OCSE Informs Pay Pros By Curtis Tatum, Esq.
of Proper IWO Handling
During her recent presentation at the Virginia Statewide Payroll Conference, Sherri Grigsby, Manager, Employer Services at the Federal Office of Child Support Enforcement (OCSE), offered helpful reminders concerning proper handling of income withholding orders (IWOs) and highlighted some new developments at the OCSE. Early in her presentation, Grigsby noted the important role that employers play in the child support system, identifying them as the "child support program's most important partner." She cited several statistics supporting this view, saying that, in fiscal year 2013, employers were responsible for collecting 74% of all the child support collected, through wage withholding. Also, employers reported 53 million newly hired and rehired employees to states, which enabled child support agencies to efficiently locate obligors and enforce income withholding orders.
Tricky Situations Involving IWOs
Grigsby presented several scenarios in which payroll professionals may have difficulty in determining whether, or how, to comply with certain income withholding orders. The first scenario talked about whether employers should "honor a divorce decree, not on the OMB-approved IWO, that orders their employee to pay child and spousal support." She noted that, effective since May 31, 2012, an employer that receives a document ordering withholding that is not on the OMB-approved IWO must reject the document and return it to the sender.
Another scenario posed by Grigsby asked which state law applies to determine CCPA limits when an employee works in one state but an IWO is issued from a different state. The answer is: the law in the state of the employee's principal place of employment determines many IWO terms. Grigsby noted that, in addition to CCPA limits, the law in the principal place of employment determines many IWO terms, including: when withholding must begin, when the payments must be made, any mandatory deductions used in calculating disposable earnings, rules for allocating funds among multiple child support orders, and the permissible administrative fee.
Whether to notify the state that issued an IWO about an impending lump-sum payment is another question that payroll professionals often encounter. Grigsby reminded attendees that the rules vary from state to state and that OCSE has a website dedicated to Bonus and Lump Sum Payments and a downloadable chart of State/Employer Contact and Program Information for lump-sum payments that provides state-specific reporting requirements. OCSE also provides for electronic reporting of lump-sum payments through its employer service web application.
Grigsby addressed two issues involving medical support orders. First, she cleared up a common misperception that it is only noncustodial parents who may be ordered to provide health care for their children. She noted that either parent might be ordered to provide health care. The second issue concerned whether healthcare deductions are always considered mandatory because of Affordable Care Act provisions. Grigsby pointed to a downloadable chart of State/Employer Contact and Employer Information for state income withholding. The chart contains state-specific information on income withholding, including current support, medical support, health insurance premiums, arrears, and interest.
e-IWO Mandatory in 2015
Currently, 32 states use electronic income withholding orders (e-IWO), while Guam, Kentucky, and Maryland are working to implement the process. Developed and maintained by the OSCE, the e-IWO portal allows states to send electronic IWOs to employers and for employers to send acknowledgments to the issuing state (for more information about e-IWOs, see the OCSE's Detailed Overview of the e-IWO Process). Grigsby noted that states that do not currently participate in the e-IWO process have less than a year to implement the process because of a legislative mandate included in the Preventing Sex Trafficking and Strengthening Families Act of 2014, which was signed by President Obama on September 29. An OCSE Action Transmittal explains that the new law amends the Social Security Act to "add the requirement that by October 1, 2015, states shall transmit orders to employers for the withholding of income at the option of the employer, using the electronic transmission methods prescribed by the Secretary" [of Health and Human Services].
Recently, a new IWO form was released that replaces the "old form," which had an expiration date of July 31, 2014. The current IWO may be identified by the OMB expiration date of July 31, 2017, that is listed on the second page of the form. Importantly, the form notes that the "OMB Expiration Date has no bearing on the termination date of the IWO" itself; it is simply used to identify the current version of the document. Grigsby noted some of the changes to the new form, including the addition of information concerning nonemployee withholding limits, and a statement that state agencies "must send one IWO per case."
Grigsby envisions a future employer portal that will function as a "one-stop shop" for employer access to all OCSE services. While the portal may take some time to develop, some elements are already in development. Earlier this year, OCSE launched an electronic termination application (eTerm), which allows employers to report termination information electronically. The eTerm system will then transmit the termination information to states either through the existing e-IWO process or via email to states not yet participating in e-IWO. An OCSE chart shows that a majority of states has implemented both eTerm and the Lump Sum Reporting application, while several states have adopted at least one of these programs. Combined with e-IWO and the Lump Sum Reporting application, eTerm is a step toward a fully functional employer portal.