PA Definition of Income for Child Support

The PA definition of income for child support purposes (on line sources)  read in context of PA Dept of Revenue definitions of whats in income and whats deducted above the line as to Sec 125 plans is confusing at best.

Seems to read that Qualified plan deductions for health care  are NOT in income   but

that qualified dependent care deductions ARE in income  re income for child support

Am I reading right stuff or do I need more homework and any suggestions ?

Thanks

It'd be nice if you posted a link to what you were reading.

The definition of income for child support purposes is a broad catchall at 23 PA CSA 4302 which says income is compensation etc.

HOWEVER

Pa Dept of Rev  PA PIT 06-005 clearly states that employee contributions to a qualified  cafeteria plan  is NOT compensation--no withholding required, not taxed.

Drew:

The definition of income for child support purposes is a broad catchall at 23 PA CSA 4302 which says income is compensation etc.

• "Income." Includes compensation for services, including, but not limited to, wages, salaries, bonuses, fees, compensation in kind, commissions and similar items; income derived from business; gains derived from dealings in property; interest; rents; royalties; dividends; annuities; income from life insurance and endowment contracts; all forms of retirement; pensions; income from discharge of indebtedness; distributive share of partnership gross income; income in respect of a decedent; income from an interest in an estate or trust; military retirement benefits; railroad employment retirement benefits; social security benefits; temporary and permanent disability benefits; workers' compensation; unemployment compensation; other entitlements to money or lump sum awards, without regard to source, including lottery winnings; income tax refunds; insurance compensation or settlements; awards or verdicts; and any form of payment due to and collectible by an individual regardless of source.

http://weblinks.westlaw.com/result/default.aspx?cite=UUID%28N17CB07E034%2D2F11DA8A989%2DF4EECDB8638%29&db=1000262&findtype=VQ&fn=%5Ftop&pbc=4BF3FCBE&rlt=CLID%5FFQRLT3712628412311&rp=%2FSearch%2Fdefault%2Ewl&rs=WEBL10%2E10&service=Find&spa=pac%2D1000&sr=TC&vr=2%2E0

Drew:

HOWEVER

Pa Dept of Rev  PA PIT 06-005 clearly states that employee contributions to a qualified  cafeteria plan  is NOT compensation--no withholding required, not taxed.

No, it doesn't say that:

• "The Health Savings Account Act provides no exemption for employee contributions made to a health savings account."

http://www.portal.state.pa.us/portal/server.pt/gat
eway/PTARGS_0_2_629714_0_0_18/PIT-06-005.pdf

But if you meant the employer contributions:

• "Payments made by Employer for a nondiscriminatory health plan are excluded from compensation and therefore not subject to withholding tax."
• "Payments that an employee directs to be made under the cafeteria plan to a health savings account maintained as a qualified benefit of an employer’s cafeteria plan are excluded from compensation and therefore not subject to withholding tax."

Now that I've located the documents, I'm not sure what your issue is.

The PA child support guidelines address net income.

http://www.pacode.com/secure/data/231/chapter1910/s1910.16-1.html

Seems to me that it wouldn't matter one way or the other since the employer contribution would not appear in a calculation of net income nor would it even appear as gross income on a pay stub or W-2.

This is how net income is calculated:

http://www.pacode.com/secure/data/231/chapter1910/s1910.16-2.html

I'm not sure I see where the employer contribution could be considered income under the support calculation guidelines any more than, say, the employer's contribution to any other medical benefits that aren't reported as income.

No, the second line  is what I seek to understand--it reads to me as if employEE directions to employER to make payments to a qualified plan that these come off the top and are NOT compensation  by definition.

EG payments made into plan ahead of getting  ones paycheck!

The impact on alimony and CS computations under PA's rather rigid formulas may not be trivial!

"Payments that an employee directs to be made under the cafeteria plan to a health

savings account maintained as a qualified benefit of an employer’s cafeteria plan are

excluded from compensation and therefore not subject to withholding tax."

Drew:

No, the second line  is what I seek to understand--it reads to me as if employEE directions to employER to make payments to a qualified plan that these come off the top and are NOT compensation  by definition.

You originally wrote:

Drew:

Pa Dept of Rev  PA PIT 06-005 clearly states that employee contributions to a qualified  cafeteria plan  is NOT compensation--no withholding required, not taxed.

Let's clear that up first.

The second point that you are questioning actually states:

• "Payments that an employee directs to be made under the cafeteria plan to a health savings account maintained as a qualified benefit of an employer’s cafeteria plan are excluded from compensation and therefore not subject to withholding tax."

That doesn't address contributions TO a cafeteria plan, it addresses contributions to a Health Savings Account. In fact the entire PIT 06-005 addresses only contributions to a Health Savings Plan.

It appears that the employer contributions to the employee's HSA are not reportable as income for tax purposes.

And, according to:

http://www.pacode.com/secure/data/231/chapter1910/s1910.16-2.html

• Monthly Net Income.
•    (1)  Unless otherwise provided in these Rules, the court shall deduct only the following items from monthly gross income to arrive at net income:
•        (A)   federal, state, and local income taxes;
•        (B)   F.I.C.A. payments (Social Security, Medicare and Self-Employment taxes) and non-voluntary retirement payments;
•        (C)   union dues; and
•        (D)   alimony paid to the other party.

Since the employer contribution to an HSA is not included in gross income, my conclusion is that it would not be a factor in computing net income under the child support guidelines.

Sorry--I should know better--every word counts...well we agree as to the final intrepretation --if the employee has the employer max up the pre paycheck contribution into HSA it is NOT compensation in context of alimony or CS  (and its not taxable for PaIT or Local EIT either!)

PA Dept of Revenue does some very strange disconnects as to Federal tax logic and in some cases it holds that employee could have had the money therefore its compensation under its view of constructive receipt--nonvoluntary retirement plans being sometimes  one area of such convoluted  logic  another being banked vacation pay being paid out to 403b or 401k  plan under union contract is NOT income.

Are you concerned about what you pay tax on or what you have to include as income for the computation of child support?

I'm not sure I understand what the point of the discussion is.

Although I'd give my 2 cents worth on any discussion.

I already set aside a decent chunk into HSA as it saves 3 levels of taxes.....but one of my younger friends was set to do divorce problems --and it seems like a HSA serves to clip a bit off the counted income undr PA's formulas for alimony and CS purposes --smart gal but she doesn't think along multiple planes and not every good attorney on divorce issues is good as to tax overlap issues. .

Drew:

it seems like a HSA serves to clip a bit off the counted income undr PA's formulas for alimony and CS purposes

I'm not sure I agree.

I also have an HSA.

For the employEE contribution to the HSA he must first earn the money (gross income) and then contribute to an HSA, after which he gets the tax deduction. So that income would be counted when computing support obligations.

On the other hand, the employER contributions to the HSA don't make it to gross income in the first place so it wouldn't be counted in the computation of support obligations.

Unfortunately, it's clear to me that the court could impute earnings into the computation of support obligations so it's probably not a good idea to make a deal with the employer to have the employer contribute to the employee's HSA in lieu of salary.

Example: Employee gets a salary offer of $40,000. Employee has employer contribute $5000 in lieu of salary thus making the employee's gross reportable income $35,000. Ex spouse gets wind of that and the divorce court judge is likely to say, "No, no, no. You really make $40,000. We aren't falling for that gimmick."

There are two sections in the guidelines that appear to support my theory:

• (d)  Reduced or Fluctuating Income.
• (1)  Voluntary Reduction of Income. When either party voluntarily assumes a lower paying job, quits a job, leaves employment, changes occupations or changes employment status to pursue an education, or is fired for cause, there generally will be no effect on the support obligation.
• (4)  Earning Capacity. If the trier of fact determines that a party to a support action has willfully failed to obtain or maintain appropriate employment, the trier of fact may impute to that party an income equal to the party’s earning capacity.

Ergo, the child support rules will trump any of the tax rules.