On average, child support constitutes 17% of family income for households who receive it. Among poor households that receive it, child support constitutes about 30% of family income. During the last several years, the importance of child support payments as an income source for single-parent families has garnered national attention. The 7 th annual report on the Temporary Assistance for Needy Families (TANF) block grant program indicates that 23% of adult TANF recipients have jobs. Although this is good news, relative to earlier years, welfare studies have found that many of these recipients and ex-recipients end up with low-wage jobs. Thus, child support is a critical factor in helping low-income families become self-supporting. In 2003, the average yearly child support payment received by custodial parents with payments was $4,647 for mothers, about 20% more than the average amount received by fathers ($3,906). These full or partial payments represented 17% of the custodial mothers' total yearly income and 8% of the custodial fathers'. In 2003, child support represented 19% of the income of the 3.3 million custodial parents who received all of the child support that they were owed. However, most child support received on behalf of families receiving TANF cash welfare is kept by the federal government and the states, rather than paid to families. This is because TANF families must assign ("turn over" legal rights to) child support paid by noncustodial parents on their behalf to the state to reimburse governments for welfare costs. The Deficit Reduction Act of 2005 (DRA, P.L. 109-171 , enacted February 8, 2006) provides incentives for states to allow more of the child support collected on behalf of TANF families to go to the family and most (if not all) of the child support collected on behalf of former TANF families to go to the family. This is referred to as a child support pass-through (see page 6 ). Adoption of this "family first" policy is intended to help former TANF families stay self-sufficient and to encourage cooperation with child support enforcement efforts by custodial and noncustodial parents, by allowing the family to keep more (or all) of the child support paid on its behalf. Under DRA, effective October 1, 2008, if a state passes through a child support payment and disregards it as countable income, the federal government will waive its share of the child support collections, up to $100 per month for one child or up to $200 per month for two or more children (see page 12 ). This is referred to as a disregard. This report illustrates "what if" scenarios if six states (California, Illinois, Maine, Maryland, Oklahoma, and West Virginia) were to adopt the DRA child support pass-through and disregard policies for TANF families. The states were selected because of their diversity of both current child support pass-through and disregard policies and TANF benefit amounts. It is not known whether any of these states are currently contemplating adopting the DRA rules. The analysis shows the financial impact on a mother with two children in specified earnings categories under current child support distribution rules and under the DRA rules. It also provides an analysis of the change in the distribution of child support among the state, federal government, and the family under current rules and under DRA rules. This report includes three appendices. Appendix A discusses and presents detailed tables showing the impact of pre-DRA and DRA policy on a mother with two children in each of the six states. Appendix B discusses and presents detailed tables showing the impact of pre-DRA and DRA policy on the distribution of child support collections among families, the state, and the federal government in each of the six states. Appendix C provides background information on the DRA provisions that affect former TANF families. This report examines the financial impact of adoption of the Deficit Reduction Act (DRA) provisions related to the child support pass-through and disregard policy on TANF families, state governments (particularly California, Illinois, Maine, Maryland, Oklahoma, and West Virginia), and the federal government. The major findings are described below. The DRA provides an incentive for states to have a pass-through and disregard policy by requiring the federal government to share in the cost, by foregoing the federal share of the child support collected from the noncustodial parent on behalf of a TANF family. The DRA requires the federal government to share in the cost of passing through and disregarding up to $200 per month for a TANF family with two or more children. If a state that currently has a pass-through and disregard policy continues with its existing disregard amounts, the state would financially benefit from the DRA provisions, for the state would no longer have to fund the policy at its own expense. If a state opts for the full $200 pass-through and disregard, in most cases, there would be a cost to the state. The cost would depend on whether the state had a pre-DRA pass-through and disregard policy, the amount of the disregard, whether the family becomes eligible for TANF because of the pass-through and disregard, the custodial parent's earnings and other income, TANF benefit rules regarding treatment of income, and the Federal Medical Assistance Percentage (FMAP), which determines the federal and state share of child support collections. The DRA provisions would reduce the "cost" of the pass-through and disregard policy more for poorer states than for higher-income states. Poorer states must currently send back to the federal government a greater share of child support collections than higher income states. For example, West Virginia sends back 72.82% of its child support collections (to the federal government) whereas Maryland sends back 50.00% of its collections. Under the DRA pass-through and disregard policy, the poorer state, West Virginia, would not have to send back the federal government's share (72.82%) of child support collections; instead the federal government would be required to forego its share of child support collections. The cost of a pass-through and disregard policy generally would be higher for the federal government than for the states. However, in the case in which a family becomes eligible for TANF payments because of the DRA child support pass-through and disregard, given the assumptions of this report, state governments would incur higher costs than the federal government. (This report considers TANF expenditures to be state expenditures.) In most cases individual families would benefit from the DRA provisions. The DRA pass-through and disregard provisions could increase the income of a TANF parent with two children by as much as $200 per month. A family ineligible for TANF because its counted earnings are higher than its state's income eligibility threshold would see no increase in income from implementing the DRA pass-through and disregard provisions. Under the policies in effect in January 2007 and under the new (fully phased-in) minimum wage of $7.25 per hour, families in many states are ineligible for TANF even at 20 hours of work per week. Among the six states closely examined in this report, only in California would a mother of two working 40 hours per week at $7.25 per hour be eligible for TANF based on January 2007 rules. The interests of the Child Support Enforcement (CSE) program and CSE families are not always compatible. The interests of a family are usually entirely financial. It is in the best interest of a family to get the highest amount of income available to it; thus, the higher the child support pass-through and disregard amount, the more a family would potentially benefit. However, from a CSE program perspective, the more dollars that the program has to invest in CSE activities (e.g., parent location, paternity establishment, support order establishment, collection of child support payments), the better the program can serve its entire clientele. Thus, for many states the ability to retain child support collections outweighs the value of a pass-through and disregard policy, particularly since the pass-through and disregard does not benefit persons who never received cash TANF benefits (such persons represented 39% of the CSE caseload in FY2006). The CSE program (Title IV-D of the Social Security Act) was enacted in 1975 as a federal/state/local partnership to help strengthen families by securing financial support from noncustodial parents. It also was enacted to lower the government costs of providing cash welfare to families with absent parents, by collecting child support from noncustodial parents that could help keep families off welfare or by using those collections to reimburse states and the federal government for the cost of making welfare payments. All 50 states, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands operate CSE programs and are entitled to federal matching funds. In addition, Native American tribes can operate CSE programs with federal funding. All families with children who live apart from one of their parents are eligible for CSE services. Families receiving TANF benefits (Title IV-A of the Social Security Act), Title IV-E foster care payments, or Medicaid (Title XIX) coverage automatically qualify for CSE services free of charge. Other families must apply for CSE services, and states must charge an application fee that cannot exceed $25. The application fee may be paid by the state, the noncustodial parent, or the custodial parent. Child support collected through the CSE system on behalf of families who never received cash welfare goes to the family, usually through the state disbursement unit. However, most collections on behalf of families currently receiving cash welfare from TANF are used to reimburse state and federal governments for TANF payments made to the family.