Child support is defined by the Internal Revenue Code as a “payment which the terms of the divorce or separation instrument fix (in terms of an amount of money or a part of the payment) as a sum which is payable for the support of children of the payor spouse.”  26 U.S.C.A.  71(c)(1).  Basically, child support is a payment ordered in a divorce decree that the divorce decree labels as child support.  There are situations where payments labeled as “child supprt” may not qualify as child support but we won’t get into those right now.  The tax code treats any payment of child support, so long as it meets the requirements of Section 71, as a non-taxable event, meaning that the receiving spouse does not include the child support in gross income (which means it is received tax-free) and the paying spouse receives no deduction for the payment of child support.  26 U.S.C.A.  71. 

Alimony, on the other hand, is considered income to the receiving spouse (must pay taxes on it just as if earned at a job) and may be considered a deduction by the paying spouse.  26 U.S.C.A. 71.  There are situations where the Internal Revenue Service may consider a spouse to be receiving alimony even if the payment is not called alimony.  Obviously, this would be a huge problem if the receiving spouse had not been including the alimony payments on her income tax return.  We’ll get into alimony is more detail in a later post.

Many people try to prepare their own divorce documents to save money on legal fees but often their efforts to save money result in unintended tax consequences.  It definitely pays in the long run to get the divorce documents drafted correctly.  You do not want to find out during an audit that the tax-free money you’ve been receiving is not really tax-free.

The first step in the process is calculating the amount of monthly adjusted gross income. This generally is done by taking the gross amount of money earned in a month (which includes all earnings, even if paid in cash) and deducting from that the amount withheld for federal, state and local taxes as well as social security contributions. If the paying parent is required to pay child support for another child pursuant to a court order, then that amount should also be deducted from the monthly gross pay. If mandatory contributions to a retirement plan are made, then a deduction is taken for those contributions. (All of these mandatory deductions, including taxes and social security contributions, are most easily calculated by reviewing the payor’s W-2 form). Finally, if the paying parent is also the parent of a child living with him, then the court may subtract an amount that it deems appropriate to account for the needs of that child. The amount remaining (if calculated on a monthly basis) is the monthly adjusted gross income. If the calculations were done from a W-2 form then the net amount must be broken down into a monthly amount by dividing the net amount by twelve.

Once the monthly adjusted gross income is calculated, the next step is to multiply the monthly adjusted gross income by the correct child support percentage to come up with the amount of monthly child support. The percentages are:

1 child: 14%
2 children: 20%
3 children: 22%
4 children: 24%
5 or more children: 26%

There are some exceptions to these rules, but this summary should assist anyone who wants to take a shot at coming up with a ballpark child support calculation. It is important to remember though that the Court is the final authority over the amount of child support and it evaluates child support amounts carefully to make sure that the law is followed.