The Orphan Tax: How State Foster Care Agencies Turned Dead Parents' Social Security Checks Into Government Revenue

When a parent dies, the Social Security Administration pays a survivor benefit to their child — money the parent earned through a lifetime of payroll taxes, legally belonging to the child. When that child enters foster care, something else happens: in most American states, the child welfare agency quietly applies to SSA to become the child's "representative payee," takes the check, and spends it reimbursing itself for the cost of the foster placement. The child is almost never told. Neither is the child's attorney, nor the juvenile court judge overseeing the case. Federal data compiled for Congress show that in a single state fiscal year, 38 states and the District of Columbia had access to roughly $179 million in Social Security and SSI benefits belonging to children in foster care, and SSA's own analysis found agencies conserved, on average, just 12 percent of what they collected. In December 2025, the federal government finally called the practice what advocates had called it for two decades — and by August 2026, 35 states had at least partially abandoned what HHS now calls the "orphan tax."

How the Machine Works

The mechanism is entirely lawful on its face, which is what has kept it running for forty years.

Under Section 205(j) of the Social Security Act (42 U.S.C. § 405(j)), SSA appoints a representative payee for beneficiaries who cannot manage their own funds — which, as a matter of routine, includes every minor child. SSA maintains a preference order for who should serve: a custodial parent, then a relative, then a family friend, then an institution. When a child enters state custody, the child welfare agency applies, and SSA approves it. The agency now controls the money.

Federal regulations then permit what happens next. Under 20 C.F.R. §§ 404.2040 and 416.640, a payee must use benefits for the beneficiary's "use and benefit," which the regulations define first as "current maintenance" — food, shelter, clothing, medical care. Because a foster care placement is food and shelter, agencies bill the child's own benefit against the board rate they pay the foster parent or group home. Only after "current and reasonably foreseeable needs" are met must the payee conserve the remainder (20 C.F.R. §§ 404.2045, 416.645). Since a child in care always has a current need, the conservation obligation almost never bites.

Two features make this a system rather than an accident. First, the identification is proactive: agencies comb case files — or pay someone to — to find every child who might qualify, then file the applications. Second, the money is fungible. Once collected, benefits are deposited into a state or county general fund or a foster care trust account and used to offset appropriations the legislature would otherwise have to make. The child's account balance goes to zero. Philadelphia's Department of Human Services, records showed, transferred foster children's benefits directly into the city's $5 billion general fund.

The Marshall Project and NPR, in the April 2021 investigation that broke this open nationally, documented the practice in at least 36 states and the District of Columbia, and found that agencies applied for and took the money "almost always without notifying the children, their loved ones or lawyers."

The Money

The numbers are simultaneously large and impossible to pin down — which is itself part of the story.

• The Congressional Research Service, in report R46975 (November 23, 2021), found that about 27,000 children in foster care (5.3 percent) were receiving SSI or Social Security benefits, and that for state fiscal year 2018, 38 states and D.C. had access to about $179 million in those benefits to offset foster care costs. A September 2025 Social Security Advisory Board report reaffirmed the ~27,000 figure.
• A summary accompanying the Protecting Foster Youth Resources Act (H.R. 10478, 118th Congress, introduced December 2024 by Reps. Danny Davis, Don Bacon and Jamie Raskin) cited SSA data showing 20 states and D.C. had access to approximately $180 million in the twelve months ending November 2022 — from fewer than half the states.
• The Marshall Project reported that in 2020, 42 states reported using $251 million in benefits to offset child welfare agency costs. A separate Child Trends analysis of state child welfare financing data estimated 25 states reported spending over $34 million in survivor benefits alone in SFY 2020.

State-level figures show the same pattern at retail scale. Nebraska took more than $4 million in a single year. Wisconsin takes roughly $3 million annually in foster children's Social Security benefits, part of more than $10 million a year the state extracts from foster children and their parents combined. Michigan collected $3.2 million in FY2022–23. Philadelphia took nearly $5 million between FY2016 and FY2020 — about $1.3 million a year from roughly 380 youths. San Diego County has taken more than $3 million since 2015. Los Angeles County, which cares for about a third of California's 50,000 foster children, withholds benefits for about 600 children in any given month and took $5.4 million in one year.

The most damning figure comes from SSA itself. In the Request for Information SSA and the Children's Bureau jointly published on November 1, 2024 (89 Fed. Reg., Docket SSA-2024-0038), the agency disclosed that child welfare agencies conserved funds for only 36 percent of child beneficiaries in foster care, conserved on average only 12 percent of the benefits paid, and that the share of children with anything conserved ranged by state from 1 percent to 81 percent. A one-percent state is not exercising individualized judgment. It is running a policy.

Set against state budgets, the take is trivial. FREOPP's analysis found the roughly $180 million collected in 2018 amounted to about 0.05 percent of total state child welfare spending. For the child, it is everything: the difference between aging out at 18 or 21 with $18,000 banked and aging out with nothing.

The Contractors

States did not always find these children on their own. They hired firms whose business model is called, without irony, "revenue maximization."

Maximus, Inc. (NYSE: MMS), a government-services contractor that reported $5.43 billion in revenue for fiscal 2025, has marketed an "SSI Advocacy" service promising states "an increased SSI eligibility rate among foster care population increasing revenue to offset the costs of foster care placement." NPR's April 28, 2021 companion investigation found Maximus had contracts with at least 15 states or county agencies, including Alaska, California, Florida, Illinois, Iowa, Nebraska, New York, Maryland, South Carolina and Wisconsin. Maximus consultants screened each foster child to determine whether an existing family representative payee — a grandmother, an aunt — could be replaced by the state. Under those contracts, the company was paid roughly $1,600 per child each time SSA approved a new foster-child beneficiary. Maximus's own pitch noted that while 15 to 20 percent of foster youth are likely eligible, no more than 10 percent are typically signed up — the gap being the sales opportunity.

Public Consulting Group (PCG) ran the same play. In a 2010 proposal to Kentucky officials, PCG wrote: "All likely foster care candidates are scored and triaged for SSI application. We then track the results… and incorporate this information back into our system to better target potentially eligible children." That is predictive analytics deployed to find money on children, not services for them.

The intellectual architect of the exposure is Daniel L. Hatcher, professor at the University of Baltimore School of Law, whose 2006 article "Foster Children Paying for Foster Care" and 2016 book The Poverty Industry: The Exploitation of America's Most Vulnerable Citizens (NYU Press) mapped how agencies "charged with caring for America's most vulnerable citizens commonly contract with consultants to maximize agency revenue by targeting the most vulnerable of the vulnerable." Maryland, Hatcher documented, paid Maximus specifically to figure out how much more revenue it could extract from children in its custody.

One note on the record: the Change & Innovation Agency (C!A) is a real child welfare consulting firm operating in nine states and D.C., but the available documentation ties it to caseload and process-capacity work — not to SSI benefit-capture or contingency revenue maximization. The contingency-fee benefit-screening trail documented in the public record runs through Maximus and PCG.

The Legal Foundation: Keffeler

The practice survives because the Supreme Court blessed it, unanimously, in 2003.

In Washington State Department of Social and Health Services v. Guardianship Estate of Keffeler, 537 U.S. 371 (2003) (decided February 25, 2003), Washington's DSHS served as representative payee for foster children receiving OASDI and SSI, deposited the benefits into the state's Foster Care Trust Fund, and reimbursed itself for foster care costs. A certified class argued this violated the Social Security Act's anti-attachment provision, 42 U.S.C. § 407(a), which bars benefits from being subject to "execution, levy, attachment, garnishment, or other legal process." The Washington Supreme Court agreed, calling it an impermissible creditor-type assignment.

The U.S. Supreme Court reversed. Reading "other legal process" narrowly under ejusdem generis, the Court held that a state's reimbursement of itself as payee is not the sort of judicial or quasi-judicial creditor mechanism § 407(a) forbids. Critically, Keffeler held only that the practice is not prohibited by the anti-attachment statute. It did not hold that it is good policy, that it satisfies the payee's fiduciary duty in any individual case, or that agencies may take the money without notice. Twenty-three years later, defenders still cite Keffeler as though it settled the ethics along with the statute.

What the Cases Show

In re Ryan W., 434 Md. 577, 76 A.3d 1049 (Md. 2013). The Baltimore City Department of Social Services, as representative payee, collected $31,693.30 in OASDI survivor benefits after Ryan's parents died and applied every dollar to its own costs over three and a half years, against roughly $220,000 the state said it spent on his care. The Department never sought juvenile court permission, never notified Ryan, and never notified his counsel. Maryland's high court allowed the reimbursement but held the agency must give notice to the child or the child's legal representative — establishing that the silence, at least, was not defensible. Maryland later codified notice requirements.

Philadelphia. After the 2021 Resolve Philly/Inquirer investigation, City Council passed an ordinance banning the practice (Phila. Code § 21-1803, championed by then-Councilmember Helen Gym). On December 26, 2023 — fifteen months later — the Inquirer reported that DHS was still taking the money, still routing about $1.3 million a year from about 380 foster youths into the general fund, and could supply no timeline for compliance. In April 2025, Spotlight PA documented that Pennsylvania counties were still diverting millions statewide; by spring 2026, the Shapiro administration and a bipartisan group of legislators were pushing a statewide ban.

San Diego County. In 2023, the Children's Advocacy Institute at the University of San Diego School of Law sued on behalf of two sisters, ages 9 and 11, whose father died in 2020. They were awarded roughly $50,000 in survivor benefits. They received none of it; the County deposited the money in its general fund. The suit sought recovery and an order compelling the county to conserve more than $120,000.

California's political economy. In October 2023, Gov. Gavin Newsom vetoed AB 1512, which would have barred counties from using foster children's benefits to offset placement costs, on the ground that backfilling the counties' loss was unaffordable amid a $30 billion shortfall. The state's position, reduced to its essentials: we cannot afford to stop taking money from orphans. A successor bill, AB 2906, took effect January 1, 2025.

Nebraska. LB275, Sen. Megan Hunt's priority bill, passed 29–19 and was signed in June 2025. It requires the department to conserve at least 20 percent of a foster child's Social Security benefits in a separate trust beginning at age 14, rising to 50 percent at 18; permits a trusted adult to serve as payee instead of the state; and — the sleeper provision — requires the department to exhaust available Title IV-E federal foster care funding before touching state general funds, which removes the fiscal pretext for raiding the child's check. Nebraska Appleseed estimates it returns nearly $1 million a year to foster youth.

Wisconsin. Senate Bill 990 (Sen. André Jacque, R-New Franken) would have required conservation. The 2026 session ended without action. The only organized opposition came from the counties that administer foster care, who said they would face shortfalls if they could not collect from the children.

The Accountability Gap

Every actor who could stop this has a reason not to look.

SSA is the payee program's regulator. It requires organizational payees to file an annual accounting (20 C.F.R. §§ 404.2065, 416.665) and may impose civil monetary penalties of up to $5,000 per violation plus twice the misused amount for payee misuse (Social Security Act § 1129(a)(3), 42 U.S.C. § 1320a-8(a)(3)). GAO found in GAO-19-688 (2019) that SSA "lacks timeframes for following up on missing or problematic forms" and that the accounting form "does not capture complete information on whether payees co-mingle beneficiaries' funds in collective accounts" — precisely the mechanism states use. GAO issued nine recommendations. There is no publicly documented instance of SSA imposing a misuse penalty on, or removing, a state child welfare agency for zeroing out a foster child's account.

Data is the second failure. GAO-21-441R (2021) found that of 31 states with SSA data-exchange agreements, only 14 were actively sharing data as of April 2021. There is no federal database that reports, nationally and annually, how many foster children have benefits taken or how much is diverted. That is why every figure in this report is an estimate assembled from partial state surveys, FOIA requests and a 2024 SSA information request — and why SSA had to publish an RFI asking the public how the money it disburses is being used.

The courts are cut out by design. Juvenile courts hold jurisdiction over every dispositional detail of a dependent child's life, yet agencies routinely apply for and spend benefits without a single filing on the docket. Ryan W. is notable precisely because it was unusual for anyone to find out.

Children's attorneys cannot litigate what they are not told exists. And the child, at 18 or 21, discharges into independence with no account, no financial history — and sometimes an SSI overpayment notice. As KidsVoice has documented, overpayment notices are typically mailed to the payee that received the money, not to the youth who now owes it; SSA can recover from future benefits, and the debt can be reported to credit bureaus, damaging housing and employment prospects for a young person who never saw a dollar.

The structural traps compound it. The SSI countable-resource limit remains $2,000 (42 U.S.C. § 1382(a)(3)(B)), unchanged since 1989 — which agencies cite as a reason they "can't" save. The excuses are weak: past-due SSI lump sums can be held in dedicated accounts exempt from the limit (42 U.S.C. § 1383(a)(2)(F)), and ABLE accounts under 26 U.S.C. § 529A exclude the first $100,000 from SSI resource counting. SSA and ACF said so explicitly in a joint letter to state and tribal Title IV-E agencies dated August 17, 2023.

The Counterargument

It deserves a fair hearing. In City Journal and at AEI, Emily Putnam-Hornstein (UNC Chapel Hill) and Naomi Schaefer Riley (AEI) argue states aren't "stealing." Their points: Keffeler settled the legality; using a benefit for a child's actual food, shelter, therapy and clothing is compliance, not misuse; removing states as payee risks the check flowing to a parent whose rights are in question or who is the reason the child is in care; and reform is not free — Arizona banned the practice without new appropriations, and simply spent less on foster care while hiring staff to handle the accounting.

The rebuttal is arithmetic and disclosure. If the money is genuinely being spent on individualized needs, agencies should be able to show it — and SSA's own data show conservation rates of 12 percent on average and 1 percent in some states, which is not individualized judgment. If the fiscal impact is real, it is 0.05 percent of child welfare spending, against a life-changing sum for one 18-year-old. And nothing in the fraud-prevention argument requires secrecy: a state can serve as payee, disclose it to the court and the child's lawyer, and conserve the balance. Every reform state has proven that.

Why It Matters, and What Would Fix It

Roughly 20,000 young people age out of American foster care each year. Within a few years, a fifth to a third experience homelessness; fewer than 4 percent finish a four-year degree. These are the same young people whose parents died and whose survivor benefit — often $700 to $1,200 a month, potentially $30,000 to $80,000 across a stay in care — was spent on the placement they did not choose. Federal transition support under the Chafee program (42 U.S.C. § 677) is modest and time-limited. The survivor check was the one asset that was already theirs.

The federal posture has flipped. On December 11, 2025, ACF Assistant Secretary Alex Adams sent letters to 39 governors demanding they stop the diversion; only 11 states had reformed at that point. HHS Secretary Robert F. Kennedy Jr. said "every earned benefit dollar belongs to these foster youth, not the government agencies or bureaucrats." By July 2026, ACF counted 30 states; by August 2026, 35, with Arkansas the most recent and Montana's Gov. Greg Gianforte announcing an end to the practice that month. In parallel, Fostering the Future Accounts — federally backed, tax-advantaged accounts announced by First Lady Melania Trump on June 11, 2026 — give agencies a destination for conserved benefits, with ACF and Treasury guidance, a national technical assistance center, 26 states pledged, and a target of full coverage by December 2027. SSA's own message to state child welfare agencies on June 16, 2026 commended states that had changed course.

That is progress built on persuasion, and persuasion is reversible. Four things would make it durable:

1. Statutory reversal of the Keffeler default. Congress should enact the substance of H.R. 10478 — barring Title IV-E agencies from using a child's SSA benefits, assets or property to reimburse the cost of care, and requiring that surplus be conserved.
2. Mandatory notice and judicial oversight. Codify Ryan W. nationally: written notice to the child, the child's attorney and the juvenile court whenever an agency applies to become payee or receives a benefit, with a right to contest and a preference for a family or fictive-kin payee.
3. Real accounting with teeth. Require agencies to file, and SSA to audit, a per-child ledger; publish it as a federal dataset by state and year; and use the § 1129(a)(3) penalty at least once so it stops being theoretical.
4. Remove the savings traps and close the exit hole. Raise or waive the SSI resource limit for youth in and exiting care, default conserved funds into ABLE or Fostering the Future accounts, and require that overpayment notices go to the youth and the agency that actually held the money — with automatic waiver where the youth never received it.

The narrow question is bookkeeping. The broad one is simpler: when a working parent dies, does the money they earned for their child follow the child — or the bureaucracy that took custody of them?

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Sources: - ACF Notifies 39 Governors That States Are Diverting Foster Youths' Earned Social Security Survivor Benefits (HHS, Dec. 2025) - 30 States Have Ended the "Orphan Tax" (ACF, 2026) - HHS touts 35 states that have scaled back 'orphan tax' (The Hill, Aug. 2026) - SSA/Children's Bureau Request for Information: Use and Conservation of Benefits for Beneficiaries in Foster Care (89 Fed. Reg., Nov. 1, 2024) - CRS R46975 — Children in Foster Care and Social Security Administration Benefits - Foster Care Agencies Take Millions of Dollars Owed to Kids (The Marshall Project, Apr. 22, 2021) - Consultants Help States Find And Keep Money That Should Go To Foster Kids (NPR, Apr. 28, 2021) - Washington State DSHS v. Guardianship Estate of Keffeler, 537 U.S. 371 (2003) - In re Ryan W. (Md. 2013) - Philly took $5 million in foster children's Social Security payments without telling them (Inquirer, Dec. 2021) - Philly still keeps the benefits of foster care youths despite a 2022 law (Inquirer, Dec. 2023) - PA counties divert millions from foster kids' Social Security (Spotlight PA, Apr. 2025) - Lawsuit: San Diego County took money from foster kids (ABC 10News) - Newsom's veto lets California counties continue taking foster kids' money (CalMatters, Oct. 2023) - LB275 becomes law (Nebraska Appleseed, 2025) - Wisconsin takes millions from foster kids and their parents (Wisconsin Watch, Apr. 2026) - GAO-19-688: SSA Needs to Improve Oversight of Organizations that Manage Money for Vulnerable Beneficiaries - GAO-21-441R: New Data Exchanges with Some States Provide Limited Information on Foster Care Beneficiaries - SSA/ACF Joint Letter to Title IV-E Agencies on the Representative Payee Program (Aug. 2023) - A Message to State Child Welfare Agencies (SSA, June 16, 2026) - H.R.10478 — Protecting Foster Youth Resources Act (118th Congress) - Dear Colleague Letter on Fostering the Future Accounts (ACF, 2026) - Daniel L. Hatcher, University of Baltimore School of Law - No, States Aren't "Stealing" from Foster Children (Putnam-Hornstein & Riley, AEI/City Journal) - Why are state governments taking foster children's Social Security benefits? (FREOPP) - Foster Children and Social Security Overpayments (KidsVoice)