Determining Parents' Incomes

When applying guidelines, most states look to either the parents’ net income or gross income. Gross income is the parents’ income from all sources, including wages and investments, with no deductions for taxes or other expenses. Non-wage benefits a parent receives from an employer might be counted as income. For example, military housing allowances usually are counted as income when determining child support. Use of a company car for personal business might also be counted as income.

Net income means gross income minus federal and state income taxes, Social Security tax, Medicare tax, and health insurance. Some states will allow other deductions when determining net income. Additional deductions might include: union dues, mandatory retirement contributions, obligations of support to other families (other than the family whose support is currently at issue), and payment on debts incurred during the marriage that were incurred for the benefit of the family.

For self-employed persons, the determination of income may be complex. Courts will allow deductions of reasonable business expenses before determining net income. But courts may disallow unusually high business expenses and depreciation that reduces income artificially without hurting the parent’s cash flow.

Thus, certain expenses that are deductible for tax purposes may not be deductible from income for the purpose of setting child support. For example, if a self-employed parent claimed a large deduction for depreciation of office equipment, the deduction may be quite permissible for the Internal Revenue Service. However, it might not be treated as a full deduction from income for the purpose of setting child support, particularly if the office equipment will have a useful life for longer than the time over which the deduction is taken.

Types of Support Guidelines

The amount of money a parent will have to pay in child support varies from state to state because each state has its own guidelines and judges may differ in their willingness to depart from guidelines.

Generally, there are two types of child support guidelines. One type is based on the income of the person who is supposed to pay child support (the obligor) and the number of children. The other type of guideline is based on the income of both parents and the number of children. This second type of guideline often is referred to as the income shares model.

Child Support Guidelines Based on Percentage of Obligor’s Income

Illinois and New York are examples of state guidelines that are based on a percentage of the noncustodial parent’s income. (New York’s guidelines make reference to a percentage of the income of both parents, but for practical purposes child support payments are paid by the noncustodial parent to the custodial parent, since the custodial parent is assumed to spend money for the child without a specific transfer of money that is monitored by the court or the other party.) These were the guidelines in effect in 2005:

States use different methods of calculating a parent’s income for the purpose of determining child support. Illinois uses “net income,” which is defined as income from all sources minus the following deductions: federal and state income taxes (properly calculated); Social Security (FICA) payments; mandatory retirement contributions; union dues; health insurance; payment of maintenance (alimony); payment of other child support obligations; and repayment of certain debts. New York uses “gross income”, which is defined as income from all sources minus certain business expenses; payment of alimony; payment of other child support obligations; public assistance; supplemental security income; Social Security (FICA) payments; and New York City or Yonkers income taxes. (In New York, federal and state income taxes are not deducted before determining a parent’s income for the purpose of setting child support.)

Under these guidelines, if a noncustodial parent in Illinois had an income of $50,000, the annual level of child support would be $10,000 for one child; $14,000 for two children; $16,000 for three children, etc. In New York, a noncustodial parent with $50,000 income would pay $8,500 for one child; $12,500 for two children; $14,500 for three children, etc.

The Income Shares Model

The “income shares model,” which considers the income of both parents, also varies slightly by state. Under one approach, the court first adds the net income (or gross income) of both parents. Then the court consults a long table--or computer program--that assesses the total obligation of support as a percentage of the combined incomes and the number of children. Generally, the percentage drops as the combined incomes rise, on the assumption that financially well-off parents need to spend a smaller portion of their incomes on their children than parents who are less well-off.

The court multiplies the combined incomes by the percent figure and obtains a dollar amount that the child or children are considered to need for support. Then the responsibility to pay that support is divided between the parents in proportion to each parent’s income.

Under another approach, the obligation of each parent is made by applying the parent’s individual income to the child support table or formula to determine each parent’s obligation of support.

If one parent had primary custody of the children, the other would probably make a cash payment to that parent. The parent with primary custody probably would not make a cash payment as such, but would be presumed to spend the appropriate fraction of his or her income on the children. Alternatively, the parents might set up a checking account for the children’s expenses, deposit their respective shares into the account, and agree on the type of expenses that could be paid from the account.

If the parents share equal time (or close to equal time) with the children, adjustments might be made to the formula.