Beware the tax calculations in the child support guidelines’ automatic calculator. You be getting less support that you should be. At a time when the NJ Child Support guidelines are notoriously low, it is important to make sure that an obligor’s net income is appropriately calculated in order to asses whether the correct amount of child support is being paid. Child support is calculated based on the net income of the parents. Net income for support purposes is calculated by taking gross income, deducting taxes, mandatory retirement contributions ( such as a state pension deductions), union dues, and other allowable deductions listed in the Guidelines. The more the net income, the more the support award. The issue of taxes must be carefully looked at, particularly in this age of automatic calculators.
The child support guidelines that are on various computer programs including the state’s judiciary web site, and ones used by attorneys regularly, have automatic tax calculators. In other words, if you know that your spouse makes $150,000 per year, you can plug that in and the computer will spit out a “net” number after hypothetical taxes are paid out. Similarly, if you look at the guidelines in the appendix to the current court rules, there is a table that similarly calculates an amount to deduct for taxes.
The problem, however, is that these calculations consist of an estimated tax amount based upon the tax bracket of the payor, rather the actual tax rate. There’s a difference, and in some cases, it can be significant. A tax bracket is the percentage of income that is taxed ate the top rate. We live in a country that has a progressive tax, an so higher income levels are taxes at higher rates. However, when you hear someone say that that are in the 35% tax bracket, that does not mean they necessarily pay 35% in taxes for all of their income. In fact, most individuals, when you review a tax return with all of their deductions, actually pay a far lower amount of taxes as a percentage of their income. So in other words, even if you think someone is in a 25% tax bracket, there is a good possibility that the actual percentage of their income that noes to taxes is something closer to 11% depending on how they file (married, single,head of household), the deductions that they can take, and the dependents that they claim.
The result of all this is that when you simply look to the calculators in these programs, you may be shorting yourself when it comes to support. This is not to say, however, that the calculators do not play an important role in calculating support. There are times when you know that the obligor may not have significant deductions and in fact the amount may be spot on. In other times, you may not have the information and a judge needs to make a “best guess.” However, when the information can be available, it is always preferable to a review tax returns.