Getting it Right: The Impact of Taxes on Child Support Calculations
In almost any custody case involving children, parenting plans – including respective parental obligations and time-sharing - have to be developed, and child support obligations have to be determined. The attorneys at Silverman & Vorhis have experience handling each of these issues, and they understand the importance of getting them right. Below, we discuss some of the implications that tax law has on child support payments. As you’ll see, it’s important to have a professional on your side. If you’re considering divorce, or any legal case involving a parenting plan for a child, contact us for a free consultation.
In Florida, minimum child support obligations are determined using a statutorily-mandated formula that determines the monthly needs of a minor child or children. The first step is to compute the combined net monthly income of both parents of a minor child. According to the relevant Florida statute, net income is gross income (the total amount earned from any source listed in the statute) minus any allowable deductions (also listed in the statute).
Once the combined net monthly income has been determined, the parents’ respective percentage share of the child support is calculated by dividing each parent's net monthly income by the combined net monthly income. Parents can use a standard Child Support Guidelines Worksheet to get a rough estimate of their minimum respective financial obligations to the minor child.
However, while the worksheet offers useful guidelines of the potential minimum support obligation, it doesn’t tell the whole story. For that, you need to understand the law.
For instance, the Florida statute allows for “federal, state, and local income tax deductions” to be deducted from a parent’s gross income. One such deduction is the “dependency exemption” which reduces the gross income of the qualifying parent, and thereby reduces the net income of that parent used to calculate child support obligations (generally – subject to exceptions - the parent who provides more than 50% of the child’s support is allowed to claim the exemption and the corresponding tax deduction).
In addition to the dependency deduction, parents caring for a dependent child may qualify for a $1,000 tax credit. As a result, it is useful to determine which parent should receive these deductions and tax credits that can impact both tax andchild support obligations.
Another important tax credit which is important to calculating child support correctly is the Earned Income Tax Credit (EITC). The EITC is a refundable tax credit which can significantly reduce or eliminate the federal income tax liability for certain taxpayers. In some cases, the EITC can actually add to a parent’s net income for child support purposes by providing that parent with “negative taxes,” or payments by the government to the taxpayer. The amount of credit a parent can claim, and the size of the refund, depends upon the parent’s income and number of dependent children. Understanding how the EITC affects a parent’s federal tax liability can be critical to calculating child support accurately.
It’s important to remember that, when calculating support obligations, the Child Support Guidelines Worksheet totals are subject to adjustment by the court, which can deviate from the guidelines for several reasons. Among those reasons is the financial impact of the dependency deduction. While the initial calculation of child support obligations seems straightforward, the tax implications of the calculations can be tricky, and ignoring them expensive. As a result, it pays to have a professional help you develop a parenting plan that works for all of the parties involved.
Beyond the implications of the tax code on potential child support obligations, there are tax implications of paying child support and alimony. For instance, alimony is generally taxable as income to the recipient and tax deductible for the payor. Child support payments are considered neither taxable income for the recipient nor tax-deductible by the payor. The relative amounts of alimony (if any) and child support payments can have a significant impact on the amount of taxes a parent will actually have to pay. Don’t leave anything to chance; have a professional to help you workthrough the often confusing details of Florida’s family law statutes and the U.S. Internal Revenue Code.
If you are considering divorce in Florida, especially if you have a minor child, contact the experienced family attorneys at Silverman & Vorhis for a free consultation, and to help you determine your rights and obligations under the law.
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