Why Is Gross Income & Not Net Income Used for Child Support Payments?

Why Is Gross Income & Not Net Income Used for Child Support Payments?
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Usually, child support payments are given by one parent to help the other raise their child after a divorce or separation. The goal of the payments is to enable the child to continue living at the standard they are accustomed to, so they don’t suffer from the failure of their parents’ relationship. It usually lasts until the child turns 18 years.

After that, the parent may not have a legal obligation to pay child support, also known as child maintenance. However, in some jurisdictions, they may need to pay further.

Who Pays Child Support?

The non-custodial parent is the one most likely to pay child support to the parent with the primary custody of the child. And if both parents have joint custody, the one with a higher income may be asked to pay child maintenance. Alternatively, both parents may not be expected to get or pay child support – it ultimately depends on the situation in question.

Most of the time, it is biological parents who are meant to pay child support. But step-parents may be required to do so, especially if they adopted their step-children.

What Does Child Support Pay For?

Parents cannot use child support for any expense that crops up. There are limits to what you can do with your child’s maintenance. You can use it to cater to basic needs, such as food, shelter and clothing. Also, you could also use it for tuition, child and health care and extra-curricular activities. However, you cannot use the money for your own selfish interests.

How Are Child Support Payments Calculated?

Are you wondering whether child support payments are based on gross income or net income?

1. States Consider Gross Income

Well, child maintenance is based on a parent’s gross income, which includes earned and unearned income sources. However, each state differs in what it considers gross income, and you may be allowed to take some mandatory deductions that may include income taxes and Social Security taxes. So, the final amount you pay will depend on the regulations of the state you live in.

For example, in states like Alaska, Colorado and Montana, all interest earned in IRAs is considered income for the purpose of child maintenance calculations. Meanwhile, in Ohio, when you exercise stock options, your capital gains will be considered income when child support payments are calculated. On the other hand, in Louisiana, trust income is unlikely to be included when making child maintenance calculations.

Gross income is used because it is a fairer representation of what a parent earns. If net income was used, some people would use as many deductions as possible to decrease child support payments to zero if they could.

Read More:What Is Statutory Deduction?

2. Factors to Consider When Calculating Child Support

Other factors the judge considers include the child’s special needs, the standard of living the child is used to, how many children you have and are paying support for, your current partner’s ability to pay household bills and the deductions you make from your gross income. Also, your ability to pay will play a role in the calculations.

3. Child Support and Tax

According to the IRS, child support is not tax-deductible. And neither is it taxable to the recipient.

4. Doing the Math

Child support payments are calculated based on various existing models.

Currently, you'll find the income shares model used in 41 states along with the Virgin Islands and Guam. This option uses the rule that kids should get the proportion they would have enjoyed if they lived with their parents.

A total of 12 states use some form of the percentage of income model, which bases child maintenance on a percentage of the income of the non-custodial parent.

Also, three states utilize the Melson formula, which incorporates public policy judgments to ensure the child support payments are fair to both the parents and the children.

So, it would be wise to use your state’s child support calculator to determine what your obligations are. But the general limits are up to​ 50 percent of your gross income if you have a second family and up to ​60 percent​ of your income if you don’t.