Gross Income and Child Support
Child Support Q&A
Determining Gross Income
- Do “Gross Income” and “Adjusted Gross Income” have the same meaning for Child Support purposes as when they are used for tax purposes? Both of these terms are given very specific definitions by the Arizona Child Support Guidelines. With that in mind, it is important that you forget everything you have learned about these terms in the context of tax preparation.
- Generally, what is included in Gross Income? Gross income includes income from any source, and may include, but is not limited to, income from salaries, wages, commissions, bonuses, dividends, severance pay, pensions, interest, trust income, annuities, capital gains, Social Security benefits, Workers’ Compensation benefits, unemployment insurance benefits, disability insurance benefits, recurring gifts, prizes, and spousal maintenance.
- Generally, what is not included in Gross Income? Generally speaking, the Court does not include income beyond what would have been earned from full-time employment. The idea behind this policy is to give each parent the opportunity to work additional hours through overtime or a second job without increasing the cost of child support. The exception to this policy is when a parent historically and regularly earned overtime income such that it can be reasonably expected in the future. Additionally, the Court may choose not to include as income money earned from a non-recurring source. For example, if you receive a one-time personal injury settlement, the Court will likely not consider that money as income for child support purposes.
- What if I received benefits from the State? Luckily for you, gross income does not include money or benefits received from means-tested public assistance programs, including but not limited to: Temporary Assistance to Need Families (TANF), Supplemental Security Income (SSI), Nutrition Assistance and General Assistance.
- How does the Court Determine Gross Income for the self-employed person? For income from self-employment, rent, royalties, proprietorship of a business, or joint ownership of a partnership or closely held corporation, gross income means gross receipts minus ordinary and necessary expenses required to produce income. Ordinary and necessary expenses do not include amounts determined by the court to be inappropriate for determining gross income for purposes of child support. Ordinary and necessary expenses include one-half of the self-employment tax actually paid. When determining “ordinary and necessary expenses” it is always important to look for and identify and personal expenses being paid for by the business. For example, if the business is paying for a parent’s mortgage on their personal residence, a strong argument can be made that the mortgage payments should be included in ordinary expenses. If you are the self-employed parent, it is always important to have detailed documentation regarding your business expenses. Conversely, if you are the non-self-employed parent, it is important to request detailed documentation from the self-employed parent regarding their business sales and expenses.
- What about employer expenses reimbursements and employee benefits? This a potential addition to a parent’s income that most people, including attorneys, fail to identify. If an employee received reimbursement for an expense that significantly reduces his/her personal living expenses, that expense shall be counted as part of the parent’s gross income. A common example is cell phone or vehicle allotments. If the other parent’s employer pays his/her cell bill or provides a vehicle which the parent uses during their off hours, that amount should be included in the parent’s gross income.
- What if a parent is unemployed or underemployed? The Court automatically has the authority to attribute minimum wage income to any parent who is unemployed. In other words, it is not necessary for the Court to make any special finding in order to attribute minimum wage to a parent. The purpose behind this rule is to encourage unemployed parents to seek at least full-time minimum wage employment. Additionally, if the Court determines a parent is voluntarily working below his/her earning capacity, the Court can attribute that parent income consistent with his/her income capacity. For example, if an accountant making $80K/year quits his/her job to become a fast-food worker making minimum wage, the Court can still hold that parent accountable for a $80K/year gross income. Before the Court attributes income for earning capacity, however, the Court must consider whether the reduced income is reasonable under the circumstances. It is important to note that if the Court attributes a parent income, the Court may also attribute that parent reasonable expenses associated with earning that income. For example, if the Court holds a parent to full-time minimum wage, the Court will also likely attribute that parent reasonable daycare expenses consistent with full-time employment. Finally, it is important to note that the Court does not have to attribute income. Indeed, if a parent is disabled, engaged in occupational training to enhance earning capacity, or the custodian of a child with special needs, the Court may decline to attribute that parent income.
- What about my current spouse’s income? The Court will only consider the incomes of people with a legal duty to support the children in question. As discussed above, step-parents do not have a legal duty to support their step-children. As a result, in calculating child support, the Court will never consider your current spouse’s income.
- What if I received substantial property/assets from the divorce? Generally, the Court is prohibited from considering the distribution of marital property for the purpose of determining the parent’s income. The only exception to this rule is when the property distributed generates income, or if one parent has engaged in excessive or abnormal expenditures, destruction, concealment or fraudulent disposition of community property held in common. This means that a parent has “wasted” substantial community assets. The Court may attribute that parent income based on the value of the wasted asset.
- How are taxes figured into Child Support? For the purposes of Child Support, Gross Income means income earned before taxes and deductions. However, this does not mean that the Court does not consider the impact of taxes. In fact, the Guidelines use a formula to convert gross income into net income based on the parent’s estimated tax bracket. As a result, the impact of taxes is built into the Arizona Child Support Guidelines.