$842M in stimulus cash held back from debtors

Government 'offset' program holds back money from 1.5 million tax filers who owe back taxes and child support.

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By Catherine Clifford, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- The government has intercepted $842 million in economic stimulus payments for 1.5 million Americans who have skipped out on child support obligations, student loans or tax bills.

The amount withheld represents about 1.5% of the more than $57 billion distributed under the stimulus program. So far, 67 million tax filers have received payments.

About 54% of the cash intercepted will be funneled to states for child support, according to Dean Balamaci, a U.S. Treasury Department official. "We are really proud of that," he added.

Congress and the Bush administration came together earlier this year to enact a $170 billion economic stimulus package. The Treasury started distributing payments - $600 for individuals, $1,200 for couples and $300 per child - to tax filers. The goal was to juice the economy by putting money in the pockets of consumers.

Stimulus Cash for Child Support

One unanticipated side effect of the stimulus program is the recovery of money owed single parents and government programs that support children on welfare.

Of the stimulus cash that has been recaptured, $459 million is being sent to states to distribute for child support payments. And of that amount, $166 million is used to fund state child welfare programs and $292 million goes to custodial parents who have not qualified for welfare payments but are owed child support, according to Balamaci.

"It is important symbolically," said Robert Fellmeth, director of the Children's Advocacy Institute at the University of San Diego School of Law. "The government is saying that you owe this and your debt is more important than having you run out and spend the money."

Social service officials says the intercepted stimulus money helps reimburse state coffers, according to Anthony Farmer, spokesman for the New York State Office of Temporary and Disability Assistance.

"The state has an interest in being involved in helping to collect child support because if people don't pay child support, then those parents go on public assistance," said Farmer.

Nearly 40% of the stimulus money that has been recovered by the Treasury Department is going back to the federal government in the form of back taxes owed and student loans. About 6% will go to states that are owed back taxes. Georgia, Maryland and New York - each of which has received more than $4.5 million - are receiving the biggest stimulus offsets.

The Treasury Offset Program

The stimulus offset effort is part of the Treasury Offset Program, which intercepts federal payments of any kind to pay debts. The entire program has collected $4.6 billion so far this fiscal year.

Generally, the offset program captures money owed by people who are found formally delinquent on tax or child support payments. Tax filers on scheduled pay plans with the government are not affected by the program.

Any debtor whose stimulus check is eligible to be absorbed by the program has already received notice that he or she is delinquent on a debt, according to a Treasury spokesperson.

"These are all situations where some attempt has been made to collect the bills on a voluntary basis," said another spokesperson for the Treasury. The program matches payments due with debts owed by Social Security number and last name, according to a spokesperson.  To top of page

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