SC uses orphaned children’s benefits to pay for their care. Governor vows that will stop.

COLUMBIA — South Carolina will stop pulling money from orphaned foster children’s benefits if the Department of Social Services can get enough funding to cover their care, Gov. Henry McMaster announced Tuesday.

The Palmetto State is the 36th to end or announce an end to the practice, which is often called the “orphan tax,” according to the federal Department of Health and Human Services. But the change depends on whether the state Department of Social Service can get enough money to cover the difference, according to the agency.

When a child’s parents both die, that child can receive any Social Security benefits their parents earned during their lifetime. However, states can use that money to pay for that child’s care until they turn 18.

“It seems too cynical to be real,” Alex Adams, assistant secretary of the Administration for Children and Families, told the SC Daily Gazette.

As of December, 39 states, including South Carolina, did just that, Adams said.

The amount each child might receive depends on how much their parents earned in Social Security through their paychecks while they were alive. On average, the monthly benefits are about $1,100, Adams said.

That could amount to tens of thousands of dollars by the time a child turns 18 and leaves the foster care system, Adams said.

Children leaving foster care face more financial difficulties than their peers because they don’t have parents to help support them, he said. Former foster children are more likely to be homeless after turning 18 and less likely to get a college degree.

Getting Social Security benefits could mean an 18-year-old is able to pay rent, buy a car to get to and from work, or pay college expenses, Adams said.

“This is significant money for youth exiting foster care,” he said.

The cost for states to cover the difference is relatively small. In South Carolina, DSS would need an additional $1.6 million to cover the cost of care for the 301 children who qualify, according to the agency.

That’s a relatively small number of students compared to the nearly 3,500 total children in foster care. The benefits kick in only if a child is orphaned, meaning the change won’t apply to most foster children.

“This change will give children in foster care greater stability and more resources as they build toward a brighter future,” said DSS Director Tony Catone in a statement.

Adams learned about the practice while working for the child services agency in Idaho, he said. He was shocked to learn the agency pulled from children’s benefits and how little it would cost to cover the care with taxpayer dollars, he said.

“It meant everything to the children but was pocket change to the agency,” Adams said.

In December, Adams sent letters to governors of the 39 states that still used federal benefits to pay for foster children’s care, asking them to reconsider. South Carolina’s leaders were very receptive to the idea, he said.

During the late 1980s and early 1990s, states started using the money as an additional source of revenue for underfunded child welfare programs. It’s unclear when South Carolina began pulling from children’s payments.

“When a child enters foster care, our responsibility is to protect that child and give them every opportunity to build a better future,” McMaster said in a statement. “By ensuring these benefits stay with the children they were intended for, we can give them resources to help build that future.”

But the practice won’t end before McMaster leaves office in January.

The policy change itself doesn’t need legislative approval. But because of the need for funding, the earliest it could start is July 1, 2027, said agency lobbyist Connelly-Anne Ragley.

Sen. Tom Young, who chairs the Family and Veterans’ Services Committee, said he would work to ensure the money gets into the budget next year.

Young, also a member of the Senate Finance Committee, heard about the issue a few weeks ago and told DSS leaders the state needed to fix it as quickly as possible. He was glad to hear a change was already in the works, he said.

“The money’s intended for the child,” the Aiken Republican said. “At the end of the day, this is the right thing to do.”

How the money will get to the children is yet to be determined. The funds could go into interest-bearing bank accounts for youth to access once they turn 18.

Or, the money could go toward Fostering the Future Accounts, which are like Individual Retirement Accounts, often referred to as IRAs, but with different rules about withdrawing funds for major life events, such as to pay for education or buy a first home.

Also referred to as Trump Accounts, the program started under an initiative by first lady Melania Trump to benefit foster youth.

Regardless of the specifics, what matters is that the child is getting the money and not the state, Adams said.

“The important thing is that it’s there for the child and the child’s benefit instead of the state’s coffers,” Adams said.