Distribution of Child Support Collections
CRS Report for Congress
Distribution of Child Support Collections
Carmen Solomon-Fears
Specialist in Social Legislation
Domestic Social Policy Division
Summary
P.L. 104-193, the 1996 welfare reform law, substantively changed the rules
governing how child support collections are distributed among families, states, and the
federal government. The general rules in effect as of October 1, 2000 are that child
support collected during the time a family receives cash welfare belongs to the state;
current child support and arrearages (past-due payments) that are owed to a family that
is no longer receiving welfare belongs to the family; and child support owed to a family
that never received welfare belongs to the family. This is referred to as the “families
first” child support distribution policy. (These “families first” distribution rules do not
apply to child support collections made by intercepting federal income tax refunds.)
Many policymakers contend that Congress should simplify the child support distribution
system which currently requires the tracking of six categories of arrearage payments to
properly pay custodial parents. Legislation that included provisions to simplify child
support distribution procedures and provide more of the child support collected to
custodial parents (rather than the government) was passed by the House in the 106th and
107th Congresses, but not by the Senate. Similar legislation has been reintroduced as
part of the welfare reauthorization measure in the 108th Congress. This report will be
updated as needed to reflect legislative activity.
Background
P.L. 104-193, the Personal Responsibility and Work Opportunity Reconciliation Act
of 1996 (enacted August 22, 1996), replaced the Aid to Families with Dependent Children
(AFDC) entitlement program with a Temporary Assistance for Needy Families (TANF)
block grant and made major changes to the Child Support Enforcement (CSE) program.
The rules governing how child support collections are distributed among families, the
state, and the federal government have changed substantially. In part, CSE distribution
rules were changed to acknowledge the fact that child support would be significant, if not
critical, to helping single-parent families exit 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, there are rules in both
Congressional Research Service ˜ The Library of Congress
federal and state law that stipulate who has a legal claim on the payments owed by the
noncustodial parent. These are called assignment rules. Second, there are rules that
determine the order in which child support collections are paid in accordance with the
assignment 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 (before October
1997, between October 1997 and October 2000, or after October 2000); (3) how the child
support arrearages were collected (through the federal income tax refund offset program
or by some other means); (4) the amount of the unreimbursed welfare balance; and (5)
when the arrearages were collected (before October 1997, between October 1997 and
October 2000, or after October 2000). Some of the complexity of the distribution rules
ceased on October 1, 2000 when the rules were completely phased-in, but the confusion
with regard 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 support payments and past-due child support obligations
(i.e., arrearages) which accrue while the family is on the TANF rolls (these are called
permanently-assigned arrearages2). The assignment requirement for TANF applicants and
recipients also includes arrearage payments that accumulated before the family enrolled
in TANF (these are called pre-assistance arrearages). Pre-assistance arrearages are
temporarily assigned to the state while the family is receiving TANF assistance, with the
exception of the following. Pre-assistance arrearages which were assigned to the state
before October 1, 1997 are considered permanently-assigned arrearages. While the family
receives TANF benefits, the state is permitted to retain any current support and any
assigned arrearages it collects up to 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 on behalf of an AFDC family and to disregard
it as income to the family so that it did not affect the family’s AFDC eligibility or benefit
payment. The remaining amount of current child support collected was divided between
the state and federal governments according to the state’s AFDC federal matching rate.3
1 The reader should note that all current child support payments owed to a family who is not on
welfare go to the family (generally via the state disbursement unit).
2 This is one of the following six categories of arrearages: (1) permanently-assigned arrearages,
(2) temporarily-assigned arrearages, (3) conditionally-assigned arrearages, (4) never-assigned
arrearages, (5) unassigned during-assistance arrearages, and (6) unassigned pre-assistance
arrearages. The six categories are defined in OCSE Transmittal 97-17, October 21, 1997.
Instructions for the distribution of child support under Section 457 of the Social Security Act.
p. 6. [http://www.acf.dhhs.gov/programs/cse/pol/at-9717.htm]
3 The federal matching rate ranges from a minimum of 50% to a statutory maximum of 83%.
(Although AFDC was replaced by TANF under the welfare reform law of 1996, the same
(continued...)
The 1996 welfare reform law repealed the required $50 pass through and gives states
the choice to decide how much, if any, of the state share (some, all, none) of child support
collected on behalf of a TANF family to send the family. If a state elects the pass-through
option, it still must pay the federal share of the collection to the federal government,
regardless of how much child support 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 its share 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 the child support collection so that it does not
decrease the TANF payment of the family, but instead enables that family to increase its
total income by the child support amount without it affecting the family’s TANF
eligibility status or benefit amount. Some states send the family two checks, one
reflecting the TANF benefit and another reflecting the child support payment received
from the noncustodial parent. States also have the option to pass their share of arrearage
collections to former TANF recipients (if the arrearage 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 and federal governments to reimburse them for
AFDC; if any money remained, it was given to the family. In contrast, under P.L. 104-
arrearages are to be paid to the family first, unless they are collected through the federal
income tax refund offset (in which case reimbursing the federal and state governments are
to be given first priority).
For collections made before October 1, 1997. If a custodial parent assigned
her or his child support rights to the state before October 1, 1997, the parent had to assign
all support rights for support payments (both current and past-due) that accrued to the
family during the period of AFDC receipt, as well as payments that had accrued before
their application for AFDC benefits. Moreover, these families had to permanently assign
their rights to pre-assistance arrearages to the state. This means that once these families
go off welfare, any pre-assistance arrearages that are collected on their behalf go to the
state (and the federal government) as reimbursement for AFDC aid paid to the family.4
3 (...continued)
matching rate procedure is still used.) In practical terms, the federal matching rate is synonymous
to the term “federal share.” The “state share” is defined as 100 percent minus the federal share.
The reader should note that states with a larger federal matching rate keep a smaller portion of
the child support collections, i.e., if the federal matching rate for a state is 65%, the federal
government gets 65% of child support collected on behalf of TANF families, and the state keeps
(or shares with the family) 35% of the amount collected.
4 Note also that before October 1, 1997, federal law required states to distribute all current child
support payments to the family once it had left AFDC/TANF, but did not specify how arrearage
payments were to be distributed. However, states were required to have procedures that specified
the order in which child support collections were applied to satisfy arrearages.
For collections made on or after October 1, 1997 and before October
1, 2000. If a custodial parent assigned her or his child support rights to the state on or
after October 1, 1997 and before October 1, 2000, the parent had to assign all support
rights for both current and past-due payments accrued while the family is receiving TANF
benefits. Unlike pre-1997 assignments, the TANF applicant or recipient only had to
temporarily (rather than permanently) assign to the state all rights to support that accrued
to the family before it began receiving TANF benefits. This temporary assignment lasts
until October 1, 2000 or 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 on October 1, 2000, whichever date is later).
They are considered conditionally-assigned because if they are collected via the federal
income tax refund offset program they are to be paid to the state (and federal government)
rather than the family. If conditionally-assigned arrearages are collected through a
method other than the federal income tax refund offset, they belong to the family.
Since October 1, 1997, states have been required to distribute to former TANF
families current child support and child support arrearages that accrue after the family
leaves TANF (these arrearages are called never-assigned arrearages) before the state and
the federal government are reimbursed for TANF payments to families. (However,
arrearages that accrued before the family began receiving TANF benefits did not have to
be distributed to the family first if the pre-assistance arrearages were collected by the CSE
agency before October 1, 2000.)
As mentioned above, an exception to the distribution requirement occurs when the
child support is collected via the federal income tax refund offset program. In federal
income tax refund offset cases, the child support arrearage payment (up to the cumulative
amount of TANF benefits which has been paid to the family) is retained by the state (and
federal government) if such arrearages were assigned to the state either temporarily or
conditionally. Thus, if child support arrearages are collected via the federal income tax
refund offset program, the family does not have first claim on the arrearage payments.
For collections made on or after October 1, 20005. If a custodial parent
assigns her or his child support rights to the state on or after October 1, 2000, the parent
has to assign all support rights that accrue while the family is receiving TANF benefits.
In addition, the TANF applicant must temporarily assign to the state all rights to support
that accrued to the family before it began receiving TANF benefits. This temporary
assignment lasts until the family stops receiving TANF 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 current monthly child
support obligation. If any money remains, it is to be paid to the family to satisfy never-
assigned arrearages, which are child support arrearages that accrued after the family went
5 The reader should note that the Balanced Budget Act of 1997 (P.L. 105-33, enacted August 5,
1997) gave states the option of implementing the new distribution rules for former TANF
families, in one step, effective October 1, 1998 (without regard to the phase-in rules).
off welfare or arrearages owed to families that never received welfare. If there is money
remaining, it is to be paid to the family to satisfy unassigned pre-assistance arrearages
(i.e., all previously assigned arrearages which exceed the cumulative amount of
unreimbursed assistance when the family leaves welfare and which accrued before the
family began receiving welfare) and conditionally-assigned arrearages (described earlier).
If there is still money remaining, it is to be used to reimburse the state and federal
government for TANF benefits paid to the family; the state shall retain its share of the
amount and pay to the federal government the federal share of the collection (to the extent
necessary to reimburse amounts paid to the family as cash assistance6). 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 support arrearages collected through the
federal income tax offset program are to be paid to the state (and the state is to pay the
federal share of the collection to the federal government). The state may only retain
arrearages that have been assigned to the state and only up to the amount necessary to
reimburse amounts paid to the family as cash assistance. If the amount collected through
the 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 the family stopped receiving cash assistance, (2) to the period before the family
received cash assistance, and (3) to the period while the family was receiving cash
assistance. The result of these child support distribution changes is that states are now
required to pay a higher fraction of child support collections on arrearages to families that
have left welfare by making these payments to families first (before the state and federal
government). 7
6 Once a family leaves welfare, any previously-assigned arrearages which exceed the cumulative
amount of TANF benefits which has been paid to the family and which accrued while the family
was receiving TANF are called unassigned during-assistance arrearages. These arrearages are
owed to the family.
7 Under P.L. 104-193 (the 1996 welfare reform law), if states retained less money from child
support collections than they retained in FY1995, states were allowed to retain the amount of
child support retained in FY1995; this was referred to as the hold harmless provision. P.L. 106-
169, the Foster Care Independence Act of 1999, limited the hold harmless requirement by
stipulating that states would only be entitled to hold harmless funds if the state’s share of child
support collections were less than they were in FY1995 and the state has distributed and
disregarded to Title IV-A families at least 80% of child support collected on their behalf in the
preceding fiscal year or the state had distributed to former Title IV-A recipients the state share
of child support payments collected via the federal income tax offset program. If these conditions
were met the state’s share of child support collections was increased by 50% of the difference
between what the state would have received in FY1995 and its share of child support collections
in the pertinent fiscal year. P.L. 106-169 repealed the hold harmless provision effective October
Concluding Remarks
Custodial parents and noncustodial parents alike are dissatisfied with the current
child support distribution system. Custodial parents are frustrated because they view child
support arrearages as belonging to them. They argue that they had to rely on family and
friends for financial assistance during periods when the noncustodial parent failed to pay
child support that occurred before they went on welfare. They contend that they (and not
the state) are entitled to any pre-welfare arrearage payments that are collected on their
behalf. Noncustodial parents are annoyed because once they start paying child support
they want to see that their money actually helps their children; explanations that welfare
benefits are in effect child support paid by taxpayers have not satisfied them. Moreover,
advocates point out that while promising families priority in collecting arrearages owed
to them as an inducement to encourage them to move off welfare as soon as possible, the
states and the federal government keep for themselves collections made via the federal
income tax refund offset program–the most lucrative form of arrearage collection. (In tax
year 2001, $1.6 billion in overdue 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 for welfare costs and on the other to keep
families off welfare has contributed to the complexity of the distribution system which
most agree was complicated from the program’s beginning in 1975. They note that the
states’ share of retained child support collections generally amount to only 10% of all
states’ expenditures on the TANF program, and argue that for families currently receiving
TANF payments, 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 all the arrearages collected on their
behalf (including federal income tax refund offsets) before reimbursing the state or federal
government for any owed arrearages. On May 16, 2002, the House passed H.R. 4737 (the
welfare reauthorization bill), which would have provided incentives to states to distribute
more child support collections to ex-welfare families and permitted states to give a
portion of child support collections to TANF families without having to repay the federal
government its share of the money. In addition, H.R. 4737 would have simplified child
support assignment and distribution rules, and made many other changes.
In the 108th Congress, H.R. 4, a welfare reauthorization bill almost identical in
substance to H.R. 4737, was introduced on February 4, 2003. H.R. 4 was passed by the
House on February 13, 2003. It includes child support assignment and distribution rules
identical to those in H.R. 4737 as passed by the House in the 107th Congress.