Income received as a onetime only payment that does not continue on a regular basis, or as a retroactive payment for income that continues on a regular basis, is lump sum income. Examples of lump sum income include, but are not limited to:
- personal injury settlements,
- workers' compensation injury settlements,
- insurance settlements,
- lottery winnings,
- retroactive Social Security payments,
- Supplemental Security Income (SSI) lump sum payments, or
- retroactive Unemployment Insurance Benefits.
Income tax refunds, including Earned Income Credit payments, are not lump sum income.
Any part of a lump sum payment used to pay for expenses related to receipt of the lump sum is exempt income. For example, exempt the cost of litigation and medical costs in a personal injury or workers' compensation settlement. See
PM 23-07-00 for policy on processing a personal injury settlement.
If the lump sum is an insurance payment due to a loss because of an accident, fire, or flood, exempt any amount the client spent or contracted to spend to replace or repair lost or damaged property. To exempt the money, the client must provide proof
of the expenditures or contract within 60 days of receipt of the lump sum payment.
Examples of expenditures include but are not limited to:
- repair or replacement of a car;
- repair or replacement of a home;
- repair or replacement of furniture; and/or
- replacement of clothing lost or damaged as a result of an accident, fire, or flood.
For life insurance death benefits, exempt up to $1,500 used for payment of funeral and burial expenses of the insured.