Gross Income
The first step in calculating net disposable income for the purposes of child support is to determine gross income. Although state laws can vary, gross income ordinarily refers to income from all sources, including wages, salaries and commissions. Further, unemployment, military, disability and workers compensation benefits are also part of gross income. However, gross income generally does not include benefits received from public assistance programs, such as food stamps.
Imputed Income
Gross income also includes income that a parent could be making if the parent is voluntarily unemployed or underemployed. Underemployed means that the parent is working, but not at the capacity that the parent is capable of working. The purpose of this rule is to prevent a parent from working less or at a lower paying job to simply avoid a higher child support obligation. Determining earning capacity can be highly fact-sensitive and requires a court to look at a parent's educational background, work history and the present job market.
Net Income
After the court has determined gross income, the next step typically involves taking deductions for state, local or federal income taxes paid, as well as mandatory union dues and taxes paid on unemployment, social security, or medicare benefits. Alimony payments to the other parent may also be deducted from gross income. Once these deductions have been taken, the resulting number is referred to as the parent's disposable net income.
Role of Support
After net income is determined, the court will then run the number through the appropriate child support model to produce a base support obligation. The base obligation may be adjusted, such as an increase to cover extraordinary medical or school expenses, or a reduction for any direct support paid by the parent who would otherwise make child support payments to the other parent. For example, the parent may provide direct support if that parent has some overnights with the child under a custody order.