§ iii — Gross Income

1. Definitions: "Income" means the actual gross income of the parent, if employed to full capacity, or potential income if unemployed or underemployed as allowed under Section III.7. Gross income is used to avoid disputes over issues of deductibility that would arise if a net income was used. These Guidelines presume that the parent with the legal obligation to pay support will file federal taxes as a single individual and have only one state exemption. Adjustments have been made in the Chart for federal and state income taxes, FICA, and average child-rearing expenditures (for example, out-of-pocket medical expenses of $250.00 per child per year). The monthly child-support amount shall be converted to coincide with the payor's receipt of salary, wages, or other income. For purposes of computing gross monthly income, a month is 4.334 weeks. Bi-weekly means a party is paid once every two weeks, or 26 times during a calendar year. Semi-monthly means a person is paid twice a month, or 24 times per calendar year. "Child Support Gross Income" means gross income-minus amounts for preexisting child-support obligations paid to another who is not a party to the proceedings and on behalf of a child who is not the subject of the action of the court. Child support arrearage payments shall not be considered in determining a payor's gross income. "Combined Gross Income" means the combined gross income of both parties. 2. Gross Income Inclusions: : "Income" is "intentionally broad and designed to encompass the widest range of sources consistent with the State's policy to interpret income' broadly for the benefit of the child." Evans v. Tillery , 361 Ark. 63, 204 S.W.3d 547 (2005); Ford v. Ford , 347 Ark. 485, 65 S.W.3d 432 (2002); McWhorter v. McWhorter , 346 Ark. 475, 58 S.W.3d 840 (2001); Davis v. Office of Child Support Enforcement , 341 Ark. 349, 20 S.W. 3d 273 (2000). Gross income includes, but is not limited to, the following: i. Wages, overtime pay, commissions, regularly-received bonuses, or other monies from all employers or as a result of any employment (as usually reported in the Medicare, wages, and tips section of the parent's W-2). ii. Earnings generated from a business, partnership, contract, self-employment or other similar arrangement, or from rentals. (a) Income (or losses) from a corporation should be carefully examined to determine the extent to which they were historically passed on to the parent or used merely as a tax strategy. iii. Distributed profits or payments from profit-sharing, a pension or retirement, an insurance contract, an annuity, trust fund, deferred compensation, retirement account, social security disability payments, social security retirement payments, unemployment compensation, supplemental unemployment benefits, disability insurance or benefits, or worker's compensation. (a) Consider insurance or other similar payments received as compensation for lost earnings, but do not include payments that compensate for actual medical bills or for property loss or damage. (b) If a parent receives payments from an IRA, defined contribution, or deferred compensation plan, income does not include contributions to that account that were previously considered as the parent's income used to calculate an earlier child-support obligation for a child in this case. To the extent that the funds received are equivalent to the amount of the funds contributed by the parent while paying child support, that amount should be excluded from the computation of gross income. iv. Military specialty pay, allowance for quarters and rations, housing, veterans' administration benefits, G.I. benefits (other than education allotment), or drill pay. (a) If the servicemember receives housing pay and supports another home (i.e. second residence), housing pay is not considered income to the individual. v. Tips, gratuities, royalties, interest, dividends, fees, or gambling or lottery winnings. vi. Capital gains to the extent that they result from recurring transactions. vii. The standard (basic needs) portion of adoption subsidies for children in the case under consideration (do not consider the medical needs and intensive rate portion of the subsidy, nor the family support subsidy as income). viii. Any money or income due or owed by another individual, source of income, government, or other legal entity. ix. Income also includes the market value of perquisites (perks) received as goods, services, or other noncash benefit for which the parent did not pay, if they reduce personal expenses, and have significant value or are received regularly. (a) Common forms of perquisites (perks) or goods and services received in-kind include, but are not limited to, the following: housing, meals, or room and board, personal use of a company business vehicle or mileage reimbursement, including use between home and primary worksite, and other goods or services. (b) Perquisites (perks) do not include money paid by an employer for benefits like tuition reimbursement, educational cost reimbursement, uniforms, and health savings account (HSA) contributions. x. The court may consider assets available to generate income for child support. For example, the court may determine the reasonable earning potential of any asset at its market value and assess against it the current Treasury bill interest rate or some other similar appropriate method of computing income. To further this State's policy of interpreting "income" broadly for the benefit of children, a support order may include as its basis a percentage of a bonus to be paid in the future. The child support attributable to a bonus amount (or another one-time source of money) shall be in addition to the periodic child-support obligation. This child-support obligation shall terminate when the underlying child-support obligation terminates. Variable income such as commissions, bonuses, overtime pay, military bonuses, and dividends shall be averaged by the court over a reasonable period of time consistent with the circumstances of the case and added to a parent's fixed salary or wages to determine gross income. When income is received on an irregular, nonrecurring, or one-time basis, the court may, but is not required to, average or prorate the income over a reasonable specified period of time or require the parent to pay as a one-time support amount a percentage of his or her nonrecurring income. One-time sources of money like an inheritance, gambling or lottery winning, or liquidating a Certificate of Deposit, for example, is income for these Guidelines purposes (as detailed in the previous paragraph). If the receipt of an asset is not sold or otherwise disposed of, however, then it has not "realized a gain" and therefore is not income under these Guidelines. 3. Income from Self-employment, Business Owners, Executives, and Others a. Difficulty in determining income for self-employed individuals, business owners, and others occurs for several reasons including: i. These individuals often have types of income and expenses not frequently encountered when determining income for most people. ii. Taxation rules, business records, and forms associated with business ownership and self-employment differ from those that apply to individuals employed by others. Common business documents reflect policies unrelated to an obligation to support one's child. iii. Due to the control that business owners or executives exercise over the form and manner of their compensation, a parent, or a parent with the cooperation of a business owner or executive, may arrange compensation to reduce the amount visible to others looking for common forms of income. b. To determine monies that a parent has available for support, it may be necessary to examine business tax returns, balance sheets, accounting or banking records, and other business documents to identify additional monies a parent has available for support that were not included as personal income. At a minimum, a self-employed parent shall provide their two most recent years of state and federal tax returns. The parent should provide three years of tax returns when there is a reduced, deferred, or elective income situation. Unless otherwise prohibited by law, the court may award expert witness fees when necessary to determine self-employed parent's income. c. For income from self-employment, proprietorship of a business, or ownership or a partnership or closely held corporation, gross income is defined as gross receipts minus ordinary and necessary expenses required for self-employment or business operation, including an employer's share of FICA. However, the court should exclude from those expenses amounts allowed by the Internal Revenue Service for accelerated depreciation of investment tax credits for purposes of these Guidelines and add those amounts back in to determine gross income. In general, the court should carefully review income and expenses from a parent's self-employment or operation of a business to determine actual levels of gross income available to the parent. The court's duty is to accurately determine a child-support obligation in every case. This amount may differ from the determination of business income for tax purposes. d. Whether organized informally, or as a corporation, a partnership, a sole proprietorship, or other arrangement or entity, these considerations apply to all forms of self-employment and business ownership, as well as to business executives and others who may receive similar forms of compensation. e. For purposes of this subsection, income includes amounts that were not otherwise included as income elsewhere in this chapter. Special attention shall be given to the following forms of compensation: i. Distributed profits, profit sharing, officers' fees and other compensation, management or consulting fees, commissions, and bonuses. ii. In-kind income or perquisites (perks), gifts, free admission to entertainment, or personal use of business property. The value of these items must be based on a fair-market price, that is, the price a person not affiliated with the business would pay. In-kind payments received by a parent from self-employment or the operation of a business is income if the payments are significant and reduce personal living expenses. f. Redirected income, or amounts treated by the business or company as if the redirected amounts were something other than the parent's income. Amounts include, but are not limited to, the following: i. Personal loans. Presume personal loans from a business are in fact redirected income, unless all the following are true: (1) the parent signed a contract or promissory note outlining the terms of the loan, (2) the business maintains records showing the loan owed as a receivable, (3) the parent makes installment payments and the present loan is paid current, and (4) the interest earned and repayment rate appear to be a reasonable business practice. Unless the presumption is overcome by a preponderance of the evidence, then a parent's income includes the difference between the amount the parent repays and a repayment amount for a similar commercially available unsecured personal loan. ii. Payments made to friends or relatives of the parent. If the business cannot demonstrate that the payments are equivalent to a fair market value payment for the work or services the friend or relative performs, then include any amount that exceeds the fair-market value as the parent's income. g. Reduced or deferred income. Because a parent's compensation can be rearranged to hide income, determine whether unnecessary reductions in salaries, fees, or distributed profits have occurred by comparing amounts and rates to historical patterns. i. Unless the business can demonstrate legitimate reasons for a substantial reduction in the percentage of distributed profits, use a three-year average to determine the amount to include as a parent's income. ii. Unless a business can demonstrate legitimate reasons for reductions (as a percentage of gross business income) in salaries, bonuses, management fees, or other amounts paid to a parent, use a three-year average to determine the amount to include as a parent's income. h. Business income subject to elective treatment. Income that is subject to elective status (for example, retained income) may be considered as income after the court considers the circumstances and history of the elective treatment, which includes but is not limited to the status prior to the implementation of the support order. If a change in the status was made after the original election, then a court can either choose to include the income in child-support calculations or not include it in the calculations. i. Deductions for Tax Purposes. For a variety of historical and policy reasons, the government allows considerable deductions for business-related expenses before taxes are calculated. Those same considerations are not always relevant to monies a parent should have available for child support. Therefore, some deductions should be added back into a parent's income for purposes of determining child support. The deductions include, but are not limited to, the following: i. Rent paid by the business to the parent, if it is not counted as income on that parent's personal tax return. ii. Real estate depreciation shall always be added back into a parent's income when calculating support. iii. Depreciation figured at a straight-line (not accelerated) rate on a parent's (not a corporation's or partnership's) tangible personal property, other than for personal vehicles or home offices, shall be deducted from income. Any parent who uses accelerated depreciation for tangible personal property may deduct the value of the straight-line depreciation amount for property other than personal vehicles or home offices, if the parent proves what the straight-line amounts would have been. iv. Home office expenses, including rent, hazard insurance, utilities, repairs, and maintenance. v. Entertainment expenses spent by the parent. Legitimate expenses for customers' entertainment may be treated as deductions. vi. Travel expense reimbursements, except where such expenses are inherent in the nature of the business or occupation (for example, a traveling salesperson), and do not exceed the standard rates allowed by the State of Arkansas for employee travel. vii. Personal automobile repair and maintenance expenses. 4. Gross Income Exclusions: Gross income does not include benefits received from means-tested public assistance programs, such as Temporary Assistance to Needy Families (TANF), Supplemental Security Income (SSI) received for self or any child; Food Stamps and General Assistance; income derived by other household members; child support, adoption subsidy payments, and foster care board payments received for other children not involved in the case. 5. Spousal Support: If a parent paying spousal support also pays child support to the same person, then the amount of alimony a former payee spouse may be receiving shall be reduced from the payor's gross income and added to the payee's gross income for purposes of determining income under the child-support calculation. 6. Other Child Support Paid Any previous or existing court orders requiring the payment of current child support shall receive priority over any subsequent child-support obligation. A subsequent support obligation shall not constitute the sole basis for a material change of circumstances sufficient to support a petition to the court for modification of a prior child-support order. Current child support paid for the benefit of children other than those considered in this computation, to the extent such payment or payments are required by a previous court order, shall be deducted from gross income. Child support arrearage payments shall not be considered in determining a payor's gross income. 7. Income Verification: The Affidavit of Financial Means and Worksheet shall be used in all family-support matters. Each party shall exchange the Affidavit of Financial Means and Worksheet at least three days before a hearing to establish or modify a support order. The Worksheet shall be filed in the court file and attached to the order that includes the child-support award. The Affidavit of Financial Means shall not be filed in the court file. A court may rely on suitable documentation of current earnings, preferably for at least one month. Suitable documentation includes, but is not limited to, pay stubs, employer statements or verifications, and receipts and expenses if the parent is self-employed. Verification of current earnings, whether they are reflected on the Affidavit of Financial Means or not, can be supported with copies of the most recent federal and state tax returns that a parent has filed. Income can also be verified through the Department of Workforce Services or through the Department of Finance and Administration. 8. Income Imputation Considerations: If imputation of income is ordered, the court must take into consideration the specific circumstances of both parents, to the extent known, including such factors as the parents' assets, residence, employment and earnings history, job skills, educational attainment, literacy, age, health, criminal record and other employment barriers, and record of seeking work, as well as the local job market, the availability of employers willing to hire the parent, prevailing earnings level in the local community, and other relevant background factors in the case. There is a rebuttable presumption that the payor and the payee can work full-time or earn full-time income, and the court may calculate child support based on a determination of potential income that would otherwise ordinarily be available to the parties. The court may consider a disability or the presence of young children or disabled children who must be cared for by the parent as being a reason why a parent is unable to work. Although Temporary Assistance to Needy Families (TANF) and other means-tested public assistance benefits are not included in gross income, income may be imputed to these recipients. In addition to determining potential earnings, the court may impute income to any non-income producing assets of either parent, if significant, other than a primary residence or personal property. Examples of such assets are vacation homes (if not maintained as rental property) and idle land. The current rate determined by the court is the rate at which income may be imputed to such nonperforming assets.