Impact of DRA Offset Hierarchy Changes on Synchronization of Arrears Balances
DEAR COLLEAGUE LETTER
DATE: November 19, 2008
TO: ALL STATE AND TRIBAL IV-D DIRECTORS
RE: Impact of DRA offset hierarchy changes on synchronization of arrears balances
This is a reminder that the Deficit Reduction Act of 2005 (DRA) amended Section 6402(c) of the Internal Revenue Code (26 USC 6402(c)), removing the distinction in priority between Temporary Assistance for Needy Families (TANF) and non-TANF past-due support. Therefore, effective October 1, 2008, any past-due support that is certified to the Secretary of the Treasury for offset of Federal income tax and/or Administrative payments becomes the first priority for offset after Federal IRS taxes, ahead of other Federal agency certified arrears. If there are multiple past-due support cases certified at Treasury's Financial Management Service (FMS) for the same obligor, FMS will reduce the offset against the oldest certified debt first, regardless of whether the older case is TANF or non-TANF.
As detailed in AT-07-05, provisions in the DRA now allow States to pass Federal income tax refund offset collections to the family first. States were required, under former section 457(a)(2)(B)(iv) of the Social Security Act, to distribute Federal tax refund offset collections to arrearages only, and tax monies were to be applied first to any arrearages owed to the State to reimburse public assistance (also known as PRWORA distribution). PRWORA distribution rules further require that Federal tax refund offset payments be applied first to Conditionally- and/or Permanently-Assigned Arrearages, then to arrearages owed to the family, and never to current support. States may elect to either continue using PRWORA distribution or switch to the new DRA family first distribution.
Section 464(a)(3)(B) of the Act and 45 CFR 303.72(h)(5) remain unchanged and permit a delay in distribution of Federal tax refund offset amounts to satisfy non-TANF past-due support for up to six months in cases where there was a joint return.
Importance of States Updating Debt Amounts to Reduce Discrepancies with OCSE and FMS
Although no changes were required to OCSE's Federal Offset System to re-prioritize non-TANF child support debts over other Federal agency debts, system changes were needed by FMS to implement the new hierarchy effective October 1, 2008. System changes will likely be needed at the State level to maintain accurate arrears balances at OCSE. It becomes even more important for States to provide weekly updates based upon offsets. OCSE continues to process offsets and distribute collections to States as before.
For example, if an obligor has multiple cases (i.e., TANF and non-TANF cases) certified for offset, FMS will first credit the amount owed on the oldest certified debt until the balance is paid before applying any remaining amount to the more recent case debt. Between the equal offset hierarchy of TANF and non-TANF debts at the Federal level and the multiple distribution options at the State level, States may credit tax refund offset collections to the obligor's debt in a different manner than OCSE and FMS does, resulting in temporary discrepancies between the Federal and State arrears balances. These discrepancies will affect both PRWORA and DRA States.
Until the State submits arrears updates to OCSE based upon offset collections on affected cases, balances between FMS, OCSE, and the State will differ greatly. Without frequent updating, ongoing discrepancies in arrears will develop, resulting in missed collections and enforcements, or overpayments received from tax refunds or administrative offsets. It is critical that States submit updates through their Case Submission and Update Files as frequently as possible; weekly is recommended. This is especially important where noncustodial parents (NCPs) have both TANF and non-TANF cases certified for offset.
In addition, it is not unusual for NCPs with TANF and non-TANF debts to have both debts certified to FMS on the same day. When this happens, FMS determines the debt type priority based on which case was certified first on their system. Typically, because of the way files are processed at FMS, the TANF case is processed first and therefore would receive the offset.
Impact and Next Steps
The new precedence of non-TANF child support arrears is expected to have a significant impact on collections, with some projections indicating an increase of at least $50 million collected annually through the Federal Offset Program. While some of the new distribution rules and priority changes to Federal tax refund and administrative offset will present challenges to States and OCSE, they provide a great opportunity to allow more money to pass through to the children and families.
OCSE will continue to discuss these changes in detail and work with States to identify best practices and alternatives to handle this priority change. This includes continued outreach through Federal Offset State teleconferences as well as e-Flashes or Dear Colleague Letters if needed.
If you have questions or need additional information on this process, please contact Scott Hale at (202) 401-5745 or email firstname.lastname@example.org.
Office of Child Support Enforcement
cc: Regional Program Managers