Michigan under pressure to end ‘orphan tax’ on benefits for foster youth

As of Oct. 1, Michigan will now conserve a portion of federal benefits for foster youth to use when they age out of the system.
But advocates say all of those funds should be reserved for the foster youth and say recent legislation was a good start.
The federal government is encouraging and incentivizing states to completely drop the practice, which some call an “orphan tax.”

Justin Kasieta was 13 years old when he lost his father. Social Security survivor benefits from the federal government helped support him, his siblings and his mother for two years.

That is, until Kasieta landed in foster care as his mom struggled with addiction.

At the time, the policy in Michigan, as well as many other states, was to capture all the federal benefits, including survivor benefits, owed to foster youth and use the money to reimburse the state for the cost of foster care. For Kasieta, that was about $18,000 diverted during his three years in the system.

“After prodding my caseworker for a few months I realized that I was effectively going to be forced to pay for my own foster care,” he told Bridge Michigan of the survivor benefits he no longer received.

Kasieta exited the foster care system about seven years ago, and has spent years advocating for an end to what he and others call an “orphan tax.” They’ve seen some progress recently, aided by the federal government encouraging states to do away with the longstanding practice, which one US official called “stealing” from orphans.

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As of Oct. 1, a new law in Michigan prohibits the state from using benefits as reimbursement for care and requires the state to conserve at least 50% of benefits for foster youth between 14 and 17 years old for their use once they’re out of the system. The rest of the money, and all benefits for children 13 or younger, can be used for needs not otherwise provided by the department, including financial literacy training. About 600 children eligible for these kinds of benefits enter Michigan’s foster care system each year, according to the state.

The change came through bipartisan legislation sponsored by Rep. Kathy Schmaltz, R-Jackson, and Sen. Jeff Irwin, D-Ann Arbor, that Gov. Gretchen Whitmer signed into law.

However, advocates like Kasieta say that all of those funds should be conserved. He’s glad the new law passed, but described it as a 5% or 10% fix.

“Our opinion is that this process is either right completely or wrong completely,” he said.

In 2023, Michigan captured $3.2 million in these funds, according to a fiscal analysis of the bills. The new law could increase expenditures by $3.5 million at Michigan Department of Health and Human Services, which administers the foster care program, but have “no significant fiscal impact” on local governments, the analysis said.

In a statement, state health department spokesperson Erin Stover wrote that the department “is committed to supporting the well-being and long-term stability of children in foster care through state and federal resources.” The new practice set through the recent legislation “ensures that these federal benefits are used to support the child’s individual needs and future stability,” she added.

The federal Administration of Children and Families, housed within the US Department of Health and Human Services, agrees with Kasieta and has been encouraging Michigan and other states to do away with the practice.

As a result of that encouragement, Alex Adams, the assistant secretary for the Administration for Children and Families, said the number of jurisdictions capturing all of these benefits has decreased from 39 to 13 in the past year.

“Most states have addressed it fully and got it fully off the books,” he said. “Michigan was a little bit more tepid and dipped their toes in the water, but are still stealing from the majority of their orphans. But you know, all progress should be celebrated and will be celebrated.”

Twelve states and Washington, D.C., have passed laws to conserve all federal benefits for foster youth, according to the Children’s Advocacy Institute at the University of San Diego. Michigan is one of six states that conserve a percentage of benefits or do so for a limited age group.

Justin Kasieta is a former foster youth who now works as an advocate. He wants Michigan to end the practice he and others call an “orphan tax.” (Courtesy of Justin Kasieta)

Kasieta’s advocacy work is connected with the Institute.

Those states could have a tougher time winning some federal grants, including one meant to reward states with a good ratio of foster homes to children.

The “A Home for Every Child Innovation Challenge” will reward the state with the best ratio and the most improved ratio after a year. The program, which Michigan is participating in, began on Oct. 1 and will run through September 2027. States can receive between $1 million and $3 million, but if there’s a tie in the judgement criteria, money will be given to the state that doesn’t capture survivor benefits for foster children.

Kasieta said he will continue to advocate for a full end to the “orphan tax.”

He pointed to the high rates of former foster youth who experience homelessness after aging out, which a national survey put at between 18% and 32% for people from 17 to 21 years old. Michigan’s rates were higher than the national average.

Kasieta said he could have used the money to help get his first apartment or his first car, or what he called “the basic launch pad that allows you to become self-sufficient.”

Matt Mencarini is a Report for America corps member who covers data and accountability for Bridge Michigan.