In marriage dissolution cases, the alimony and child support you calculate depend on the parties’ net incomes. “Net income” seems like a simple concept. But sometimes it is not so simple to figure out the amount of money that is actually available to spend.
During a divorce, the client who will be required to pay alimony or child support often gives their attorney a Wage and Tax Statement – also known as the IRS Form W-2 – which they receive from an employer. (Employers are required to send a Form W-2 to every employee, and it reports the client’s wages for the year and the amount of taxes withheld from their paychecks.)
Is the W-2 All You Need to Calculate Net Income?
Some practitioners think that the wage and tax-withheld numbers from the W-2 give them all they need to accurately calculate net income. But, in fact, those numbers are not enough.
The wage shown does not include other income a party may have, and the tax withheld is not the actual tax due. The party may have under-withheld or over-withheld from the IRS. Also, the tax withheld as shown on the W-2 will be last year’s tax, based on last year’s income. This year’s income is a whole new ballgame.
You need to find a way to accurately capture all income and calculate this year’s taxes in order to calculate net income.
Online Tools Can Capture All Income & Calculate Taxes
It will not surprise you to learn that there are many online tools that can calculate taxes and net income. These tools allow family law attorneys to plug in all the client’s relevant details to get the desired tax and net income totals.
Some of these online tools are free – but beware.
Many of these free online calculators exist mainly to generate traffic to a website that promotes other services, and often they are not kept up-to-date with changing tax laws.
The only other “free” option for professionals is the painstaking and time-consuming process of researching the latest IRS and state tax guidelines and manually performing all the necessary calculations. That cannot be a good use of anyone’s time.
Look for a child support calculation program that starts with all sources of income, and then accurately calculates taxes. Only then will you get the right results, taking account of all income and deductions, for the current year.
This will empower your clients to make educated decisions and allow you to finalize cases quickly and confidently.
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