HHS touts 35 states that have scaled back ‘orphan tax’ on Social Security benefits

Officials from the Department of Health and Human Services (HHS) said Tuesday that 35 states have ended the practice of intercepting federal benefits intended for orphans in foster care.

For decades, state agencies have taken Social Security survivor benefits from children in foster care after the death of their parents, who paid into the program. The practice resulted in an effective “orphan tax,” as HHS Assistant Secretary Alex Adams dubbed it.

Adams, who runs the Administration for Children and Families (ACF) within HHS, has led a monthslong effort to end this practice. Arkansas became the35th state to have either ended or reformed their orphan tax, which is up from 30 last month.

In a Tuesday interview with The Hill, Adams said he “didn’t believe it” when he first heard about the policy during his time leading the Idaho Department of Health and Welfare (DHW).

He added, “It was one of those things, it just seemed too cynical,” later remarking he had “never met a state budget director that wants to balance their budget on the backs of orphans.”

Adams ended the policy during his time leading the Idaho DHW, and 10 other states did the same before the ACF head sent letters to officials in the remaining 39 states in December. In those letters, Adams urged the states to bring an end to their child welfare agencies to reconsider the orphan tax, saying Tuesday it was a question of “morality.”

Now, 35 states have either ended or “substantially reformed,” the policy, with 21 led by GOP governors and 14 led by Democratic governors. Washington, D.C., led by Mayor Muriel Bowser (D) has also halted the orphan tax, according to ACF.

“When we say substantially reformed, states are generally putting it on a path to phase out over time. They didn’t do it all in one night, but they’re committed to doing it in chunks over time,” Adams told The Hill, saying Michigan, Utah and Washington state are phasing out the program over time. 

States would use the intercepted benefits to balance their books, despite Adams saying the benefits accounted for, on average, roughly 0.22 percent of their child welfare agency budget and about 0.0001 percent of the entire budget. 

Children can receive up to 75 percent of their deceased parent’s Social Security benefits — with the average monthly check exceeding $1,179 as of July, according to the Social Security Administration.

“If you think of a child that’s in foster care for two to three years, that’s more than $24,000 to $36,000 that is being diverted from that child,” Adams noted. 

“That money is insignificant to the state agency, but is a game changer for that kid,” he continued. “It’s several years of rent, it’s transportation, it’s a college education, it’s a firmer footing as they go out into the world.”

In June, the Trump administration launched “Fostering the Future” accounts for foster children, an initiative backed by first lady Melania Trump. Child welfare agencies in states, territories and tribal nations will manage the accounts, which can receive contributions via Social Security survivor benefits, according to ACF guidance. 

Twenty-six states, led by governors on both sides of the aisle, have so far pledged to open the accounts, the ACF noted last week. Children will obtain control of the account upon turning 18, with Adams arguing the program will promote responsible use of the funds.  

“They’re essentially lock boxes for youth that are used for major life milestones: education, workforce training, birth, medical expenses, down payment on a house, things like that,” he said of the accounts.

Adams also said his agency remains in conversation with officials in the 15 states yet to take action on the orphan tax.

Of those states, 11 are led by Democratic governors and four are led by Republicans, with some of the most populous states such as Florida, New York, Pennsylvania and North Carolina among those maintaining the status quo. 

“On the scale of honey to vinegar, we’re still on the honey side of the scale,” Adams said of his outreach to state officials. “We’re still trying to work with states to do the right thing, and frankly, we’ve been impressed with how many states have just stepped up and done the right thing.”

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