Heckler v. Turner

• Decision Date: 27 February 1985
• Docket Number: No. 83-1097,83-1097
• Parties: Margaret M. HECKLER, Secretary of Health and Human Services, Petitioner v. Sandra TURNER et al
• Court: U.S. Supreme Court

470 U.S. 184

105 S.Ct. 1138

84 L.Ed.2d 138

Margaret M. HECKLER, Secretary of Health and Human Services, Petitioner

v Sandra TURNER et al.

No. 83-1097.

Argued Oct. 9, 1984.

Decided Feb. 27, 1985.

Syllabus

Section 402(a)(7)(A) of the Social Security Act (Act) provides that the responsible agency of a State participating in the Aid to Families with Dependent Children (AFDC) program must, in determining a family's need, take into consideration "any other income and resources" of the family. Before 1981, § 402(a)(7) also required the state agency to consider any "expenses reasonably attributable to the earning of any such income," and under such provision virtually all States deducted mandatory payroll-tax witholdings in determining "income." In 1981, the Act was amended by the Omnibus Budget Reconciliation Act (OBRA) so as to (1) eliminate the requirement of § 402(a)(7) that the State consider expenses "reasonably attributable" to the earning of income, and (2) provide in § 402(a)(8)(A)(ii) that the state agency shall "disregard from the earned income" a monthly flat sum of $75. Petitioner Secretary of Health and Human Services then advised the responsible state agencies that mandatory payroll deductions were to be included in the new $75 work-expense disregard, which was to be taken from gross rather than net income, and the State of California issued regulations implementing petitioner's directions. In a class action in Federal District Court challenging the California regulations, the court held that the regulations misconstrued the term "income" in § 402(a)(7) to mean gross income rather than net income, and thereby incorrectly subsumed mandatory tax withholdings within the work expenses covered by the flat-sum disregard of § 402(a)(8)(A)(ii), rather than independently deducting such withholdings when calculating income under § 402(a)(7). The Court of Appeals affirmed.

Held: In calculating a family's need for AFDC benefits, the responsible state agency must treat mandatory tax withholdings as a work expense encompassed within the flat-sum disregard of § 402(a)(8)(A)(ii), rather than as a separate deduction in determining "income" under § 402(a)(7)(A). Pp. 193-212.

(a) The Act makes no explicit provision for the deduction of mandatory payroll-tax withholdings, nor does it qualify the meaning of income. But a common-sense meaning of "earned income," as reflected in existing regulations, includes tax withholdings since portions of salary or wages withheld to meet tax obligations are "earned." Since earned income includes tax withholdings, so, too, does the broader category of "income." The congressional Reports accompanying the OBRA amendments make clear that Congress provided the flat-sum disregard in lieu of itemized work expenses, and there is no support in the statutory language or structure for any inference that Congress contemplated an additional but unmentioned deduction for tax liabilities. The administrative background against which the OBRA Congress worked also supports the conclusion that mandatory tax withholdings were among the items Congress intended to include within the flat-sum disregard. Pp. 193-199.

(b) The Court of Appeals erred in concluding that the substitution of the flat-sum disregard for the work-expense disregard of § 402(a)(7) had no effect on the treatment of mandatory tax withholdings because they always had been excluded from a working recipient's "income" for purposes of § 402(a)(7) by virtue of the principle of "actual availability" of income and thus should continue to be deducted from earnings as the first step in any determination of need. The principle of actual availability has not been understood to distinguish the treatment of tax withholdings from that of other work expenses. Pp. 199-204.

(c) By concluding that the OBRA Congress could not have intended to include mandatory tax withholdings in the flat-sum disregard because such a rule would dilute financial incentives to work, the Court of Appeals ignored the congressional choices manifest in the departure from approaches previously favored. The legislative history indicates that Congress embarked on a new course, emphasizing work requirements over financial incentives. Pp. 204-208.

(d) Subsequent congressional action dispels any doubt as to the OBRA Congress' intention that mandatory tax withholdings be treated as standard work expenses subsumed by the flat-sum disregard, not as an independent deduction. Particularly, the Deficit Reduction Act of 1984 (which became law after certiorari was granted in this case) amended § 402(a)(8) to provide that "in implementing [the section], the term 'earned income' shall mean gross earned income, prior to any deductions for taxes or for any other purposes." The legislative history demonstrates that Congress enacted this provision in order to resolve the dispute presented here. Pp. 208-211.

707 F.2d 1109, reversed.

Carter G. Phillips, Washington, D.C., for petitioner.

Mark N. Aaronson, San Francisco, Cal., for respondents.

Justice BLACKMUN delivered the opinion of the Court.

This litigation concerns the proper computation of benefits to working recipients of Aid to Families with Dependent Children (AFDC), provided pursuant to subch. IV, pt. A, of the Social Security Act of 1935 (Act), as amended, 42 U.S.C. § 601 et seq. Specifically, we must decide whether, in calculating a household's need, the responsible state agency is to treat mandatory tax withholdings as a work expense encompassed within the flat-sum disregard of § 402(a)(8)(A)(ii) of the Act, 42 U.S.C. § 602(a)(8)(A)(ii), or whether the agency is to deduct such sums in determining "income" under § 402(a)(7)(A) of the Act, 42 U.S.C. § 602(a)(7)(A). The latter interpretation, of course, would accrue to the benefit of the recipient.

I

Before 1981, § 402(a)(7) of the Act required the state agency responsible for calculating a family's eligibility for AFDC benefits to "take into consideration any . . . income and resources of any child . . . claiming aid," as well as any "expenses reasonably attributable to the earning of any such income." See Pub.L. 87-543, § 106(b), 76 Stat. 188 (1962). The Omnibus Budget Reconciliation Act of 1981 (OBRA), Pub.L. 97-35, 95 Stat. 357, however, effected amendments of § 402(a)(7). While preserving the language that instructs the State to consider a family's income and resources, Congress, in § 2302 of OBRA, 95 Stat. 844, eliminated the requirement that the State take into account "expenses reasonably attributable to the earning of any such income." At the same time, by § 2301, 95 Stat. 843, Congress placed in § 402(a)(8)(A)(ii), 42 U.S.C. § 602(a)(8)(A)(ii), a flat $75 "work expense" deduction or "disregard" to be taken from an individual's "earned income."

In response to these amendments, petitioner Secretary of Health and Human Services advised the responsible state agencies that mandatory payroll deductions were to be included in the new $75 work-expense disregard and that this disregard was to be taken from gross rather than net income. The State of California promptly issued regulations implementing these directions; ¹ this had the effect of significantly reducing benefits paid to approximately 45,000 California AFDC families with working members.

Respondents, a class of all past, present, and future California AFDC recipients who have been or will be affected by the changes wrought in the AFDC program by OBRA, brought this action in the United States District Court for the Northern District of California to challenge the California regulations implementing the Secretary's directions. They contended that the regulations misconstrued the term "income" in § 402(a)(7) to mean gross income, and thereby incorrectly relegated mandatory payroll deductions to the work expenses covered by the flat-sum disregard of § 402(a)(8); instead, according to respondents, they were entitled to have these mandatory payroll items disregarded by the State when calculating income and resources under § 402(a)(7). The State of California brought the Secretary into the litigation as a third-party defendant.

The District Court agreed with the plaintiff class. It therefore granted respondents' motion for summary judgment, as well as the State's motion for summary judgment against the Secretary. The court enjoined the State from implementing its new regulations and the Secretary from terminating federal matching funds due the State. Turner v. Woods, 559 F.Supp. 603 (1982).

On appeal, the United States Court of Appeals for the Ninth Circuit affirmed. Turner v. Prod, 707 F.2d 1109 (1983). Finding the statutory language unhelpful, it scrutinized the legislative history and the administrative interpretation of the two statutory provisions before relying primarily on "congressional purpose" to conclude that § 402(a)(7) "income" had always been net income after deduction of amounts mandatorily withheld for payment of social security, federal, state, and local taxes. Therefore, it concluded, the substitution of the flat-sum disregard of § 402(a)(8) for the work-expense disregard of § 402(a)(7) had had no effect on the independent deduction of tax withholdings in determining need.

The other Courts of Appeals to address the issue have concluded that Congress intended the flat work-expense disregard of § 402(a)(8) to encompass mandatory payroll withholdings, and that "income" for purposes of § 402(a)(7) was gross income.² We granted certiorari to resolve the conflict. 465 U.S. 1064, 104 S.Ct. 1412, 79 L.Ed.2d 739 (1984). On July 19, 1984, after the writ had issued but before this Court heard oral argument, the Deficit Reduction Act of 1984, Pub.L. 98-369, 98 Stat. 494, became law. This new legislation includes a provision, § 2625(a), 98 Stat. 1135, that directly addresses the issue raised by this case. On the basis of that congressional action, Justice REHNQUIST, in his capacity as Circuit Justice for the...