Since both the parents are legally responsible for supporting their children, each parent’s income must be considered when calculating child support obligations. Furthermore, it must be done so thoroughly and accurately to avoid child support issues down the road.
Accurately determining parents’ income for a child support case is a three-step process:
- Identifying all sources of income to calculate each parent’s monthly gross income as defined by the state’s child support guidelines
- Deducting available credits from the parents’ gross incomes
- Preparing for the court to impute income for a parent who is voluntarily underemployed or unemployed
Each parent’s monthly gross income
Determining parents’ income for child support starts with calculating each parent’s monthly gross income. Gross Income is determined before taxes and other deductions are taken out and includes income from any source, whether that income is earned or unearned.
Monthly gross income for child support purposes can (and often does) include the following:
- Wages and salary
- Perks and fringe benefits
- Commissions, fees, and tips
- Overtime pay
- Severance pay
- Deferred income
- Workers’ compensation, whether temporary or permanent
- Unemployment insurance benefits
- Self-employment income as an independent contractor, consultant, partner, or business owner
- Pensions and retirement plans, including but not limited to Social Security, Veteran Administration benefits, Railroad Retirement Work benefits, Keoghs, and IRAs
- Disability benefits
- Interest income
- Trust income
- Annuity income
- Capital gains
- Judgments for personal injury lawsuits and other civil actions
- Gifts of cash or other liquid assets that can be converted to cash
- Lottery winnings
- Windfall profits
- Alimony or maintenance received from previous divorces
- Income from the sale of goods and property
- Income from rental property
- Any other sources of income
As you can see, with child support, parental income can include more than just income from employment. On the other hand, there are some things that are traditionally not included in a parent’s monthly gross income, such as:
- Income of the child
- Child support received for the benefit of a child from another relationship
- Welfare benefits, food stamps, SSI benefits, SSDI benefits, etc.
- Adoption assistance benefits
Deducting available credits
Once each parent’s monthly gross income is calculated, available credits will reduce that amount. This means subtracting the following types of credits, if any, from each parent’s gross monthly income:
- Credit for self-employment taxes paid by the parent
- Credit for another child being supported in the home, but not a stepchild
- Credit for a child being supported by a parent under a child support case, but not a stepchild
- Credit for a child who does not live in the parent’s home, but is receiving support from the parent, but not under a court order and not a stepchild.
Note: There is no credit given for overdue child support or arrearages.
After deducting credits that apply to each parent’s particular circumstance, the result is the parent’s Adjusted Gross Income (AGI).
If either parent is voluntarily underemployed or voluntarily unemployed, the court may impute income to that person. Similarly, when there is insufficient proof of a parent’s income, the court may assign income to that person based on the state’s per capita income.
Alternatively, the court may look closely at the lifestyle the parent enjoys and reverse engineer that parent’s income. Imputed income, however, will never be less than the state’s minimum wage.
Knowing the parents historic spending patterns will help the court impute income when necessary. For example, a car leased by the business for the parent’s benefit could result in the court inputting the lease paid for that car as income to the parent.
Mistakes made in determining parents’ income for child support, the discovery of unreported income, as well as, concealed income that has been brought to light may all be grounds to seek a modification of the court’s child support order. But, whether the court will modify the order will depend on the particular circumstances and how well the case is presented.
It is always best to accurately determine parents’ income when the child support is being established. This means being diligent and going the extra mile to get it right the first time. Trying to fix a child support problem, later on, can mean additional lawyer fees, court costs, possible delays, and a great deal of stress.