Setting the Baseline: A Report on State Welfare Waivers. Section 4: Earnings


AFDC Requirement: Under the AFDC rules, all recipients who worked were entitled to a $90 work expense disregard. In addition, for the first four months of AFDC receipt, the next $30 of earned income, plus one-third of the remainder, was disregarded in calculating eligibility and benefits. After four months and until one year, only the $30 disregard continued. After one year, there was no earned income disregard. This meant that after one year of AFDC receipt, if a recipient got a job, her grant amount was reduced by one dollar for every dollar that she earned above the amount set aside to cover her work expenses.


Waivers: Many states came to the conclusion that the termination of the earned income disregard after a short period removed the economic incentive for AFDC recipients to work. Therefore, as part of a general move to "make work pay," 32 states adopted changes to the earned income disregard. These changes, summarized in Table IV ranged from removing the time limit on the $30 and one-third disregard, to disregarding all income up to the poverty line. Although these disregards were costly in the short-term, the hope was that by promoting work, they would enable recipients to leave AFDC, saving money in the long run.

TANF Provision: TANF does not require states to adopt any particular earned income disregards. States may provide more or less generous disregards than under the AFDC program. The only requirement is that states have objective criteria for determining who is eligible.