Kansas gets $31.8 million from federal tax, welfare debtor program

07/19/2014 5:55 PM

07/19/2014 5:56 PM

Kansas got $31.8 million last year from a little-known U.S. Treasury Department program that helps states collect on debts owed by tax deadbeats and welfare cheats.

The state could be getting more money in the future. This year, Kansas is joining a part of the program that helps recover money that was improperly paid to unemployment benefits scofflaws.

If you don’t owe the state any money, chances are you’ve never heard of the Treasury Department’s Bureau of Fiscal Service nor the Treasury Offset Program it operates.

But if you do owe money, they will be the ones who intercept all or part of your federal tax refunds or other federal payments and send the money to the state to pay your debt.

“It’s a great way to help make sure obligations to the state are paid by the folks who owe them,” said Kansas State Treasurer Ron Estes. “It’s a good example of governments working together.”

TOP can generally capture all of an individual’s tax refund to pay debts owed to the state. It also can garnish vendor payments, part of federal employees’ salaries and even up to 15 percent of a debtor’s Social Security check, according to program guidelines.

Since Congress authorized TOP in 1996, the program has garnered $33.5 billion for participating states.

Each year, it adds $2.6 billion to $3.1 billion to the total, according to the program’s annual state-by-state report released last week.

States also help collect on federal debts through the program, albeit at a much lower rate. In this past fiscal year, the states collected on about $31 million in debts due the federal government.

Child support money

Most of the money Kansas collects through TOP is in the area of delinquent child support.

Last year, delinquent child support payments made up $23 million of the $31.8 million TOP collected and sent to Kansas, according to the Treasury Department report.

The child support money the Treasury collects is sent to the Department of Health and Human Services, which then sends it to the state to be distributed to the parents who were supposed to have received the payments in the first place, said David Saltiel, deputy assistant commissioner for debt management in the Bureau of Fiscal Service.

In addition to that $23 million, Kansas also collected:

• $8 million in unpaid and underpaid state income taxes. Since 2009, the tax collected through TOP has nearly doubled from $4.8 million.
• $800,000 from overpayments to recipients in the Supplemental Nutrition Assistance Program, also known as food stamps. Overpayments in that program result when people are found to have received benefits for which they didn’t qualify, federal officials said.

Kansas actually gets less money from TOP than most states of similar size.

Among states with populations of between 2 million and 3 million, New Mexico leads the pack with $76.4 million, followed by Mississippi, $53.5 million; and Arkansas, $45.1 million.

Kansas’ $31.8 million barely edges out Utah’s $30.4 million, while Nevada brought in $18.4 million. Nevada’s number is so low because it doesn’t have a state income tax and, therefore, no delinquent taxes to be collected.

There are a number of reasons that collections vary from state to state, Saltiel said.

“It could simply be that even though the populations are the same that there’s less delinquent debt in one state than another, which of course would reduce collections,” Saltiel said. “It could be there are fewer federal or state payments being made. Certainly a state that receives more federal funds, there’s going to be more payments to intercept.

“A third reason could be that one state is referring all of their delinquent debt (to TOP) and another state may only be referring a portion of it. And another possible reason is that some states have been involved in these programs longer than others, and their population of debtors is larger overall.”

Unemployment overpayments

Part of the reason Kansas’ collections aren’t higher is that the state hadn’t participated in a part of the program that has brought millions of dollars to some of the other states: recovery of unemployment overpayments.

When a worker is overpaid on unemployment, “that constitutes a debt that the recipient owes to the state of Kansas and over the long run to the Unemployment Insurance Program,” Saltiel said.

Overpayments are generally a result of a laid-off worker misreporting family income on the application or finding work while receiving unemployment benefits and not reporting that income to the government, officials said.

“The classic example (for recovery) is a person has a federal tax refund coming to them, and they also have received an overpayment of their unemployment insurance,” Saltiel said.

Among the states similar to Kansas, Arkansas recovered $19.3 million, Mississippi $10.3 million and Utah 6.9 million through that part of TOP last year.

The Kansas Department of Labor is joining, but the application process is complicated, because it involves changes in several different state departments, said Labor spokeswoman Cassie Sparks.

“We’ve gotten some money, but we have not fully implemented it yet,” Sparks said. She said she’s not sure when the program will be fully up and running, but the state should show some income from it in next year’s annual report.

So far, Kansas hasn’t participated in the Treasury’s State Reciprocal Program.

That’s a part of TOP that was created to collect on types of debt that don’t fit into other categories, Saltiel said.

“It could be parking fines, it could be loans they’ve made to businesses, etc.,” Saltiel said. “We would then match those debts against federal payments (owed to the debtors) and when there’s a match, we would intercept some portion of the federal payment and apply that to that state debt.”

Conversely, if someone owes money to the federal government and is due a payment from the state, the state would intercept the payment and send it to Washington to pay the federal debt. Hence the “reciprocal” part of the program, Saltiel explained.

“We collected a lot more on behalf of states than what we collected from state payments to apply to federal debt, so the states are certainly getting the upside of this program,” Saltiel said.

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