Emily Chambers for CoilLaw
Net income vs. gross income and why it matters may sound like a trivial accounting topic, but the “small” difference between net and gross income plays a big part in family legal matters especially for child support and alimony. Let’s start by defining each one.
Gross Income is your entire income, or the amount that your employer pays you. It is the amount before any taxes or deductions are taken out. It includes:
- trust income
- social security benefits
- worker’s compensation
- severance pay
So, for example, if you’re a salaried technician and you receive $40,000 per year in wages, plus an average of $1000 a quarter in bonuses, and a Christmas gift of $200 every year, your gross income for the year would be $44,200 (or $3,683.33 per month).
Net Income is the actual amount of money you receive from your paycheck, AFTER tax deductions. So it is your gross income minus taxes you have withheld from your paycheck, so it will be less than gross income. Something to keep in mind is that if you are self-employed, you are being taxed on your net income, whereas salaried employees are taxed based on their gross income. Additionally, any voluntary deductions from your paycheck (i.e. medical insurance, life insurance and/or retirement) are included in your Net Income.
Using our same example from above, let’s say you only actually see a monthly paycheck of $2,950.00 in your bank account. This is not necessarily your net income because you will have to add back in any voluntary deductions (listed above) back into your income. This likely means your taxes and other deductions are $733.33 per month. Just make sure that you’re not counting the money taken out that you have decided to go straight into a savings account. That money would still need to be counted toward your net income because it’s still money you will have access to.
Distinction Between Gross and Net Income
Now, when does this distinction between gross and net come into play? This difference becomes vital when it comes to calculating alimony and child support.
Child support is based on the gross income of both parents. Other factors of calculating child support are how many minor children there are and how many overnights you have the children per year.
In contrast, alimony is based on net income. Other considerations for figuring alimony include how long the marriage lasted and how likely the caregiving spouse is to be able to work, based on education and experience.
Contacting Your Child Support and Alimony Attorney
Calculating child support and alimony are very subjective and hard to figure out on your own. You need to ensure you consult with a competent family law attorney that can help you come to a fair and reasonable resolution. At CoilLaw, LLC, Salt Lake City Divorce attorney Jill Coil understands elements of alimony and child support to help you achieve the best settlement and/or result possible. At CoilLaw we are ready and available to help you through your divorce action. If you need legal advice concerning a Utah family law issue, call Jill Coil at CoilLaw LLC in Utah.