The exact child support guidelines vary from state to state but generally all states consider the income of the parents. You should know what is included and what is excluded when calculating income for child support purposes.
The state guidelines will define income for child support purposes. At the bare minimum, the definition as required by federal law takes into consideration all of the non-custodial parent’s income and earnings. The gross income will include the following (this list is NOT all inclusive):
• Wages and salaries including bonuses, commissions, tips, deferred compensation, share in profits and severance pay.
• Income from other jobs, contractual agreements, as well as income from investments and interest income
• Estate or trust income
• Pension income
• Capital gains other than non-recurring gains
• Veterans’ benefits
• Social Security benefits
• National Guard and reserve drill pay
• Fringe benefits of military personnel
• Disability insurance benefits, unemployment insurance benefits, workers compensation benefits, strike pay and other benefits received in place of earned income
• Prizes and gifts including gambling and lottery winnings
• Alimony from another marriage/divorce
• Income from another spouse if the income lowers the expenses of the paying parent
• Self employment income including royalties, rent and benefits
• Education grants including subsidies, fellowships and scholarships that can be used for personal living expenses
Employment perks like the free housing, use of employer provided car and reimbursed expenses that help lower personal living expenses are considered as income for child support purposes. In short every source of funds the parent can access will be considered as income.
Unrealized income or income that exists only on paper and is yet to be received may or may not be included in income depending on the state guidelines and certain other factors. The following discussion will provide more details of how unrealized income is treated for the purpose of child support.
Individual Retirement Accounts (IRAs). In Ohio, Montana, Colorado and Alaska, courts have held the interest earned on IRA will be considered as income while in Virginia, Tennessee, Louisiana and New Mexico, court have ruled that the interest is not considered as income.
Unrealized Gains from Unexercised Stock Options. One Ohio case is the only case that has so far held that this type of unrealized income is income for child support purposes. A court in Florida used this principle to hold that for child support purposes, capital gains from unexercised stock options are income.
Retained Earnings of a Corporation, Partnership, or Sole Proprietorship. In some states this form of unrealized income is considered as income for child support purposes while in other it is not. In a few states, it will be considered as income of the parent is a majority stakeholder and entitled to the retained earnings.
Income From a Trust. Some estate planning strategies result in fictional income that is reported on the tax returns but never received. A Louisiana court held that such income is not income for child support purposes. The mother’s parents had gifted to her certain property in trust. The property generated income but the income was put back into the trust. The court held that since she could not reach the trust, the income is not income for child support purposes.
Capital Gains from Stock Transactions. A court in New York ruled that capital gains though reported are not received by the person and therefore not considered as income for child support purposes. However courts in other states have held that it is income for child support purposes.