A complex child support proceeding may involve disputes over the parents’ net incomes or earning capacity, the child’s special needs, or other issues. In Pennsylvania, the key to calculating child support is the net income or earning capacity of the parents, with a secondary focus on the financial needs of the child. Determining net income can become complex when a parent derives income from bonuses, commissions draws, business distributions, or incentive compensation, such as restricted stock, RSUs, options, stock appreciation rights, and deferred compensation. Under some circumstances, the courts may consider the retained earnings of a business (undistributed profits), perquisites, investment income and capital gains.
In Pennsylvania, the child support guidelines determine the amount of basic support, which is enhanced with additional support for medical insurance and expenses, child care, private school tuition, summer camp, and extracurricular activities. In some cases, a budget analysis can expand or control the amount of child support to be paid, but only after the guidelines have been applied. The Pennsylvania child support guidelines are based on net income after deducting federal, state, local and payroll taxes and union dues. Net income is not the same as take-home pay.
Determining net income after taxes is one of the topics covered by Frumkes & Vertz on Divorce Taxation, the leading treatise on family law tax issues. Net income may be affected by the filing status of each parent, the allocation of tax deductions and credits, the treatment of income-generating assets (like rental property and family businesses), and constant changes in tax law. Divorce Taxation is updated annually to keep pace with the latest tax law developments affecting child support calculations.