PAYMENT PROCESSING

CS 543P Distribution of Federal Tax Intercept Payments

09/99 Revised 01/13/26 Training completed 01/27/26 Last Reviewed 02/02/26

45 CFR 303.72, 42 U.S.C. 657

 

 

Introduction

 

Federal regulations at 45 CFR 303.72(h)(6) requires that payments received from Federal tax refund intercept must be applied to the debts that certified for Federal tax intercept:

“(h) Distribution of collections. . . (6) Collections from offset may be applied only to cases that were being enforced by the IV-D agency at the time the advance notice described in paragraph (e)(1) of this section was sent.” (Emphasis added.)

 

EXAMPLE: A noncustodial parent’s (NCP’s) SCC01 debt was certified for $1,000.00. Between the time the debt was certified and the time the tax refund is received, the NCP paid $300.00 towards the debt. When the tax refund is received, only $700.00 of the federal tax refund intercept may be applied to the SCC01 debt.

 

ORSIS maintains the certified debt balance. Updated information is sent weekly to inform the Office of Child Support Enforcement (OCSE) and the Department of Treasury of any changes to the NCP’s certified debts. For more information and details on tax certification, refer to CS 675P Certification Updates.

 

 

Distribution of Federal Tax Intercept Payments

 

ORSIS automatically posts a federal tax refund intercept payment to the NCP’s Participant ID (PID) number with an override to the case and the certified debt. ORSIS applies the federal tax refund intercept payment to the lesser of the debt balance or the AMOUNT INTC REQST that appears on ORSIS.

 

42 USC 657 requires that payments received from Federal tax refund intercept be applied to arrears owing to the State before arrears owing to the family. Therefore, Federal tax refund intercept payments are distributed as follows:

 

1.                   IV-A and IV-E debts. Posted to the oldest certified debt on any of the NCP’s cases in the following priority:

a.                   COND (Conditionally Assigned Arrears) – Payment retained by the state;

b.                   TEMP (Temporarily Assigned Arrears) – Payment retained by the state;

c.                   AFDC (IV-A Permanently Assigned Arrears) – Payment retained by the state;

d.                   FSCA (Foster Care, IV-E) – Payment retained by the state;

e.                   YCOA (Foster Care, IV-E) – Payment retained by the state;

f.                    MDMC (Medical, Medicaid) – Payment retained by the state; and,

g.                   FSMA (Foster Care Medical IV-E) – Payment retained by the state.

 

All certified debts within the debt group must be satisfied before the intercept payment will be applied to the next debt group.

 

                EXAMPLE: NCP has two cases:

·                     Case 1 has a TEMP debt of $300.00 from 04/01/99 and an AFDC debt of $400.00 from 01/01/90; and,

·                     Case 2 has a TEMP debt of $500.00 from 05/01/99.

w     The Office of Recovery Services/Child Support Services (ORS/CSS) receives a Federal tax intercept payment of $1,000.00.

w     ORSIS distributes the payment as follows:

§     Case 1 - $300.00 to the TEMP debt;

§     Case 2 - $500.00 to the TEMP debt; and,

§     Case 1 - $200.00 to the AFDC debt.

 

2.                   Non-IV-A and Non-IV-E debts. When all the NCP’s certified state owed debts in the above debt groups have been satisfied, the remaining intercept payments are distributed in the following priority:

a.                   FSCN (Non-IV-A foster care – IV-D) – Payment retained by the state;

b.                   YCOR (Youth Corrections) – Payment retained by the state;

c.                   NADC (Non-IV-A) – Payment disbursed to the family;

d.                   MNMC (Non-IV-A Medical) – Payment disbursed to the family;

e.                   UDAA (Unassigned During Assistance Arrears) – Payment disbursed to the family;

f.                    DCNS (Day Care Non State Paid) – Payment disbursed to the family;

g.                   FSMN (Foster Care Medical, Non-IV-A) – Payment retained by the state; and,

h.                   YCMN (Youth Corrections Medical, Non-IV-A) – Payment retained by the state.

 

If the NCP has more than one case with a certified priority debt, the payment is distributed equally to the cases with the priority debt. If the intercept payment exceeds the balance of the certified priority debt, the remaining amount will be distributed equally to the remaining cases with a certified priority debt. All certified debts within a debt group must be satisfied before the payment is distributed to the next debt group.

 

EXAMPLE: NCP has three cases with debts that certified for Federal tax intercept.

·                     Case 1 has a NADC AUO debt of $50.00; 

·                     Case 2 has a NADC AUO debt of $500.00 and a NADC SCC debt of $100.00, total certified $600.00; and,

·                     Case 3 has a NADC AUO debt of $125.00.

w     CSS receives a Federal tax intercept payment of $300.00.

w     ORSIS distributes $100.00 to each of the NCP’s three cases because they each have a priority debt:

§     Case 1 - $100.00 is applied to the case, leaving $50.00;

§     Case 2 - $100.00 is applied to the case, leaving a new debt balance of $500.00; and,

§     Case 3 - $100.00 is applied to the case, leaving a new debt balance of $25.00.

w     ORSIS distributes the unused $50.00* amount from Case 1 as follows:

§     Case 2 - $25.00 is applied to the case, leaving a new debt balance of $450.00; and,

§     Case 3 - $25.00 is applied to the case, leaving a $0.00 debt balance.

 

3.                   After all the certified debts are satisfied, any remaining intercept amount is posted to the NCP’s PID account with a transaction hold. Do NOT release the hold until you are ready to refund the payment to the NCP and his/her present spouse or you are transferring the payment to a non-certified debt. If the hold is released, ORSIS will distribute the payment following priority-posting rules (e.g., current support, non-IV-A debts, IV-A debts, etc.).

 

 

Disbursement to Non-IV-A Custodial Parent

 

Federal regulation, 45 CFR 303.72, allows CSS to hold a Federal tax refund payment that has been applied to a Non-IV-A debt for up to six months if the NCP and current spouse filed a joint return. CSS will hold the payment for 30 days if the NCP did not file a joint return.

 

ORSIS automatically adds a six (6) month hold to the transaction when a Federal tax refund intercept payment, that is a result of a joint return, distributes to a Non-IV-A debt. The six (6) month hold allows time for the unobligated spouse to request his/her portion of the tax refund from the Department of the Treasury before the payment is disbursed to the custodial parent (CP).

 

ORSIS automatically adds a 30-day hold to the transaction when a Federal tax refund intercept payment distributed to a Non-IV-A debt is a result of a tax return that is not a joint return. The 30-day hold allows time for the NCP to file a claim with CSS requesting his/her earned income credit portion of the tax refund before the payment disburses to the CP.

 

The payment appears on the Funds Remaining Report while the hold is in place. The Funds Remaining Report also identifies the date the hold will automatically release allowing the funds to disburse to the CP. Do not manually release the hold, just allow ORSIS to release the payment and disburse the money to the CP.

 

 

Federal Tax Refund Intercept Fees

 

CSS charges the Non-IV-A applicant or former cash assistance or former Medicaid recipient who is receiving continuing services a $25.00 fee for processing a Federal tax refund intercept payment. For more information concerning this fee, refer to CS 585P Costs and Fees.