Understanding Child Support for Self-Employed Parents in Maryland
When it comes to child support, the calculation process is often straightforward for individuals with a traditional paycheck. However, if you're self-employed in Maryland, the process can be a bit more complex. As a self-employed person, understanding how income is calculated for child support purposes is crucial to ensure that you are meeting your obligations while also taking into account the unique nature of self-employment income.
Income for Child Support Calculation in Maryland
In Maryland, child support is typically determined by the Maryland Child Support Guidelines, which provide a formula for calculating child support. These guidelines use the gross income of both parents to calculate the amount of support. But how is “income” defined, especially if you're self-employed?
For self-employed individuals, the calculation process is somewhat different from those who receive a regular paycheck. In general Maryland defines "income" to include compensation received by a parent, including wages, salaries, commissions, and bonuses, but also can include more complicated forms of income, such as profits from a business, interest, dividends and more.
Steps for Calculating Child Support Income When Self-Employed
1. Gross Income Calculation
For self-employed individuals, gross income is determined by taking the total revenue from the business and then subtracting business-related expenses. Maryland law recognizes that self-employed individuals may have significant business-related deductions, but these must be legitimate and directly tied to the operation of the business.
To determine your gross income:
- Revenue: Start with the total income your business generates. This includes all receipts and earnings.
- Deductions: Subtract allowable business expenses. These could include things like office supplies, rent, utilities, business insurance, and any other legitimate business costs. The deductions must be reasonable and necessary for your business.
- Net Income: After you subtract your expenses from your revenue, the result is your net income. This is often referred to as "discretionary income," which is the amount left over after necessary business expenses are accounted for.
2. Add-Backs
While self-employed individuals are allowed to deduct legitimate business expenses, there are instances where certain deductions are “added back” to income when calculating child support, even though they are legitimate from a business or tax standpoint. These may include:
- Depreciation expenses: If you deducted depreciation on business assets, that amount may be added back to your income, as it doesn’t represent actual cash outflow.
- Non-business expenses: Personal expenses that were mistakenly deducted as business costs can also be added back. Or business expenses like rent allocated for a home office could be added back. Add backs such as these are often the source of debate and discretion.
3. Consideration of Non-Monetary Benefits
Another factor Maryland considers when calculating child support is non-monetary income. For self-employed individuals, this could include benefits such as company cars, health insurance, cell phone or other perks that have a value but are not paid in cash. These types of benefits may also be counted as income for child support purposes.
4. Adjustments for Irregular or Seasonal Income
If your income varies significantly from month to month, which is common for self-employed individuals, Maryland courts may average your income over a period of time to determine a reasonable monthly amount for child support. The appropriate period of time is often the subject of debate. An average helps avoid the fluctuations that could occur if a single month of high earnings or low earnings were used to calculate the amount.
What if My Business Isn’t Profitable?
If your business is not generating enough revenue to cover your personal expenses, or worse yet, not earning a profit, it can complicate child support. However, the courts will still expect you to contribute to the support of your child based on what you are capable of earning. Even if your business isn't currently profitable, Maryland courts may still impute income to you based on your previous earning capacity, experience, and potential.
Keeping Accurate Records
For self-employed parents, it is vital to maintain accurate records of both income and expenses. The court may request your tax returns, profit and loss statements, and other documentation to verify your income. If you fail to provide accurate and complete records, the court may be forced to make assumptions about your income.
Final Thoughts
Calculating child support when you are self-employed in Maryland can be more complicated than for someone with a regular paycheck, but it’s still based on the same principles. The court will look at your gross income, considering both your revenue and legitimate business expenses. By keeping thorough records, understanding what qualifies as income, and knowing the potential for income adjustments, you can ensure that the child support calculation reflects your true financial situation.
If you are self-employed and going through a dispute involving child support, consulting with an attorney with experience representing business owners is wise. Reach out to Markham Law firm to see how we can help.