34 States Have Ended the 'Orphan Tax' That Took Foster Kids' Social Security

States have been working to correct what some see as financial mistakes impacting orphaned children in foster care. Known as the "orphan tax," the practice allows child welfare agencies to use an orphaned child's Social Security survivor benefits to help pay for the cost of their foster care. More states are working to end or substantially change the practice.

The Child Welfare Information Gateway reports that there are more than 330,000 children in foster care nationwide. Though the figure doesn't differentiate between children who are orphans and those who are in foster care for another reason, the gravity of the orphan tax is gaining increased attention and efforts against it are gaining momentum.

How the orphan tax works

If a parent who worked and paid Social Security taxes passes away, a child may qualify for monthly Social Security survivor benefits. Though states are required to provide foster care to any child in need of it, states often take survivor benefits from children in foster care to help cover the costs of their care.

Social Security survivor benefits average about $1,100 per month. That money could be saved up while a child is in foster care; when the child is old enough to leave foster care, they could have more financial stability because of their savings.

Additionally, survivor benefits may be the last form of financial support that a parent is able to leave their child. If states take those benefits to cover care costs, they're essentially requiring children to pay for their own care out of resources their parents provided them.

How the movement to end the orphan tax began

The movement to end the orphan tax started in 2025. In December 2025, the Administration for Children and Families (ACF) sent letters to 39 governors urging states to take immediate action to protect foster children from having their Social Security survivor benefits seized to pay for their care.

"These letters highlight the pressing issue of state child welfare agencies diverting foster youths' earned Social Security survivor benefits," the letter stated. "ACF has notified all 39 governors who allow this practice and aims to work with states to end it. The goal is to ensure these earned benefits are no longer taken from foster youth and are instead preserved to support them as they transition out of state care."

States that have ended the orphan tax

So far, 34 states and the District of Columbia have ended or substantially changed the practice of allowing welfare agencies to use Social Security benefits to help pay for orphaned children's foster care costs. On July 15, Oklahoma joined the states to act on the orphan tax. Iowa, Montana, and Michigan joined the movement in late July, and Maine also eliminated the orphan tax on August 5.

The orphan tax still exists in 15 states, including Connecticut, New York, Pennsylvania, Maryland, West Virginia, North Carolina, South Carolina, Florida, Minnesota, Wisconsin, Illinois, Arkansas, Texas, Alaska, and Hawaii.

Where the Department of Health and Human Services stands on the issue

The Department of Health and Human Services (HHS) supports states in ending the tax. "Thirty states have chosen fairness over bureaucracy by protecting the Social Security survivor benefits that belong to foster children, and I commend their leadership," said HHS Secretary Robert F. Kennedy, Jr. in a July 15 statement. "When a parent dies, those benefits are meant to help their child — not reimburse the government. Every state should protect these children instead of taking what their families earned, and HHS will keep pressing until they do."

The Trump administration foster care policies

The Trump administration launched an investment account program to support children in the foster care system earlier this year. The Fostering the Future accounts allow children in foster care to access the $1,000 Trump Accounts that were offered to newborns this year. State child welfare agencies serving as legal guardians for children eligible for the program may open a Trump Account on the child's behalf.

The accounts are federally backed and tax-advantaged savings accounts. Once a foster child turns 18, they obtain control of the account. The accounts are designed to help give foster youth a financial foundation when they enter adulthood, and may help them build assets for milestones like workforce training and homeownership.

Bottom line

In states that haven't acted, the orphan tax remains in place, and HHS has stated that it plans to continue pressing those states to change their policies. Additionally, ACF has stated that it plans to continue working with governors, state legislatures, child welfare agencies, and advocates in an effort to ensure that foster children receive their survivor benefits and the financial security they may provide after the loss of a parent.

Social Security is often thought of as providing senior benefits, but the survivor benefits available are also essential in delivering financial support for vulnerable youth.

You May Also Like

Almost 80% of Americans Fear a Retirement Age Increase — Here’s the Real Reason Why

By FinanceBuzz Editors

10 Smart Money Moves to Retire

By FinanceBuzz Editors

The Easiest Way to Diversify Your Investment Portfolio With Fine Art

By FinanceBuzz Editors

7 Brilliant Ways to Build Wealth After 40

By FinanceBuzz Editors

5 Ways Seniors Are Throwing Away Money

By FinanceBuzz Editors

Best High-Yield Savings Accounts of August 2026

By FinanceBuzz Editors

Save Money and Get Huge Discounts on Everyday Purchases

AARP Benefits

• Huge discounts on travel, groceries, prescriptions and more
• Access to financial planning resources and health tools
• Join AARP and get 25% off with automatic renewal

Become a member now!

---

Subscribe Today

Unlock the Best Banking Deals and Bonuses

From high-yield savings accounts to cashback checking and sign-up bonuses, we bring you the best banking offers to grow your money smarter.

or

SEE TOP BANKING OFFERS →

By submitting this form you agree to receive emails from FinanceBuzz and to the privacy policy and terms