A whopping 75% of all child support is collected through employer-based income withholding orders (IWOs), according to the federal Office of Child Support Enforcement (OCSE). In the most recent year for which figures are available, that amounted to $32 billion. The latest information from the Census Bureau indicates that nearly half of the country’s 13.4 million custodial single parents have some type of child support arrangement in place, with the average monthly payment at around $480.
One reason those numbers are so large, besides a high divorce rate, is that systems have been established that help state agencies find people who might otherwise not live up to their child support obligations. Those systems involve you, through a requirement that you provide basic information about new hires within 20 days of their start date (and possibly sooner, depending on your state).
Mandated reporting of new hire data has been on the books since the passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. The data elements you need to report to the state agency that handles these matters are: the employee’s name, address, Social Security number and date of hire, along with your company’s name, address and federal ID number. Basically, this is the same data you collect on a Form W-4, so you may be able to just submit that form.
Requirements vary by state. Some will also allow you to file electronically while others want paper filing. Failure to comply with your reporting obligation can result in civil penalties and even criminal penalties in extreme cases.
If you have employees in multiple states, you can either send reports to each state where employees work or send all the forms to one state. The latter, however, obligates you to file electronically and to notify the OCSE which state you’re sending the information to.
This employee database, which is pooled nationally, helps state agencies track down parents who have failed to live up to their child support obligations. When that happens and one is on your payroll, you’ll receive a four-page IWO form that may be accompanied by a seven-page set of instructions. It could come from a state agency, a court, an attorney or possibly even just an individual.
Note: A “new” hire includes people you have rehired after they’ve been off your payroll, if they haven’t been working for you for at least the last 60 consecutive days. Also, even if a new employee quits before the 20-day reporting deadline has elapsed, as long as the person earned wages from you, you still need to file the report.
What needs to happen next is for you to:
- Document the date you received the IWO (in case any issues arise about how quickly you fulfill its requirements).
- Verify that you currently employ the named individual or have in the past. Although this may seem like an obvious step, it’s important that you fill in the relevant sections and return the form even if the individual no longer works for you.
- Make sure that the form is “regular on its face,” legal jargon that essentially means it contains all required information. (The instructions provide details.)
If the form was sent by anyone besides a court or state agency, the IWO is considered a “notice” and not an order. If it isn’t accompanied by a bona fide order, you should return it to the source. Also, if the IWO came from another state, or if the appropriate box is checked on the form, you’ll need to give a copy to the employee.
Finally, if everything is acceptable, you’ll simply need to comply with the terms of the order. A general requirement is that you’ll need to start withholding child support funds by the first pay period that begins 14 working days after the IWO was mailed to you. Then you have seven business days to relay the withheld amount to the state agency that disburses the funds to the recipient. (Some states might require faster turnaround.)
You are within your rights to also deduct from the employee’s paycheck an administrative fee to recoup your added cost, though limits apply to those charges.
What happens if an employee changes his or her withholding allowances to reduce the amount of the child support payment? It’s not up to you to try to counteract that. The IRS may withhold unfulfilled required child support payment amounts from the employee’s tax refund.
Handling issues involving delinquent child support can be simple … or complex. Doing so might elicit emotional outbursts from the targeted employee, but it must be done. If necessary, talk the matter over with your payroll advisor to ensure you’re meeting your reporting and withholding obligations.
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Brought to you by: Gregory Sharer & Stuart, CPAs