Government Takes Baby Steps to Update Child Support Withholding

The federal government might update its child support withholding forms and policies to account for independent contractors, lump-sum payments, and on-demand pay, federal and state child support officials said March 11 and 12 at PayrollOrg’s Capital Summit.

Independent Contractors

The gig economy has caused many individuals to receive income as independent contractors rather than employees, said Sherri Grigsby, a deputy director for the federal Office of Child Support Services. The office wants to identify income received by independent contractors and is considering adding an indicator for independent contractors on its income withholding order.

Currently, the order does not look different for independent contractors, said Jim Fleming, North Dakota’s state child support director.

The National Council of Child Support Directors, a working group consisting of state child support directors, is considering a model act for independent contractor reporting, Grigsby said. Some states have reporting requirements, but no federal law exists.

“As states are passing legislation, it’s a little bit different in every state,” she said. “So, that’s something that the committee is working on.”

Most independent contractors are paid through accounts payable instead of payroll. If the withholding order is delivered to the payroll department, an employer might return the order believing it is for an unknown or nonexistent employee, Fleming warned. Instead, payroll offices should forward these orders to accounts payable.

“The income withholding order applies to income, not necessarily wages,” he said. “So, if you get an [income withholding order] for an independent contractor that you are paying, you are required to honor that and withhold.”

Lump-Sum Reporting

Lump-sum payments allow employees to pay past-due child support, so employers should be reporting lump sums, Fleming said. However, differing reporting laws and unclear procedures can make compliance difficult.

“Lump sums represent that one-time, off-cycle opportunity to make quicker progress toward that unpaid support,” he said. “If you’re getting a lump-sum payment, it’s something that’s off-cycle, it’s not something you are counting on to meet your subsistence needs most of the time.”

When employers report lump sums, some child support agencies request 100% withholding, even though most are subject to garnishment limitations under the Consumer Credit Protection Act, Grigsby warned. If an agency requests 100% withholding, the employer should contact the agency for clarification. If the agency still wants 100% withholding, the employer should reach out to the federal Office of Child Support Services for support.

The NCCSD created a model act that would standardize the lump-sum withholding process, Fleming said. It would provide a clear definition of lump sums, and employers would be able to immediately pay 50% of the lump sum to employees. The remainder would be retained for a certain period of time in case child support agencies respond with withholding requests.

“We are aware that employers, as a group, probably have not withheld every lump sum that they’re supposed to,” he said. “From my point of view, we are much more interested in gaining your future cooperation than to punish you for the past.”

On-Demand Pay

On-demand pay, or daily wage payments, can make complying with orders challenging, Fleming said. The current withholding order does not provide for daily payment.

The NCCSD believes future updates to the income withholding order will require a checkbox for on-demand pay withholding, he added.

“The question then is what will be in that box,” he said. “What kind of math will be behind it? There’s 365 days a year. Are we going to pretend they work everyday of the year? Or are you going to assume a traditional nine to five [for] five days a week and do that?”

Fleming believes the best solution is to base child support withholding on whatever tax withholding calculations the Internal Revenue Service plans to use for on-demand pay. This would make withholding easier for employers, he said.

“We’re going to have to work on it,” he said. “For those that are paid on demand, it really reveals that the income withholding order is a tool for collecting child support, but it doesn’t always yield full payment.”