Compliance Advisor

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Question: Are child-care tax credits ‘protected’ federal deposits?

Answer: No – but let’s explore a little deeper. Federal law protects or ‘exempts’ certain funds or benefits – not simply federal deposits - from garnishment. Federally exempt funds or benefits include:

  • Social Security benefits
  • Supplemental Security Income (SSI) benefits
  • Veteran’s benefits
  • Civil service and federal retirement and disability benefits
  • Servicemember pay
  • Military annuities and survivor benefits
  • Federal student aid
  • Railroad retirement benefits
  • Financial assistance from the Federal Emergency Management Agency (FEMA)

…snip

Benefit payment means a federal benefit payment paid by direct deposit to an account

with the character “XX” encoded in positions 54 and 55 of the Company Entry

Description field and the number “2” encoded in the Originator Status field, both in the

Batch Header Record of the direct deposit entry.

Source link.

As an RDFI, you are allowed to rely on the presence of the ‘XX’ encoded in positions 54 and 55 of the Company Entry Description field and the number ‘2’ encoded in the Originator Status field in making a determination that the file entry is or is not federally protected.

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This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in the rendering of legal, accounting or other professional advice - from a Declaration of Principles adopted by the American Bar Association and a Committee of Publishers and Associations.
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