Child Support Intricacy: Tax credits

The Court of Appeals addresses the treatment of a couple of different tax credits in determining income for child support calculations in the to be published decision Brausch v. Brausch, 2007-CA-002198-ME (Sept. 12, 2008). The appellant, James Brausch, argued that the Earned Income Credit and the additional Child Tax Credit that his ex-wife, Tracy, received in 2006 should count as income for her.

One would have to have all the income figures and plug them into the Kentucky child support worksheet to know how exactly James would benefit from the inclusion of these tax credits. Adding income to either side of the equation can raise the overall support obligation, but also changes the percentage each party would be responsible to pay. So, one can assume that James percentage would be lowered enough to decrease his obligation.

The Kentucky child support definition of income in KRS 403.212 is very broad, but benefits from means-tested public assistance programs are specifically excluded as income. The Court determined that the Earned Income Tax Credit is a public assistance benefit because it is treated as a dollar for dollar payment of tax. Rather than just reducing one’s tax liability, it could actually result in a refund. They also determined it was means-tested because it is directed towards the neediest of families. For example, it is phased out for families with two or more qualifying children at just $11,600.00 earned income. So, the Court held that the Earned Income Credit should not be included as income.

The Child Tax Credit received different treatment by the Court. They point to the $110,000.00 ceiling for receiving this credit so it cannot qualify for exclusion from income as a means-tested public assistance benefit. However, the Court determined that because the Child Tax Credit is determined by and tied to the dependent child exemptions, it is not income. Basically, the Court treated the Child Tax Credit as an extension of the dependent child exemptions which have traditionally been within the discretion of the trial court to allocate between parents. In this particular matter, Tracy had already been awarded the dependent child deductions for the year in question, so she was allowed to keep the $3000.00 she recieved but not include the amount as income.

In going forward in this case and as a guide for others, the Court favors equally dividing such deductions in a simple and straightforward manner. This can be accomplished with an even number of children by assigning each parent one-half of the deductions each year or by rotating the deductions from year to year.