Congressional Research Service IN11322 (The Child Support Federal Tax Offset of CARES Act Economic Impact Payments)

Summary

CRS Insight IN11322, The Child Support Federal Tax Offset of CARES Act Economic Impact Payments, by Jessica Tollestrup, Specialist in Social Policy, updated April 24, 2020. It explains that the CARES Act (P.L. 116-136) provides economic impact payments of $1,200 per adult, $2,400 per couple filing jointly and $500 for dependent children, structured as advanced tax credits. Section 2201(d) bars offsetting the payments for past due federal agency debts, state income tax debt or unemployment compensation debt, but does not exempt them from offset for past-due child support in cases enforced by the Child Support Enforcement (CSE) program. The Insight summarizes how the CSE federal tax refund offset works and the guidance from the Office of Child Support Enforcement (OCSE) and the Department of the Treasury.

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                                                                                              INSIGHTi



The Child Support Federal Tax Offset of
CARES Act Economic Impact Payments

Jessica Tollestrup
Specialist in Social Policy

Updated April 24, 2020
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136, enacted March 27,
2020) includes direct payments to individuals in 2020—referred to by the Internal Revenue Service (IRS)
as “economic impact payments” ($1,200 per adult/$2,400 per couple filing a joint return; $500 for
dependent children). These payments are structured as tax credits automatically advanced to households
that meet certain criteria. Receiving a recovery rebate in 2020 will not affect a taxpayer’s 2020 income
tax liability or tax refund, and taxpayers will generally not need to repay the rebate.
Section 2201(d) of the CARES Act provides that these payments cannot be offset for past due debts to
federal agencies, past due state income tax debt, or unemployment compensation debt, but it does not
exempt those payments from offset for past-due child support for cases enforced by the Child Support
Enforcement (CSE) program. This Insight briefly summarizes how the CSE federal tax refund offset
mechanism generally operates and the guidance provided by the Office of Child Support Enforcement
(OCSE) and the Department of the Treasury for the offset of these direct payments.

Overview of the CSE Federal Tax Offset
All 50 states, the District of Columbia, Guam, Puerto Rico, the Virgin Islands, and 60 tribal nations
operate CSE programs pursuant to Title IV-D of the Social Security Act. The program is federally
administered by OCSE in the Administration for Children and Families (Department of Health and
Human Services). The program is estimated to handle the majority of all child support cases; the
remaining cases are handled by private attorneys, collection agencies, or through mutual agreements
between parents. In FY2018, the program served 14.7 million children (about 20% of children in the
United States) and collected an estimated $34 billion in child support, of which $7.7 billion was for
obligations that were past-due (“arrears”). The amount of arrears paid were about 7% of the $118.1 billion
in cumulative arrears owed to cases enforced by the program.

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                                                                                                 IN11322

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One of the enforcement methods available to the CSE program for collecting past-due support is
intercepting federal income tax refunds pursuant to Section 464 of the Social Security Act, and Section
6402(c) of the Internal Revenue Code. For a refund to be subject to the “tax offset,” the child support
arrears owed by a child support obligor (which may be combined from multiple cases for the same
obligor) must be at least
        $150 for cases where the custodial family receives cash payments under the Temporary
         Assistance for Needy Families (TANF) program or where the child receives assistance
         through the IV-E foster care program, or
        $500 for all other types of child support cases (“non-TANF” or “Medicaid-only”).
In FY2018, the tax offset mechanism is estimated to have yielded $1.6 billion in collections.
The tax offset mechanism, which is part of the Federal Collections and Enforcement Program, operates
through a partnership between OCSE and the Department of the Treasury. According to OCSE, after it
transmits to the Treasury information on qualifying obligors, those obligors are sent a Pre-Offset Notice
that includes the amount of arrears that are owed at that time of the notice and how to contest that amount.
When the Treasury ultimately processes the refund and intercepts the past-due support, it notifies the
obligor of the offset and sends the funds to the relevant state child support program via OCSE. The
amount that is offset may be based on more up-to-date information about the arrears that are owed than
the amount listed in the Pre-Offset Notice.
When the state CSE program receives the offset—usually within two or three weeks of the intercept—it
may wait to disburse the funds for up to six months from when they were withheld from a joint tax return
because the portion of the refund owed to the “non-obligated” spouse may be recouped. (Non-obligated
spouses may file an Injured Spouse Allocation Form 8379 with the IRS, either with the tax return or after
the offset has occurred.)
Collections from the tax offset are subject to the normal distribution rules that apply to CSE collections.
For custodial families that have never received TANF cash assistance, the funds generally go to the
family. Collections made on behalf of current TANF families are assigned to the state and generally
retained to reimburse the state and federal government for the cost of assistance. For former TANF
families where past-due support is owed both to the family and the state (from the time that the family
received TANF benefits), a state may opt to pay support owed to the family prior to recouping any
amount owed to the state (referred to as “family first” rules). According to the National Child Support
Enforcement Association, only a few states and territories distribute tax refund collections for former
TANF families under this option, meaning that “nearly all states and territories continue to apply such
refunds to any state-assigned debt before past-due support owed to the family.”

CARES Act Economic Impact Payments
OCSE and the Treasury have confirmed that these payments are generally subject to CSE tax offset
procedures, including the minimum amount of past-due support that is required for the offset to occur (see
above). The entire economic impact payment may be offset up to the amount of the child support debt
owed.
Additional guidance has been provided for situations where the Economic Impact Payment is received
jointly with a spouse who does not owe the child support debt. In such cases, in order to receive their
portion of the payment, those spouses may file an Injured Spouse Allocation Form 8379. In cases where
individuals who are married filing jointly already included Form 8379 with their 2019 tax filing (or 2018
filing if the 2019 return has not been filed), half of the total Economic Impact Payment will be sent to the
non-obligated spouse; only the obligated spouse’s half of the payment will be offset for the past-due
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support. In these cases, the Treasury directs “there is no need to file another injured spouse claim for the
payment.”




                                       IN11322 · VERSION 3 · UPDATED
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