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Can you exclude any money from the lump sum rule?

Produced by Deborah Harris, Massachusetts Law Reform Institute
Reviewed December 2017

You can exclude all money that is non-countable. See Income not counted. You can exclude the $600 deduction.

You can exclude money from a lawsuit or settlement that was intended to replace property or to reimburse you for expenses and which you actually used to pay for or replace these items. 106 C.M.R. § 204.240(A)(3),(A)(4), (B)(3), (B)(4); DTA Transitions, May 2010, p. 3.

You can exclude money that someone (like a landlord or a utility company) refunded to you if you originally paid them with your cash assistance benefits. 106 C.M.R. § 204.250(EE).

You can exclude up to $7,500 in relocation payments you received to get you to leave a foreclosed property plus additional amounts you can verify are being used for relocation expenses.  DTA Transitions, January 2008, p. 7.

In addition, you can exclude money you spent for back bills you incurred while you were waiting for the lump sum, but only if you spent the money for

  • medical care or health insurance,
  • transportation costs (up to $150 per month),
  • purchase, replacement or repair of basic household furniture or specific appliances (does not include television or other electronic equipment) up to $2,500,
  • basic repairs to your home up to $2,500, provided you own the home,
  • court-ordered judgments, including child support or alimony,
  • taxes and other debts to the government. 106 C.M.R. § 204.240(B)(4); DTA Transitions, Oct. 2006, p. 4.

If someone else paid for these things for you and you paid the person back after you got the lump sum, you can deduct what you paid. However, you must have written verification that you owed the money and used the lump sum to pay your debt.

Sometimes you can exclude money received because of injury to a legally incompetent person (a child is legally incompetent), if the money is placed in an irrevocable trust for the injured person and is restricted for certain purposes. You will need a lawyer to set up the trust. 106 C.M.R. § 204.240(B)(5).

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