The Orphan Tax: How States and Contractors Like MAXIMUS Quietly Seize Foster Children's Social Security Benefits

When a parent dies or a disabled child enters state custody, that child is often owed money by the federal government — Social Security survivor benefits earned on a dead parent's work record, or SSI disability payments meant to cover the child's special needs. Across the United States, state foster care agencies have spent decades doing something most Americans would find unthinkable: they hunt for these children, apply to the Social Security Administration to become the child's "representative payee," and then pocket the money — routing it into government budgets to reimburse themselves for the cost of care the state is already legally obligated to provide. The children are almost never told the benefits exist. They receive none of it. And when they emancipate at 18 — the moment they most need a financial cushion — they walk out of the system with nothing, unaware that the government spent years collecting their inheritance. Investigative reporting, a landmark Supreme Court case, and a wave of 2025–2026 reforms have finally dragged this practice into the light, but the machinery that built it — including private "revenue maximization" contractors like MAXIMUS — is still standing.

How the mechanism actually works

The setup is deceptively bureaucratic. Two federal benefit streams are at stake. The first is Old-Age, Survivors, and Disability Insurance (OASDI) — specifically survivor benefits, which a child is entitled to when a working parent dies. This is not welfare; it is an earned benefit, paid for by the parent's payroll taxes, that legally belongs to the child. The second is Supplemental Security Income (SSI), a needs-based disability benefit for children with qualifying physical or mental impairments.

Because a minor cannot manage their own funds, the Social Security Administration appoints a representative payee to receive and manage the money on the child's behalf. The payee is supposed to spend the funds on the beneficiary's needs and conserve the rest. Federal regulations even establish a preference order for who should serve — a parent, a relative, a close family friend — with a state agency near the bottom of the list. In practice, state child welfare agencies routinely leapfrog that hierarchy, apply to become payee themselves, and win the appointment because SSA rarely scrutinizes the choice.

Once the agency controls the money, it does not bank it for the child. It applies the monthly checks against what it spends on foster care — effectively using the child's own survivor benefits to pay the state back for housing that child. The child's account is drained in real time. There is no notice to the child, no notice to a relative who might have served as payee and actually saved the money, and frequently no accounting the youth can ever recover. As the practice's critics put it: the state takes an orphaned child's inheritance and uses it to subsidize the state's legal duty to that same child. Advocates have named it the "orphan tax."

The money: programs, dollar figures, and named agencies

The numbers are not marginal. An estimated 27,000 children in foster care receive Social Security or SSI benefits at any given time — more than 5 percent of the foster population. Law professor Daniel L. Hatcher, whose 2016 book The Poverty Industry: The Exploitation of America's Most Vulnerable Citizens is the definitive account of the practice, estimated that foster care agencies take more than $250 million a year in assets from children in their care.

The state-level figures, surfaced largely through 2021 reporting by NPR and Marketplace (Joseph Shapiro and Jessica Piper) and a cascade of local investigations since, are stark:

• Minnesota (2022): roughly 60 counties collected about $2.8 million in benefits on behalf of more than 600 children — and spent over $2.5 million of it reimbursing themselves for care rather than saving it.
• Idaho (July 2021–May 2025): the state used nearly $2.3 million of benefits owed to 326 foster children to offset the cost of their care.
• Iowa: revenue-maximization efforts generated approximately $42.88 million in federal revenue routed to the agency.
• Pennsylvania: counties were found by Spotlight PA and Resolve Philly to be diverting millions annually from foster children's Social Security checks — the practice was still in full operation as of 2025.

Multiply these across dozens of states over three decades and the cumulative transfer from foster children to state treasuries runs into the billions of dollars — money that, by statute, belonged to some of the poorest and most vulnerable children in the country.

The contractors: MAXIMUS and the "revenue maximization" industry

The practice did not stay a quiet in-house accounting trick. It became an industry. Since the 1990s, states have hired private consultants — most prominently MAXIMUS, a publicly traded government-services contractor — to systematically find foster children who might qualify for benefits and capture those benefits for the state. The euphemism for this line of business is "revenue maximization."

The contract structure lays the incentive bare. Under arrangements reported by NPR, MAXIMUS was to be paid roughly $1,600 from state funds for every time the Social Security Administration approved benefits for a new foster child the company signed up. MAXIMUS itself estimated that 15 to 20 percent of foster youth are likely eligible for Social Security benefits, but that probably no more than 10 percent are actually enrolled — a gap the company pitched to states as untapped revenue. At least 15 states or county agencies — including Alaska, California, Florida, Illinois, Iowa, Maryland, Nebraska, New York, South Carolina, and Wisconsin — signed revenue-maximization contracts with MAXIMUS or comparable consultants.

The perverse core of the model is what advocates and Hatcher have called the incentive to pursue "the most vulnerable of the vulnerable." Agencies and their consultants have a financial reason to identify which children's parents have died (survivor benefits) and to classify children as disabled — including as needing psychotropic medication — because a disability determination unlocks SSI and, in related Medicaid-reimbursement schemes, higher federal draw-downs. The child's medical and family tragedy becomes, in the language of the contracts, a revenue event.

MAXIMUS's history in the adjacent Medicaid space is instructive about the culture of these arrangements. In 2007, MAXIMUS agreed to pay more than $30 million to resolve a federal criminal and civil case alleging it had helped the District of Columbia submit false Medicaid claims tied to foster children — one of the largest false-claims settlements in the child-welfare consulting space. The company entered a deferred prosecution agreement. That case involved a different benefit stream, but it emerged from the same business line: mining vulnerable children's paperwork to maximize government reimbursement.

The legal architecture: how the Supreme Court blessed it

The single most important reason this practice persisted is a 2003 U.S. Supreme Court decision, Washington State Department of Social and Health Services v. Guardianship Estate of Keffeler, 537 U.S. 371.

Foster children in Washington, through a class action, argued that when the state used their Social Security benefits to reimburse itself for foster-care costs, it violated 42 U.S.C. § 407(a) — the Social Security Act's "anti-attachment" provision, which shields benefits from "execution, levy, attachment, garnishment, or other legal process." Washington's Department of Social and Health Services had been depositing foster children's OASDI and SSI benefits into a state Foster Care Trust Fund Account (with a subsidiary account per child) and drawing them down to pay itself back.

A unanimous Supreme Court sided with the state. The Court held that the state's use of the benefits to reimburse itself did not amount to "other legal process" under § 407(a), and that neither the state's effort to become representative payee nor its subsequent spending of the benefits violated the anti-attachment shield. The ruling did not require states to seize benefits — it merely held they were not forbidden from doing so. But that distinction was lost in practice. Keffeler became the green light. For nearly two decades afterward, states and their consultants cited it as settled authority that capturing foster children's benefits was perfectly legal.

Crucially, Keffeler left a gap the reformers are now exploiting: the Court ruled on the anti-attachment statute, not on whether an agency breaches its fiduciary duty as payee, and not on whether SSA's own regulations — including the payee-preference hierarchy and the requirement to use funds in the beneficiary's best interest — are being honored. A separate statute, 42 U.S.C. § 408, makes misuse of benefits by a payee a federal offense, but enforcement against government payees has been effectively nonexistent.

The accountability gap: who was supposed to be watching

The oversight failure is systemic, and it runs through every institution that was supposed to protect these children.

The Social Security Administration appoints the payees and is charged with policing them, yet it approved state agencies as payees over higher-preference relatives, rarely audited how government payees spent the money, and for decades did not require that children even be told benefits existed. Only in November 2024 did SSA issue a formal Request for Information on the "Use and Conservation of Social Security Benefits and SSI Payments That Representative Payees Receive for Beneficiaries Residing in Foster Care" — an admission that the agency had never seriously examined the problem.

State child welfare agencies operated under a structural conflict of interest that no ethics rule could survive: the same agency that is supposed to act as the child's loyal fiduciary is simultaneously the entity trying to reduce its own budget. When the payee and the debtor are the same office, the child's interest loses every time. As Hatcher documents, agencies did not merely fail to save the money — they actively contracted with MAXIMUS and others to find more children to draw from.

The courts — via Keffeler — removed the most obvious federal check and signaled that the practice was lawful.

Congress knew. The practice was documented in Hatcher's academic work in 2016, blasted across national radio in 2021, and covered by outlets from The Hill to CBS. Yet no federal statute closing the loophole has been enacted; bills like the Social Security Child Protection Act of 2025 (H.R. 5348) and the earlier Protecting Foster Youth Resources Act (H.R. 10478) in the 118th Congress have been introduced but not passed into law.

The result was a closed loop in which every actor had either a financial incentive to continue or a legal excuse to look away — and the only party with standing to object, the foster child, was kept ignorant of the benefit's existence until long after emancipation.

Concrete cases and the human cost

The abstraction becomes unbearable in individual cases. The emblematic story, told in Hatcher's book and repeated in national coverage, is that of Alex Myers of Maryland. Myers entered foster care at age 12 and became eligible for Social Security survivor benefits in 2001 after his father died. Over the next six years he was shuffled among more than 20 placements, was not provided adequate care, and never knew that the state was collecting his survivor benefits as his representative payee and spending them on its own budget rather than conserving them for him. He left foster care, in his own account, penniless — the money that could have funded his transition to adulthood gone before he ever learned it was his.

The most consequential recent case is in Alaska, where in April 2025 the Alaska Supreme Court ruled that the state must notify foster youth before taking their Social Security payments and inform them of their right to seek a different representative payee. It was a significant crack in the Keffeler edifice — grounded not in the anti-attachment statute the Supreme Court had foreclosed, but in the state's duties and the child's due-process interest in notice. Notably, however, the court did not order the state to repay the benefits it had already taken, illustrating how even legal victories leave the past diversions intact.

The reform wave — and its limits

The dam has begun to break. Maryland led in 2018, becoming the first state to curb the seizure of foster youth benefits; the law, championed by then–State Senator Jamie Raskin, requires conservation of a portion of benefits — but only for older youth, phased in starting around age 14, leaving younger children's benefits exposed.

The federal executive branch then applied decisive pressure. In December 2025, the Administration for Children and Families (ACF) at HHS formally notified 39 governors that their states were diverting foster youths' earned Social Security survivor benefits and called for immediate action to end the "orphan tax." The campaign worked with remarkable speed: by 2026, ACF announced that 30 states had ended or substantially reformed the practice of diverting survivor benefits — a genuinely bipartisan shift. Among the concrete moves:

• Nebraska Governor Jim Pillen signed an executive order barring the state from seizing survivor benefits to cover placement costs.
• Washington State enacted a law requiring that, beginning January 1, 2027, the state assess whether a youth may be eligible for benefits and prohibiting it from using those payments for youth aged 18–21.
• Idaho's Health and Welfare director issued a directive to stop the practice for survivor benefits going forward.
• Minnesota adopted rules requiring, at minimum, that children be notified when counties control their federal benefits.
• Pennsylvania legislators, with backing from the Shapiro administration, pushed bills through 2026 to stop counties from taking foster kids' money.

By mid-2026, advocates counted roughly a dozen states with full bars on the practice, another 18 with partial reforms, and more weighing legislation.

But the reforms are uneven and incomplete. Most target survivor (OASDI) benefits while leaving SSI disability benefits — where the MAXIMUS "classify them as disabled" incentive is strongest — less protected. Many statutes are prospective only, conserving future benefits while forgiving every dollar already taken; the Alaska ruling explicitly declined retroactive repayment. And executive orders and administrative directives can be reversed by the next administration in a way that hardcoded statute cannot.

Why it matters, and what would actually fix it

Foster youth face some of the worst outcomes of any group in America: disproportionate homelessness, incarceration, and unemployment after they age out. The survivor and disability benefits the state pocketed are precisely the resources that could break that trajectory — first-and-last-month's rent, a used car to get to a job, tuition, an emergency fund. Taking that money is not a paperwork technicality; it is a wealth transfer from parentless and disabled children to government treasuries, executed while the children are legally powerless and deliberately uninformed.

A genuine fix has clear components, and the reform playbook now emerging points to them: (1) Conserve, don't spend — benefits must be saved in a dedicated account for the child, never applied to reimburse the state's own care obligation, which federal Title IV-E funding already exists to cover. (2) Notice and screening — every foster child must be screened for eligibility and told, in age-appropriate terms, that benefits exist and belong to them. (3) Honor the payee preference — SSA should place a relative or independent fiduciary ahead of the very agency that has a conflict of interest. (4) Kill the contractor incentive — ban contingency-fee "revenue maximization" contracts that pay firms like MAXIMUS a bounty per enrolled child. (5) Federal statute, not just state patchwork — Congress should pass a law closing the Keffeler loophole nationwide and requiring conservation, so protection does not depend on which state a child happens to live in or which governor currently holds office.

The core scandal is simple enough for any citizen to grasp: the government made itself the guardian of orphaned and disabled children, then used that guardianship to take their money. It was legal because the Supreme Court said the anti-attachment statute didn't reach it, profitable because contractors turned it into a business, and durable because the victims were children who were never told. That it took three decades, a law professor's book, a national radio investigation, and a federal pressure campaign to begin reversing it is the measure of how thoroughly the systems built to protect these kids were pointed, instead, at their bank accounts.

Sources: HHS/Administration for Children and Families press releases ("ACF Notifies 39 Governors," Dec. 2025; "30 States Have Ended the Orphan Tax," 2026); Federal Register RFI on foster-care representative payees (Nov. 1, 2024); Daniel L. Hatcher, The Poverty Industry (NYU Press, 2016); NPR/Marketplace, "State Foster Care Agencies Take Millions of Dollars Owed to Children in Their Care" and "Consultants Help States Find and Keep Money That Should Go to Foster Kids" (April 2021); Washington State DSHS v. Guardianship Estate of Keffeler, 537 U.S. 371 (2003); Anchorage Daily News, Alaska Supreme Court ruling (April 2025); Idaho Capital Sun (Aug. 2025); Spotlight PA / Resolve Philly (2025–2026); The Imprint; Newsweek; The Hill; congressional records for H.R. 5348 and H.R. 10478.