is the total of all other items defined 

as income for purpose of the LIS program that are not counted as earned income. 

Because there are different exclusions for earned and unearned income, countable earned income 

and countable unearned income must be computed separately. The amounts net of the 

appropriate exclusions are combined to determine the individual’s total countable income. 

A.1. Countable Earned Income 

Earned income is the sum of total wages and salaries and net self-employment income. 

For various technical reasons, earnings from self-employment were not included in the data used 

for this study Thus, countable earned income is understated for some individuals. As a result, 

the number of individuals whose income would exceed the relevant threshold is understated. 

Given the population under consideration, this omission may not have a major impact on the 

results. 

Countable earned income is determined as follows: 

Let: W represent total wages and salaries and net self-employment income, and 

E represent Countable Earned Income. 

Then: E = 0.5 x max(W - $780, 0) Note: The $780 exclusion is at an annual rate. 

- 39 -
A.2. Countable Unearned Income 

Unearned income is the total of Social Security (SS), Railroad Retirement (RRTA), and VA 

benefits plus the sum of various items from IRS information returns. 

The content of the SS/RRTA benefit income information is shown in Table A-1. 

Information about VA benefits is from SSA data.
 

Both the IRS and the SSA have information about Federal pension benefits paid through the 

Office of Personnel Management (OPM). 

Details of the items of unearned income from IRS information returns are shown in Table A-2. 

Countable unearned income is determined as follows: 

Let: S represent SS/RRTA benefits, 

O represent OPM benefits, 

V represent VA benefits, 

P represent unearned income from IRS information returns (including OPM 

benefits), and 

U represent Countable Unearned Income 

Then: U = S + V + P - $240 Note: The $240 exclusion is at an annual rate. 

For purposes of this study, OPM benefits were included based on data from the IRS, but VA 

benefits were not included. Thus, countable unearned income and total countable income are 

understated for a small percentage of individuals. As a result, the number of individuals whose 

income would exceed the relevant threshold is slightly understated. 

A.3. Total Countable Income 

Total countable income is the sum of countable earned income and countable unearned income. 

Let: E represent Countable Earned Income (as described above), 

U represent Countable Unearned Income (as described above), and 

Y represent Total Countable Income. 

Then: Y = E + U 

Under the Supplemental Security Income rules that are used for the Part D calculations, any 

portion of the $240 unearned income exclusion not used to exclude unearned income would be 

applied to the individual’s earned income. However, because virtually the entire sample 

population has gross unearned income from Social Security benefits or other pensions exceeding 

$240, in the calculations the unused portion of the $240 general exclusion for unearned income 

was not applied to earned income. 

- 40 -
 

B. Countable Resource Computation 

Resources (assets) consist of the sum of those items that can be found directly on IRS 

information returns and those that are imputed from the income they generate, as shown on IRS 

information returns. Thus, the appropriate resource items or indicators of resources must be 

totaled for each beneficiary from all of the IRS information returns for that beneficiary. 

B.1 Directly Determined Resources 

Some resources can be determined directly from items contained in various IRS information 

returns. The list of the relevant items of resources is shown in Table A-3. 

For each beneficiary, the relevant items from all information returns for that beneficiary are 

totaled. 

B.2 Indirectly Determined Resources 

Some resources cannot be determined directly from IRS data, but they can be imputed from the 

income they generate during the year. It is assumed that resources generate returns of 5 percent 

per year. The indicators of resources are contained in various IRS information returns. The list 

of the relevant items that are used to impute resources is shown in Table A-4. 

For each beneficiary, the relevant items from all information returns for that beneficiary are 

totaled. Indirectly determined resources are then calculated as 20 times the total of the Indicators 

of Resources for that beneficiary (20 = 1 / 0.05). 

Let: I* represent the Indicators of Resources 

(the total amount as calculated as indicated from Table A-4), and 

I represent Indirectly Determined Resources 

Then: I = I* x 20 

B.3. Total Countable Resources 

Although certain assets are excluded from counting as resources under the Part D rules, for 

purposes of the study, it was assumed that the only resource exclusion was a $1,500 burial 

expense allowance. The burial expense allowance was not deducted in calculating Total 

Countable Resources. Rather, the $1,500 allowance was incorporated in the resource thresholds. 

Let: D represent Directly Determined Resources 

I* represent the Indicators of Resources 

I represent Indirectly Determined Resources, and 

R represent Total Countable Resources. 

Then: R = D + I or R = D + (I* x 20) 

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Table A-1 

Unearned Income from SSA Sources 

DIFSLA 

Document 

Code 

Income 

Indicator 

IRS Form Form 

Line / 

Box 

Type of Income 

82 04 SSA-1099 

RRB-1099 

SSA and RRTA benefits 

Total Unearned Income From SSA 

(Total of the money amounts from the indicated 

lines or boxes from all documents for the 

beneficiary.) 

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Table A-2 

Unearned Income from IRS Information Returns
 

DIFSLA 

Document 

Code 

Income 

Indicator 

IRS Form Form 

Line / 

Box 

Type of Income 

65 74 1065-K1 2 Partnership Income: Real Estate 

65 75 1065-K1 3 Partnership Income: Other Rental Income 

66 32 1041-K1 6 Estate/Trust: Business income and passive 

income 

66 90 1041-K1 7 & 8 Estate/Trust: Passive Income 

67 73 1120S-K1 1 S Corp: Ordinary Income 

67 74 1120S-K1 2 S Corp: Rental Real Estate 

67 75 1120S-K1 3 S Corp: Other Rental 

93 If: 1099-LTC 2 Long Term Care Insurance Contracts: 

Accelerated Death Benefits Paid 

95 18 1099-

MISC 

1 Misc Income: Income received as rent 

95 20 1099-

MISC 

3 Misc Income: Other income 

98 39 1099-R 8 Pensions, Annuities: Other income 

98 80 1099-R 1 Pensions, Annuities: Gross distribution 

Total Unearned Income from IRS 

(Total of the money amounts from the indicated 

lines or boxes from all documents for the 

beneficiary.) 

- 43 -
 

Table A-3 

Resources Directly Determined from IRS Information Returns 

DIFSLA 

Document 

Code 

Income 

Indicator 

IRS Form Form 

Line / 

Box 

Type of Income 

65 01 1065-K1 6a Partnership Income: Dividends 

65 19 1065-K1 7 Partnership Income: Royalties 

65 97 1065-K1 8 Partnership Income: Short term capital gain 

65 98 1065-K1 9a Partnership Income: Long term capital gain 

66 01 1041-K1 2a Estate/Trust Income: Dividends 

66 97 1041-K1 3 Estate/Trust Income: Short term capital gain 

66 98 1041-K1 4a Estate/Trust Income: Long term capital gain 

67 19 1120S-K1 6 S Corp Income: Royalties 

67 97 1120S-K1 7 S Corp Income: Short term capital gain 

67 98 1120S-K1 8a S Corp Income: Long term capital gain 

75 50 1099-S 2 Real estate sales 

79 61 1099-B 2 Stocks and bonds Proceeds 

79 63 1099-B 11 Aggregate profit/ loss Futures Contracts 

91 23 1099-DIV 2a Dividends & Distributions: Long Term Capital 

gains 

92 22 1099-INT 3 Interest Income: on U.S. savings bonds 

94 2B 1099-SA 1 MSA Distributions: Gross benefits 

95 19 1099-MISC 2 Misc Income: Royalties 

98 38 1099-R 6 Pensions, Annuities: Unrealized appreciation 

Total Directly Determined Resources from 

IRS 

(Total of the money amounts from the indicated 

lines or boxes from all documents for the 

beneficiary.) 

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Table A-4 

Resources Indirectly Determined from IRS Information Returns 

DIFSLA 

Document 

Code 

Income 

Indicator 

IRS Form Form 

Line / 

Box 

Type of Income 

65 02 1065-K1 5 Partnership Income: Interest 

66 02 1041-K1 1 Estate/Trust: Interest 

67 01 1120S-K1 5a S Corp Income: Dividends 

67 02 1120S-K1 4 S Corp Income: Interest 

91 41 1099-DIV 1a Dividends & Distributions: Ordinary Dividends 

92 02 1099-INT 1 Interest paid by banks, credit unions etc. 

95 30 1099-

MISC 

8 Misc Income: Substitute payments for dividends 

96 02 1099-OID 2 OID: Interest 

n/a 1099-Q 1 Qualified tuition program payments 

Total Indirectly Determined Resource 

Indicators from IRS 

(Total of the money amounts from the indicated 

lines or boxes from all documents for the 

beneficiary.) 

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