South Carolina is putting an end to a decades-old practice that let the state pocket foster children's Social Security survivor benefits to cover the cost of their own care. Governor Henry McMaster announced that the state will stop the so-called “orphan tax,” a shift that affects 301 children currently in foster care whose benefits have been going toward state expenses instead of their own futures.
According to FOX Carolina News, the South Carolina Department of Social Services will include $1.6 million in its budget request for the upcoming fiscal year to replace the survivor benefits currently used to offset foster care costs. McMaster said children entering foster care should be protected and given opportunities to build better futures, framing the move as part of the state's broader effort to strengthen its child welfare system. Social Security survivor benefits are intended to provide financial support to children who have lost a parent, and under the old practice those funds were instead used to reimburse the state for expenses tied to a child's care.
The shift traces back to a December 2025 directive from the U.S. Department of Health and Human Services, which called on states to stop using survivor benefits to offset foster care costs, according to McMaster. That federal push began when Assistant Secretary for the Administration for Children and Families Alex J. Adams sent letters to 39 governors urging them to end the practice, as reported by Newsweek. Some child welfare agencies diverted foster children's Social Security benefits, with the nationwide total estimated at about $34 million.
What the Benefits Are Meant to Do
Social Security survivor benefits for children who lose a working parent average roughly $1,100 a month, money federal officials argue should instead help foster youth cover housing, education, or transportation as they age out of state care, according to WUSF. Tony Catone said the change will give children in foster care greater stability and more resources, adding that conserving survivor benefits can meaningfully support kids' individual needs once they leave the system. Going forward, those benefits will remain available for the child's own benefit rather than being used to offset the state's foster care expenses.
South Carolina's move places it among a fast-growing group of states making the same change. By July 2026, South Carolina was joining 30 other states that had already ended or substantially reformed the practice, and Newsweek's August 2026 count put the national total at 34 states and the District of Columbia taking executive or legislative action on the issue. Nebraska was the first to act, with Governor Jim Pillen signing an executive order in January 2026 barring state health officials from seizing foster youth's federal survivor and disability benefits, per the Nebraska Examiner. Michigan lawmakers took similar legislative action earlier this year, as Hoodline reported in a story on Michigan's foster kids winning back their benefits.
A System Already Under Federal Watch
The financial reform lands amid South Carolina's long-running efforts to fix its foster care system under federal court oversight. South Carolina's child welfare improvements are part of the Michelle H. federal settlement agreement, a class-action case involving issues including caseworker caseloads and child safety that has kept the state under monitoring since 2016, according to Children's Rights. In October 2024, U.S. District Judge Richard Gergel released the South Carolina Department of Social Services from oversight on four key investigation metrics, noting the agency's progress and reduced reliance on group homes. The agency says the state has shown significant progress in safety, placement, and permanency metrics, and now leans on a strong kin-first placement approach along with reductions in the number of children entering foster care overall.
The benefits decision also ties into McMaster's broader child welfare push. In May 2026, McMaster formally enrolled South Carolina in the federal “A Home for Every Child” initiative, a partnership with the U.S. Department of Health and Human Services aimed at improving foster parent recruitment and supporting family preservation, according to the Office of Governor Henry McMaster. The initiative focuses on helping more children in foster care find safe, permanent homes and aims to establish a one-to-one ratio of licensed foster homes to children statewide. That goal reflects a gap between the number of children in foster care and the number of licensed foster homes.
Federal Money on the Table
States that improve their foster home-to-child ratios also stand to gain financially. The Administration for Children and Families launched a $7 million “A Home for Every Child Innovation Challenge” in May 2026, offering awards up to $3 million to states showing the highest or most improved ratios, according to Youth Villages. States must register and opt into federally approved improvement plans to participate. Whether South Carolina's General Assembly will fully approve the $1.6 million budget request to replace the diverted survivor benefits, and how the state will manage and protect the conserved funds for the 301 affected children, remains to be seen in the coming legislative session.
