US Income Withholding Orders 10 years on US Income Withholding Orders 10 years on

US Income Withholding Orders 10 years on
30 Sep 2014

In 2004, the US federal Office of Child Support Enforcement (OCSE) introduced the standard Income Withholding Order/Notice for Support (IWO). Now, nearly 10 years on, it is worth reflecting on what a watershed moment this was for payroll professionals.

Multi-state employers that once might have needed to comply with dozens, scores, even hundreds of variations of withholding orders would now receive them in a single format. Or so it was supposed to be.

For years after the advent of the standard IWO, states ignored whatever feature of the form did not conform to their own views on how the child support withholding process should work. Courts and private parties often ignored the form completely in favour of their own forms.

All too often, this was done out of ignorance that the standard IWO even existed. Employers were encouraged to obey the orders as best they could. “It’s for the children.” It was only with the latest edition of the form that employers were given the authority to hold states and others accountable to complete the form correctly.

The federal form is revised every three years by the Office of Management and Budget (OMB) and specific wording was added directing employers to reject any order that was not “regular on its face”—curious wording that generally means if the order looks legitimate, the employer can treat it as so. Quite specifically, any order that directed payment anywhere but to a State Disbursement Unit was to be returned to the sender.

Regular on its face

A few states in particular caused payroll professionals to consider whether their orders were completed properly and therefore ‘regular on its face’. For a time, California truncated children’s social security numbers in an effort to curb identity theft and data breaches of personally identifiable information.

Unfortunately, the truncated numbers made it difficult to determine whether an order applied to a specific child. The state stopped this practice after complaints from employers and directions from the OCSE.

Arizona, Colorado, Washington and Wisconsin each attempted to subvert employers’ right to make payments according to their regular pay schedules. In different ways, some more subtle than others, employers were encouraged to make their payment systems comply with the states’ accounting systems.

Child support obligations are generally determined on a monthly basis, so states determine whether a non-custodial parent is current on his payments based on whether he has met that monthly obligation.

Employees paid monthly or semi-monthly will meet their monthly obligations on schedule. Employees who are paid weekly or biweekly will normally fall short of their monthly obligations but will meet their annual obligations over the course of 52 weeks.

Washington allegedly adopted a passive-aggressive practice. When employers withheld and remitted according to a weekly or bi-weekly schedule, the state sent notices to the noncustodial parents that their employers were not remitting their full monthly obligations. This spurred some employees to complain to their payroll departments.

Arizona and Colorado went so far as to direct employers paying weekly or biweekly to pay the full amount in the first two or four payments and to suppress withholding when the extra pay periods occurred. Some payroll systems are able to accommodate that suppression better than others and so some payroll professionals went along with the practice. OCSE made it clear to APA that states could not force employers to do so.

Suppressing payments raised an interesting dilemma for payroll professionals. While states were attempting to ensure custodial parents would receive their due each month, payroll pros recognised that suppressing a payment could cause undue hardship on the children of their employees. By not suppressing payments, the custodial parents were guaranteed regular payments. Suppressing a bi-weekly payment meant that a family would go four weeks without receiving support at least twice each year.

The standard IWO states the employee’s monthly obligation and directs employers to withhold a specific amount according to pay frequency. The recognised method of coming to the weekly or biweekly amount is to ‘annualize’ the monthly payment and divide by the number of pay periods (26 or 52).

For a time, Colorado ignored the proper calculations and simply used the same figure for biweekly and semi-monthly. This would guarantee the custodial parent would receive the monthly amount due, but it would also ensure overpayments if the extra payment were not suppressed.

By William Dunn, CPP

In 2004, the US federal Office of Child Support Enforcement (OCSE) introduced the standard Income Withholding Order/Notice for Support (IWO). Now, nearly 10 years on, it is worth reflecting on what a watershed moment this was for payroll professionals.

Multi-state employers that once might have needed to comply with dozens, scores, even hundreds of variations of withholding orders would now receive them in a single format. Or so it was supposed to be.

For years after the advent of the standard IWO, states ignored whatever feature of the form did not conform to their own views on how the child support withholding process should work. Courts and private parties often ignored the form completely in favour of their own forms.

All too often, this was done out of ignorance that the standard IWO even existed. Employers were encouraged to obey the orders as best they could. “It’s for the children.” It was only with the latest edition of the form that employers were given the authority to hold states and others accountable to complete the form correctly.

The federal form is revised every three years by the Office of Management and Budget (OMB) and specific wording was added directing employers to reject any order that was not “regular on its face”—curious wording that generally means if the order looks legitimate, the employer can treat it as so. Quite specifically, any order that directed payment anywhere but to a State Disbursement Unit was to be returned to the sender.

Regular on its face

A few states in particular caused payroll professionals to consider whether their orders were completed properly and therefore ‘regular on its face’. For a time, California truncated children’s social security numbers in an effort to curb identity theft and data breaches of personally identifiable information.

Unfortunately, the truncated numbers made it difficult to determine whether an order applied to a specific child. The state stopped this practice after complaints from employers and directions from the OCSE.

Arizona, Colorado, Washington and Wisconsin each attempted to subvert employers’ right to make payments according to their regular pay schedules. In different ways, some more subtle than others, employers were encouraged to make their payment systems comply with the states’ accounting systems.

Child support obligations are generally determined on a monthly basis, so states determine whether a non-custodial parent is current on his payments based on whether he has met that monthly obligation.

Employees paid monthly or semi-monthly will meet their monthly obligations on schedule. Employees who are paid weekly or biweekly will normally fall short of their monthly obligations but will meet their annual obligations over the course of 52 weeks.

Washington allegedly adopted a passive-aggressive practice. When employers withheld and remitted according to a weekly or bi-weekly schedule, the state sent notices to the noncustodial parents that their employers were not remitting their full monthly obligations. This spurred some employees to complain to their payroll departments.

Arizona and Colorado went so far as to direct employers paying weekly or biweekly to pay the full amount in the first two or four payments and to suppress withholding when the extra pay periods occurred. Some payroll systems are able to accommodate that suppression better than others and so some payroll professionals went along with the practice. OCSE made it clear to APA that states could not force employers to do so.

Suppressing payments raised an interesting dilemma for payroll professionals. While states were attempting to ensure custodial parents would receive their due each month, payroll pros recognised that suppressing a payment could cause undue hardship on the children of their employees. By not suppressing payments, the custodial parents were guaranteed regular payments. Suppressing a bi-weekly payment meant that a family would go four weeks without receiving support at least twice each year.

The standard IWO states the employee’s monthly obligation and directs employers to withhold a specific amount according to pay frequency. The recognised method of coming to the weekly or biweekly amount is to ‘annualize’ the monthly payment and divide by the number of pay periods (26 or 52).

For a time, Colorado ignored the proper calculations and simply used the same figure for biweekly and semi-monthly. This would guarantee the custodial parent would receive the monthly amount due, but it would also ensure overpayments if the extra payment were not suppressed.

By William Dunn, CPP