Distribution of Child Support Collections
Released: 2003-03-04T00:00:00

RS20837 -- Distribution of Child Support Collections

Updated March 4, 2003

Background

P.L. 104-193 , the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (enacted August 22, 1996), replaced theAid to Families with Dependent Children (AFDC) entitlement program with a Temporary Assistance for NeedyFamilies (TANF)block grant and made major changes to the Child Support Enforcement (CSE) program. The rules governing howchild supportcollections are distributed among families, the state, and the federal government have changed substantially. In part,CSE distributionrules were changed to acknowledge the fact that child support would be significant, if not critical, to helpingsingle-parent familiesexit welfare and maintain self-sufficiency.

Since the CSE program's inception, the rules determining who actually gets the child support arrearage payments have been complex,but not nearly as complicated as they are currently. It is helpful to think of the rules in two categories. First, thereare rules in bothfederal and state law that stipulate who has a legal claim on the payments owed by the noncustodial parent. Theseare calledassignment rules. Second, there are rules that determine the order in which child support collections are paid inaccordance with theassignment rules. These are called distribution rules.

When a family leaves TANF, (1) the order of distribution of any child support collection depends on (1) when the arrearages accrued(pre-assistance, during-assistance, or post-assistance); (2) when the child support was assigned to the state (beforeOctober 1997,between October 1997 and October 2000, or after October 2000); (3) how the child support arrearages werecollected (through thefederal income tax refund offset program or by some other means); (4) the amount of the unreimbursed welfarebalance; and (5) whenthe arrearages were collected (before October 1997, between October 1997 and October 2000, or after October2000). Some of thecomplexity of the distribution rules ceased on October 1, 2000 when the rules were completely phased-in, but theconfusion withregard to the six categories of arrearages (mentioned below) remains.

Current TANF Recipients

As a condition of TANF eligibility, the custodial parent must assign to the state the right to collect both current child supportpayments and past-due child support obligations (i.e., arrearages) which accrue while the family is on the TANFrolls (these are calledpermanently-assigned arrearages (2) ). The assignmentrequirement for TANF applicants and recipients also includes arrearagepayments that accumulated before the family enrolled in TANF (these are called pre-assistancearrearages). Pre-assistance arrearagesare temporarily assigned to the state while the family is receiving TANF assistance, with the exception of thefollowing. Pre-assistance arrearages which were assigned to the state before October 1, 1997 are consideredpermanently-assigned arrearages. While the family receives TANF benefits, the state is permitted to retain any current support and any assignedarrearages it collects upto the cumulative amount of TANF benefits which has been paid to the family .

Under old law (pre-1996) states were required to pass through the first $50 of current monthly child support payments collected onbehalf of an AFDC family and to disregard it as income to the family so that it did not affect the family's AFDCeligibility or benefitpayment. The remaining amount of current child support collected was divided between the state and federalgovernments accordingto the state's AFDC federal matching rate. (3)

The 1996 welfare reform law repealed the required $50 pass through and gives states the choice to decide how much, if any, of thestate share (some, all, none) of child support collected on behalf of a TANF family to send the family. If a stateelects thepass-through option, it still must pay the federal share of the collection to the federal government, regardless of howmuch childsupport is passed through to the family. The state can then do what it wants with its share. It can give all, a portion,or none of itsshare to families.

If a state passes through all of its share to families, it may count that as income to the family or it may disregard all or some of thechild support collection so that it does not decrease the TANF payment of the family, but instead enables that familyto increase itstotal income by the child support amount without it affecting the family's TANF eligibility status or benefit amount. Some statessend the family two checks, one reflecting the TANF benefit and another reflecting the child support paymentreceived from thenoncustodial parent. States also have the option to pass their share of arrearage collections to former TANFrecipients (if thearrearage occurred while the family was a cash welfare recipient).

Former TANF Recipients

Under prior law, once a family went off AFDC, child support arrearage payments generally were divided between the state andfederal governments to reimburse them for AFDC; if any money remained, it was given to the family. In contrast,under P.L.104-193 , payments to families who leave TANF are more generous. Under P.L. 104-193 , arrearages are to be paidto the family first,unless they are collected through the federal income tax refund offset (in which case reimbursing the federal andstate governmentsare to be given first priority).

For collections made before October 1, 1997. If a custodial parent assigned her orhis child support rights to the state before October 1, 1997, the parent had to assign all support rights for supportpayments (bothcurrent and past-due) that accrued to the family during the period of AFDC receipt, as well as payments that hadaccrued before theirapplication for AFDC benefits. Moreover, these families had to permanently assign their rights to pre-assistancearrearages to thestate. This means that once these families go off welfare, any pre-assistance arrearages that are collected on theirbehalf go to thestate (and the federal government) as reimbursement for AFDC aid paid to the family. (4)

For collections made on or after October 1, 1997 and before October 1, 2000. If acustodial parent assigned her or his child support rights to the state on or after October 1, 1997 and before October1, 2000, the parenthad to assign all support rights for both current and past-due payments accrued while the family is receiving TANFbenefits. Unlikepre-1997 assignments, the TANF applicant or recipient only had to temporarily (rather than permanently) assignto the state all rightsto support that accrued to the family before it began receiving TANF benefits. This temporaryassignment lasts until October 1, 2000or the date on which the family stops receiving TANF benefits, whichever is later.

These temporarily-assigned arrearages become conditionally-assigned arrearages when the family leaves the TANF rolls (or onOctober 1, 2000, whichever date is later). They are considered conditionally-assigned because if they are collectedvia the federalincome tax refund offset program they are to be paid to the state (and federal government) rather than the family. Ifconditionally-assigned arrearages are collected through a method other than the federal income tax refund offset,they belong to thefamily.

Since October 1, 1997, states have been required to distribute to former TANF families current child support and child supportarrearages that accrue after the family leaves TANF (these arrearages are called never-assignedarrearages) before the state and thefederal government are reimbursed for TANF payments to families. (However, arrearages that accrued before thefamily beganreceiving TANF benefits did not have to be distributed to the family first if the pre-assistance arrearages werecollected by the CSEagency before October 1, 2000.)

As mentioned above, an exception to the distribution requirement occurs when the child support is collected via the federal incometax refund offset program. In federal income tax refund offset cases, the child support arrearage payment (up to thecumulativeamount of TANF benefits which has been paid to the family) is retained by the state (and federal government) ifsuch arrearages wereassigned to the state either temporarily or conditionally. Thus, if child support arrearages are collected via thefederal income taxrefund offset program, the family does not have first claim on the arrearage payments.

For collections made on or after October 1, 2000 (5). If a custodial parent assignsher or his child support rights to the state on or after October 1, 2000, the parent has to assign all support rights thataccrue while thefamily is receiving TANF benefits. In addition, the TANF applicant must temporarily assign to the state all rightsto support thataccrued to the family before it began receiving TANF benefits. This temporary assignment lasts until the familystops receivingTANF benefits.

For child support collections made after October 1, 2000 (unless the sum is collected through the federal income tax offset program),the state is required to first distribute to the former welfare family the amount collected to satisfy the currentmonthly child supportobligation. If any money remains, it is to be paid to the family to satisfy never-assigned arrearages, which are childsupport arrearagesthat accrued after the family went off welfare or arrearages owed to families that never received welfare. If thereis money remaining,it is to be paid to the family to satisfy unassigned pre-assistance arrearages (i.e., all previously assignedarrearages which exceed thecumulative amount of unreimbursed assistance when the family leaves welfare and which accrued before the familybegan receivingwelfare) and conditionally-assigned arrearages (described earlier). If there is still money remaining, it is to be usedto reimburse thestate and federal government for TANF benefits paid to the family; the state shall retain its share of the amount andpay to the federalgovernment the federal share of the collection (to the extent necessary to reimburse amounts paid to the family ascash assistance (6) ). If any money remains, it is to be paid to the family.

These distribution rules do not apply to child support collections obtained by intercepting federal income tax refunds. Child supportarrearages collected through the federal income tax offset program are to be paid to the state (and the state is to paythe federal shareof the collection to the federal government). The state may only retain arrearages that have been assigned to thestate and only up tothe amount necessary to reimburse amounts paid to the family as cash assistance. If the amount collected throughthe tax offset exceeds the amount retained, the state must distribute the excess to the family.

To reiterate, effective October 1, 2000, the state must treat any support arrearages collected on behalf of a former welfare family,except for those collected through the federal income tax offset program, as accruing in the following order: (1)to the period after thefamily stopped receiving cash assistance, (2) to the period before the family received cash assistance, and (3) to theperiod while thefamily was receiving cash assistance. The result of these child support distribution changes is that states are nowrequired to pay ahigher fraction of child support collections on arrearages to families that have left welfare by making these paymentsto families first(before the state and federal government). (7)

Concluding Remarks

Custodial parents and noncustodial parents alike are dissatisfied with the current child support distribution system. Custodial parentsare frustrated because they view child support arrearages as belonging to them. They argue that they had to rely onfamily and friendsfor financial assistance during periods when the noncustodial parent failed to pay child support that occurred beforethey went onwelfare. They contend that they (and not the state) are entitled to any pre-welfare arrearage payments that arecollected on theirbehalf. Noncustodial parents are annoyed because once they start paying child support they want to see that theirmoney actuallyhelps their children; explanations that welfare benefits are in effect child support paid by taxpayers have not satisfiedthem. Moreover, advocates point out that while promising families priority in collecting arrearages owed to them as aninducement toencourage them to move off welfare as soon as possible, the states and the federal government keep for themselvescollections madevia the federal income tax refund offset program-the most lucrative form of arrearage collection. (In tax year 2001,$1.6 billion inoverdue support was collected via federal income tax refunds.)

In contrast, some observers maintain that the seemingly dual mission of the CSE program, on the one hand to pay back the state forwelfare costs and on the other to keep families off welfare has contributed to the complexity of the distributionsystem which mostagree was complicated from the program's beginning in 1975. They note that the states' share of retained childsupport collectionsgenerally amount to only 10% of all states' expenditures on the TANF program, and argue that for families currentlyreceiving TANFpayments, the states should continue to retain this declining source of funding to help improve their CSE programs. (See CRS Report RL30488, Analysis of Federal State Financing of the Child Support Enforcement Program .)

During the 107th Congress, many Members favored a child support distribution approach that simply paid former welfare families allthe arrearages collected on their behalf (including federal income tax refund offsets) before reimbursing the stateor federalgovernment for any owed arrearages. On May 16, 2002, the House passed H.R. 4737 (the welfarereauthorization bill),which would have provided incentives to states to distribute more child support collections to ex-welfare familiesand permitted statesto give a portion of child support collections to TANF families without having to repay the federal government itsshare of the money. In addition, H.R. 4737 would have simplified child support assignment and distribution rules, and made manyotherchanges.

In the 108th Congress, H.R. 4 , a welfare reauthorization bill almost identical in substance to H.R. 4737 , wasintroduced on February 4, 2003. H.R. 4 was passed by the House on February 13, 2003. It includes childsupportassignment and distribution rules identical to those in H.R. 4737 as passed by the House in the107th Congress.