Three strategies to address the lag in child support collections

The national unemployment rate has returned to pre-pandemic levels, leaving business closures and a historic spike in unemployment in the rearview mirror. Yet total child support collections — especially those from income withholding — continue to lag. With income withholding accounting for 70% or more of total collections, states should consider various ways to address the challenges presented by noncustodial parents who work in the gig economy or are unemployed or underemployed.

A closer look at why this is happening

National income withholding collections held steady at just under $25 billion through 2019, then swiftly and significantly decreased by nearly $3 billion during the COVID-19 pandemic. There’s often a lag between changes in unemployment rates (dashed black line) and the impact on collections (solid purple line). Not surprisingly, after the national unemployment rate spiked in 2020, income-withholding collections dropped 12% below the prior year’s average.

However, as the unemployment rate returned to pre-pandemic levels, income withholding collections have not yet rebounded. Our analysis of the data points to three main reasons: people working in the gig economy, unemployment, and underemployment. In the following sections, we share strategies for addressing the unique challenges of each situation — with the goal of increasing collections through income withholding.

1. Automation and new hire reporting help states navigate collections in the gig economy     

Transportation-based gig work typically relies on independent contractors (1099 employees) to serve customers (e.g., food delivery or ride shares). While these roles may offer scheduling flexibility for parents, they can also present challenges to payment withholding for child support programs.

The main challenge is the variability of payments, often made immediately after an independent contractor completes a job. However, the proliferation of internet-based companies creates opportunities that didn’t exist in cash-based independent contractor work.

States with legislation allowing IV-D programs to intercept 1099 payments should explore partnerships with companies working with independent contractors to automate payment intercepts.

Another challenge is that independent contractors are typically paid through accounts payable divisions rather than payroll divisions. Under a model that pays more like submitting invoices instead of timesheets, accounts payable divisions may be less familiar with deductions and may lack the protocols to handle 1099 income withholding. Child support programs can identify the companies contracting with noncustodial parents in their caseload and request that they establish proper protocols and ensure withholding is handled correctly. Choosing a partner experienced in new hire reporting can facilitate collaboration with employers and lead to improved collections.   

2. Employment and training expand opportunities for financial stability

For some noncustodial parents, unemployment and underemployment are common barriers to meeting their child support obligations. In response, many states have implemented innovative ways to help them secure stable employment. They host job fairs at child support offices and assign staff to help refer parents for jobs. They invite staffing agencies to court on “show cause” days when the program is seeking information on why a parent has not been able to keep up with payments. Some take a more integrated, collaborative approach, connecting child support services with state workforce development programs.

While states recognize the need to address the employment barrier, securing and allocating funding to address it is often a significant challenge for child support programs. The federal Office of Child Support Services has proposed a new rule to expand funding for employment and training services for noncustodial parents and consider it an enforcement activity under 45 CFR 303.6. The proposed rule allows the use of IV-D federal funds for job search assistance, job readiness training, job development, placement and retention services, skills assessments and training, work supports, and occupational training.

3. Right-sizing orders empower parents facing underemployment or accumulated arrears

Noncustodial parents continue to face challenges post-pandemic. Some returned to work but with lower wages. Some turned to transportation-based gig work with less reliable income. Some have arrears that accumulated during pandemic-related unemployment, with up to 50% now being withheld from smaller paychecks (or possibly not at all with non-intercepted wages).

Child support programs can take two approaches, or a combination of both, to help noncustodial parents: right-sizing orders and employment and training support.

"Right-sizing" means adjusting the support order to reflect the parents’ current financial situation, making payments more realistic and regular. This increases voluntary compliance and boosts current support collections. However, right-sizing orders can be challenging for agencies due to customer engagement, tracking the last review and adjustment, and limited staffing.

To identify individual situations best suited for right-sizing, programs can query cases where income withholding is the primary source but still falls short of meeting current support. This suggests that even though 50% of the parent’s income is being withheld, it’s insufficient.

Programs can also query historical and recent income withholding for comparison. A significant decrease might indicate that the noncustodial parent is underemployed, in which case staff can reach out and offer employment and training services. Skills assessments and career planning services identify a parent’s strengths, needs, and preferred work type. Connections to resources that address barriers (education, training, transportation, or childcare) help the parent secure more consistent, reliable work with potentially higher wages.

Towards a brighter future for children and families

This is a moment when child support programs can address and adapt to parents' challenges in a dynamic economy. By collaborating with companies to intercept 1099 payments to noncustodial parents, offering comprehensive employment and training services, and identifying opportunities for right-sizing orders, child support programs can actively help parents overcome financial barriers and return to pre-pandemic levels of support.