The interception of funds from state and Federal tax refunds to pay child support is an important enforcement remedy. This topic contains information on the following subjects:
TAX INTERCEPT POLICY
The tax intercept process is used in all appropriate Public Assistance (PA) and Non-Public Assistance (NPA) cases as provided for in Public Law 97-35 and 98-378, and in NCGS 105A. Federal regulations stipulate that the procedure is to be used in conjunction with other appropriate enforcement remedies. Tax intercept must be implemented for all cases that meet the criteria for submittal to state and/or Federal revenue agencies. See Tax Intercept Submittals .
Since January 1999, the Federal Income Tax Refund Offset (Intercept) program has been operated by the US Department of Treasury's Financial Management Service (FMS). Since January 2000, the State Income Tax Refund Offset (Intercept) program has been operated by the NC Department of Revenue (DOR).
The tax year begins March 1. For example, the processing year for the tax year 1998 began on March 1, 1999, and ended on February 29, 2000.
Before the tax certification process occurs in September every year, ACTS identifies the cases that can be excluded from Federal and state tax intercept certification due to the Davis Decision .
North Carolina CSS then submits files for the delinquent NCPs who are not excluded from certification to both the Financial Management Service (FMS) and the NC Department of Revenue (DOR) so that past-due support can be collected from those NCPs' individual tax refunds.
NCPs receive a notice informing them of the total arrearages that are being certified for tax intercept. This arrearage total is broken down into WFFA/TANF, IV-E, SFHF, Medical, and Non-Public Assistance (NPA) categories, as appropriate. This includes arrearages owed for cases in which all children have reached the age of majority.
DOR (state) tax intercept can be used to collect arrearages for cases meeting the tax intercept criteria. However, if current support has not been satisfied when state income taxes are intercepted, current support is paid first and arrearages are paid according to the required hierarchy
Court orders for redirected payments should include the appropriate findings to establish the amount of the arrearages at the point of redirection. This procedure helps to reduce the number of requests from NCPs for tax intercept appeal hearings.
THE DAVIS DECISION - NCGS 105a-d(b)
Before the tax certification process is run in September every year, ACTS identifies those cases that can be excluded from the Federal and state tax intercept certification due to the Davis Decision.
EXCLUSION FROM FEDERAL TAX INTERCEPT
The Davis Decision (Davis vs. State of North Carolina) states that an NCP who is in compliance with a court-ordered repayment plan for arrearages should not be certified for Federal tax intercept (offset), even if a debt of past paid assistance is still owed. During the Federal tax certification process, ACTS searches an NCP's open cases with an ordered frequency amount for arrearages (excluding fees) to determine if the NCP has paid the amount due for those arrearages. ACTS uses the "distribution side" subaccount balances when determining compliance with the repayment plan.
If the latest court order modification for the NCP's case was due to contempt, ACTS determines compliance based on whether or not the NCP has paid the total amount due for the arrearages since that order modification. If contempt is not the reason for the court order modification, ACTS determines compliance based on whether or not the NCP has paid the total amount due for the arrearages since the last tax certification. If the total amount due for the arrearages has been paid, the NCP is excluded from Federal tax intercept. See Tax Intercept Submittals .
EXCLUSION FROM STATE TAX INTERCEPT
The Davis Decision further states that an NCP who has met his/her child support obligation(s), is in compliance with an arrearage repayment plan, and can pay off the arrearages in one (1) year should not be certified for state tax intercept (offset). During the state tax certification process, ACTS searches an NCP's open cases with an ordered frequency amount for arrearages (excluding fees) to determine if the NCP has paid the amount due for those arrearages.
ACTS uses the "distribution side" subaccount balances when determining compliance with the repayment plan.
If the latest court order modification for the NCP's case was due to contempt, ACTS determines compliance based on whether or not the NCP has paid the total amount due for the arrearages since that order modification AND the remaining arrearages can be paid within one (1) year. If contempt is not the reason for the court order modification, ACTS determines compliance based on whether or not the NCP can pay the remaining arrearages within one (1) year. If the total amount due for the arrearages can be paid within a year, the NCP is excluded from state tax intercept. See Tax Intercept Submittals .
TAX INTERCEPT-RELATED INFORMATION FOR CUSTODIAL PARENTS/NONCUSTODIAL PARENTS
CSS caseworkers should provide the custodial parent and NCP with the following information concerning tax intercepts:
- Federal law requires that cases for which overdue support is owed must be submitted for tax intercept. Federal regulations require the recovery of arrearages in the following order: WFFA/TANF, IV-E, Medical, NPA, and SFHF. The Financial Management Service (FMS) charges a fee for processing Federal tax intercepts, which is deducted from the refund. These fees are prorated across all of the cases that are certified.
NOTE: For PA cases, the fee is not recouped. If the NCP is entitled to the refund, no fee is charged. The NC Department of Revenue does not charge a fee for state tax intercepts.
- If a refund for a joint return is intercepted, distribution of some or all of the intercepted funds to the NCP's case(s) can be delayed for up to six (6) months. Payments that are made to a custodial parent can be subject to adjustment for six (6) years after the end of the tax year. (This includes amended returns filed by the NCP's spouse.) Any payments to the custodial parent might have to be repaid due to this process.
TAX INTERCEPT SUBMITTALS
CRITERIA FOR TAX INTERCEPT SUBMITTALS
ACTS selects NCPs and cases for tax intercept certification based on the following criteria:
- CSS cases for which payments are in compliance with the criteria set by the Davis Decision are excluded. NCPs whose total arrearages equal or exceed the minimum prescribed amounts are selected.
FEDERAL minimum amounts –
- NPA arrearages are equal to or exceed $500.00;
- PA arrearages are equal to or exceed $150.00.
NCPs who meet these criteria are selected unless excluded by the Davis Decision. Both cases with current support and arrears-only cases that meet these criteria are selected.
ACTS makes separate certifications and creates separate tax records for NPA and PA arrearages. Total PA arrearages are the sum of the subaccount balances and interest balances for the following subaccount types: AFDCA,AFDCU, AFDCAJ, CONDA, CONDU, IVEAA, IVEAU, IVEAAJ, TEMPA, andTEMPU. (All other arrearages are classified as NPA arrearages.)
STATE minimum amount -
The total arrearages are equal to or exceed $50.00.
NCPs who meet these criteria are selected unless excluded by the Davis Decision. Both cases with current support and arrears-only cases that meet these criteria are selected.
- Either a verified current mailing or old address record must be present in the NCP's address history in ACTS.
- If no "MAIL" address record is present, service of process is deemed to have occurred when documents are delivered to the NCP's most recent old address.
- If an invalid address is incorrectly recorded in ACTS as an old address for the participant, the tax intercept notice could be sent to the wrong address. An address is considered invalid if the participant never lived at the address or the address is not a valid postal address.
- NCPs who were certified for State tax intercept during the previous year are certified automatically without being included in the annual certification file.
- NCPs who were certified in the previous year and still qualify for State tax intercept and who have had a name change are submitted for name change on the same annual certification file.
TAX INTERCEPT SUBMITTAL PROCESSING
FMS Processing (Federal Tax Intercept)
After receiving the tax intercept submittal file from ACTS on or about November 15 each year, the Federal Office of Child Support Enforcement (OCSE) performs edit and validation checks and consolidates all state files into one master file, which is sent to FMS (Financial Management Service).
If more than one state has the assignment of rights for a case, OCSE accepts multiple claims. The first state to submit the case has priority over collections. Priority for the other states is based on the amount of their case's arrearage, from the highest to the lowest. In turn, FMS runs the OCSE tape against the FMS master file, putting a "HOLD" on any refunds.
If a case cannot be matched with FMS information when ACTS receives a return file from OCSE, ACTS identifies the unmatchable cases. These cases cannot be corrected and submitted in the same tax year, but they should be examined to correct any information that is recorded in ACTS.
DOR Processing (State Tax Intercept)
After receiving the tax intercept submittal file from ACTS, the NC Department of Revenue (DOR) matches the NCPs who owe $50.00 or more in arrearages with the NCPs who have income tax refunds of $50.00 or more. DOR sends a letter to notify each matched NCP that his/her refund is being sent automatically to CSS. This letter specifies the total amount of the NCP's refund and provides the NCP's address as listed on the tax return. DOR sends a tape that provides this information for each case to the Tax Intercept Unit at the CSS Central Office.
When a joint tax return is filed that results in a refund and one of the spouses owes a debt to the CSS program, DOR determines the portion of the refund that is owed to the debtor spouse and applies it to the debt. The portion of the refund that is owed to the non-debtor spouse is not affected. However, the amount of the debtor spouse's refund can be reduced after the initial match if DOR later determines that the debtor spouse actually owes taxes, instead of being owed a refund. Part or all of the debtor's refund can be applied to this tax debt.
The non-debtor spouses do not receive their portion of the refund until the CSS Central Office has received the debtor's portion from DOR. The CSS Central Office has no way to determine how long the non-debtor spouse's refund might be delayed.
ACTS places the funds obtained through tax intercept on hold for forty-five (45) days to allow the NCP time to appeal the intercept. Once ACTS releases the hold, funds are applied to the NCP's arrearage balances that are flagged for tax intercept. When those arrearage balances are satisfied, any remaining funds are refunded to the NCP.
NOTIFYING NONCUSTODIAL PARENTS OF TAX INTERCEPT SUBMITTALS
Notice of Intent to NCP Regarding FEDERAL Tax Intercept
ACTS generates the Pre-Offset Notice (DSS-4495) around September 30 each year for all NCP's who are listed for Federal tax intercept submittal. This notice informs NCPs of their certified arrearage amounts and refers them to the appropriate local CSS agency if they have any questions concerning the validity of the arrearage amounts. If an NCP has multiple cases, one Pre-Offset Notice is mailed per case.
An NCP has sixty (60) days from the date of this notice to appeal. Appeals can be made on the grounds that the person is not the NCP indicated on the notice, the NCP does not agree that the arrearages are owed, or the NCP disagrees with the amount of the arrearages. A second appeal period begins later, when the Notice To Debtor (DSS-4496) is issued.
Tax Intercept Notice Generated by FMS
When a Federal tax intercept occurs, FMS issues a notice to inform the taxpayer of the interception of the tax refund. This notice informs the taxpayer where to call for answers to questions regarding the intercepted refund. It also provides instructions for non-debtor spouses if the intercepted tax refund came from a joint tax return. All inquiries from NCPs and non-debtor spouses concerning joint returns should be directed to the appropriate FMS center.
CSS caseworkers should not call the FMS center. (They should advise the NCP or non-debtor spouse to call.) Local CSS should contact the Tax Intercept Unit at the CSS Central Office with other questions that cannot be answered.
However, if the non-debtor spouse chooses to waive the right to claim any reimbursement of the intercepted refund, the non-debtor can sign a notarized Affidavit For Release Of Joint Tax Refund at the local CSS office. The affidavit is then faxed to the Tax Intercept Unit, which performs the early release of the
If the non-debtor spouse has already filed a 8379 Injured Spouse Claim And Allocation Form with the IRS, the non-debtor spouse must wait until the IRS responds to the claim and cannot sign an affidavit with the local CSS agency.
Notice of Intent to NCP Regarding STATE Tax Intercept
When the submittal tape is sent to DOR on or about September 30 each year, ACTS generates the Pre-Offset Notice (DSS-4495) to all NCPs who are listed for state tax submittal. This notice refers the NCP to the appropriate local CSS agency if they have any questions concerning the validity of the arrearage amount. If a NCP has multiple cases, one Pre-Offset Notice is mailed for each case.
An NCP has sixty (60) days from the date of this notice to appeal. Appeals can be made on the grounds that the person is not the NCP indicated on the notice, the NCP does not agree that the arrearages are owed, or the NCP disagrees with the amount of the arrearages.
Second Stage of Submittal
DOR returns a weekly collection file to the Tax Intercept Unit at the CSS Central Office. This file contains the name, address, SSN, and refund amount for all submitted NCPs who are owed a tax refund. Funds from intercepted tax refunds are put on hold for forty-five (45) days.
Within ten (10) days of the date when the NCP's refund was received, ACTS generates the Notice To Debtor (DSS-4496). A second appeal period begins when the Notice To Debtor is sent.
If Tax Intercept Unit workers determine that funds should be refunded to the NCP, they immediately request that the funds be refunded along with any interest, if appropriate. An interest begin date is included on the CSS collection file from DOR for funds held in error. If CSS must return the refund or a portion of the refund to the NCP, an extra five (5) days should be included, allowing for mailing and receipt to the NCP. Interest is computed on a daily basis on the principal refund.
If the NCP submits a Notice of Appeal, the local CSS caseworker notifies the Tax Intercept Unit of the NCP's appeal. See Tax Intercept Appeals .
Forty-five (45) days after the Notice To Debtor is generated and no response or appeal has been received from the NCP, ACTS automatically releases the hold and distributes the money to the case(s).
EARLY RELEASE OF TAX REFUNDS
An NCP can choose to waive the right to appeal the intercept of his/ her tax refund so that the funds can be applied to the NCP's case(s) prior to the end of the 45-day "hold" period. The NCP must sign the Affidavit For Release Of Single Tax Refund at the local CSS office. The CSS worker must then fax the affidavit to the Tax Intercept Unit. Upon receipt, workers at the Tax Intercept Unit release the hold on the funds.
Refunds from Joint Tax Returns -
To protect the right of a non-debtor spouse to receive his/her share of a refund from a tax return filed jointly with an NCP, CSS places funds received from FMS on joint refunds on hold for a period of six (6) months. The non-debtor spouse can choose to waive the right to claim reimbursement of a portion of an intercepted refund and allow the funds to be applied to the NCP's case(s) prior to the end of the hold period. The non-debtor spouse must sign the Affidavit For Release Of Joint Tax Refund at the local CSS office. The CSS worker then must fax the affidavit to the Tax Intercept Unit. Upon receipt, Tax Intercept Unit workers release the hold on the funds.
TAX INTERCEPT APPEALS
When a tax intercept appeal is filed, a Tax Intercept Unit worker documents this action in ACTS and schedules an appeal hearing. This automatically sets the pending appeal indicator flags and causes the system to place a hold on any tax intercept collections processing. Once the hearing has taken place and the decision is made, the scheduled hearing is deleted and the outcome of the hearing is documented.
Workers must indicate which of the following was the outcome of the appeal:
- Proceed with Tax Intercept - ACTS proceeds with the tax intercept. If funds have already been collected, workers must the hold so that the tax intercept funds can be distributed.
- Modify Tax Intercept - Tax Intercept Unit workers must update the last reported amount(s) on the appropriate tax intercept record(s) as indicated by the appeal decision. If funds have already been collected, workers must release the hold and request a manual adjustment to refund the appropriate amount to the NCP. The remainder is distributed to the appropriate payee(s).
- Terminate Tax Intercept - The system also deletes the NCP from the tax intercept list. If funds have already been collected, the system releases the hold as part of creating an adjustment to refund the tax intercept money to the NCP.
TAX INTERCEPT PROCESSING
FMS (Federal Tax Intercept) Collections
When a Federal tax intercept collection is received from FMS (Financial Management Service), ACTS documents the receipt of the collection and credits the funds to the appropriate payor/NCP’s account.
If one of the following situations exists, ACTS places a “HOLD” on the payor’s account:
- The payor declared bankruptcy since tax certification and prior to October 17, 2005. The funds from the tax intercept collection are placed on hold for six (6) months or until the bankruptcy is resolved. The tax intercept is under an administrative appeal. The funds are placed on hold until the appeal is resolved. The collection record from the IRS/FMS indicates a joint tax return. The funds are usually placed on hold for six (6) months.
However, the collection record could also indicate that the 8379 Injured Spouse And Allocation Form has already been filed with FMS and it was processed prior to the tax intercept (offset). Therefore, the intercept payment can be processed immediately without being placed on hold for six (6) months.
Tax intercept payments for certified NPA arrearages are distributed according to the Federal distribution hierarchy.
Currently, the Federal tax file from FMS cannot indicate whether or not an injured spouse claim has already been processed for certified PA arrearages. Tax intercept payments for certified PA arrearages are still put on hold for six (6) months.
If a tax intercept payment is received for both PA and NPA certified arrearages, ACTS distributes the NPA intercept payment upon receipt and puts the PA intercept payment on hold for six (6) months.
If the tax intercept submittal involves certified arrearages for multiple cases and the collection amount that is received cannot satisfy all of the NCP’s cases, the collection amount is prorated across all of his/her cases for which certified arrearages were submitted.
This proration applies the funds to each case based on the certified arrearage amount for each case as a percentage of the total certified arrearage amount for all of the NCP's cases. If "like" arrearage subaccounts exist, the collection amount is prorated based on each "like" subaccount balance as a percentage of the total amount that is owed for that type of arrearage. Any arrearages that are owed to NC are paid before any arrearages that are owed out-of-state.
If funds still remain from a tax refund after all of the appropriate distributions to the NCP's cases and subaccounts, ACTS sends a check to the NCP for the remaining funds. This check is sent to the tax return address that is identified on the IRS/FMS tape. In cases involving joint returns, the check includes both the NCP's and his/her current spouse's name.
FMS (Federal) Intercept Fees
When CSS receives the intercept file from the FMS, it contains the detail of all intercepted Federal taxes, but the check that is received with the file is for the net collections minus the tax intercept fees. NCPs are given one hundred percent (100%) credit at all times for their refunds. The fees are prorated across all of the cases that were certified for that NCP.
Once the tax detail is processed, the fees charged by FMS per county are reported to the County Administrative Reimbursement System (CARS). Funds to cover the deducted fees are forwarded to CSS along with the amount from FMS. County Administration charges each county its share of the fees. When tax intercept funds are posted to a case and a disbursement goes to the custodial parent, the fee is deducted before the custodial parent's check is issued. The fees are combined and forwarded to the finance officer of the CSS county. CSS notifies CARS of this payment to the county, and CARS then deducts the Federal share of these fees from the county's next reimbursement check.
DOR (State Tax Intercept) Collections
The NC Department of Revenue (DOR) sends weekly files with the state tax refunds that have been intercepted to CSS. CSS processes the files when it receives the checks corresponding to the tax intercepts that are listed on these files. The cutoff for intercepted funds is the end of February; incoming tax intercepts for March are treated as part of the next year's intercepts.
ACTS processes funds from DOR collections much like it does for FMS collections, but with the following differences:
- If the NCP files an appeal, CSS must place a hold on that NCP’s participant account until the appeal is resolved. If the NCP wins an appeal, the Tax Intercept Unit at the CSS Central Office must issue a refund to the NCP immediately. Recoupment accounts must be set up for any custodial parent who received funds that must now be recouped.
TAKE BACK PROCESS
FEDERAL Tax Intercept Take Back Process
Federal "Take Back" occurs when an NCP's Federal tax refund (either a "full" refund from a single return or a "partial" refund from a joint return) is intercepted incorrectly and funds need to be returned. ACTS checks the collection report to confirm that the funds were received by CSS and returns the funds to FMS.
If the funds were sent to a state agency, such as IV-A or IV-E, they are credited back to the system account.
If the funds were disbursed to an NPA custodial parent, ACTS sends that custodial parent a Notice Of Overpayment To Custodial parent (DSS-4509) and forwards a copy to the local CSS office. The notice gives the custodial parent three (3) options:
- Pay the full amount overpaid in thirty (30) days; Have CSS recoup ten percent (10%) of the current support and one hundred percent (100%) of any arrearage payments until paid in full; or Request a hearing to appeal the distribution.
If the custodial parent does not respond after thirty (30) days, the CSS Central Office Distribution Unit sets up a manual adjustment to recoup the overpayment.
If the custodial parent requests an appeal, the responsible CSS caseworker provides a copy of the Petition To Appeal Distribution (DSS-4722). The custodial parent completes the Petition and forwards it to the Office of Administrative Hearings (OAH).
ACTS releases partial Take Back balances of the intercept money to the NCP before the six (6) month hold period ends.
NOTE: If a Take Back request occurs after the six (6) month hold period, the Distribution Unit manually searches the collection report.
STATE Tax Intercept Take Back Process
State "Take Back" occurs when an NCP's state tax refund (either a "full" refund from a single return or a "partial" refund from a joint return) is intercepted incorrectly. DOR determines that the intercepted funds should be returned. The CSS Central Office Distribution Unit completes a manual adjustment and explains what occurred.
If the tax refund has been disbursed to a NPA custodial parent, the Distribution Unit could set up a recoupment account. If the money was sent to an agency such as IV-A or IV-E, the appropriate system account is credited. If person who filed jointly with the NCP/payor has questions, they should contact DOR.
FEDERAL REFUNDS TO NONCUSTODIAL PARENTS
In case of an agency error, Federal regulations require CSS agencies to promptly refund amounts that are improperly intercepted to the taxpayer. (EX: An agency with two NCPS named Robert Jones has submitted Robert B. Jones' SSN in Robert A. Jones' case.) The refund cannot be deferred until the state receives the transfer of collections from the Federal government.
When CSS identifies an error, the responsible caseworkers must immediately request an adjustment. The appropriate CSS Central Office worker must review each adjustment request on a case-by-case basis. If they determine that the agency intercepted the NCP's tax refund inappropriately, the appropriate CSS Central Office workers must perform an adjustment to refund the intercepted funds immediately.
Responsible CSS Central Office caseworkers also must request an adjustment immediately if a court order modification is not entered correctly or a discrepancy exists in the certified type of arrearages.
These types of situations also are reviewed and evaluated on a case-by-case basis to determine whether or not the intercepted refund can be paid to the custodial parent.
If a tax return that is filed by an individual using an incorrect SSN generates an improper interception of a refund (due to taxpayer error), the CSS agency should not attempt to make a refund to the individual.
EX: John Brown Sr. files a return using John Brown Jr.'s SSN. This causes Brown Sr.'s refund to be applied to his son's debt. OR Mary Smith files her return separately from her husband Bill, using the FMS label that was mailed to him. Even though it is Mary's return, it is intercepted and applied towards Bill's arrearage since his name is on the label.
In these situations, local CSS should refer the individual to IRS/FMS for correction of the refund's interception. This should not only correct the current situation but also ensure that subsequent returns are not affected as well.