Child Support and the "Fiscal Cliff"

Calculating child support in Texas requires determining the obligor's gross income, then subtracting certain amounts from gross income to calculate "net resources." After that, a percentage is applied to net resources to calculate child support. The percentage varies depending on the number of children before the court and the number of other children the obligor is court–ordered to support.

The first two deductions from net resources are:

(1) social security taxes; and

(2) federal income tax based on the tax rate for a single person claiming one personal exemption and the standard deduction.

Tex. Fam. Code § 154.062(d).

Historically, social security taxes were set at 12.4% with the employer paying half for employees. In 2010, as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Congress dropped social security taxes to 10.4% for tax year 2012 to help stimulate the economy. At this time, the employee pays 4.2% and the employer 6.2%.

Normally, by November of each year, the IRS would publish tax rates and brackets for the upcoming year. With this information in hand, the amount of child support for the following year could be calculated in advance. But the tax margins and rates are based on the "Bush tax cuts" which were enacted in 2001 and 2003. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended the Bush tax cuts through 2012.

Child support in Texas cannot be calculated for 2013 at this time. The "fiscal cliff" is looming. The "fiscal cliff" refers to the financial repercussions if social security taxes return to their prior rate of 12.4% and the Bush tax cuts expire. Because we do not know what the social security tax percentage, the tax rates and the tax brackets will be for 2013, we simply do not know right now how to calculate child support amounts for Texas in 2013.

It is even possible that child support calculation will change during 2013. If the fiscal cliff comes to pass, we can calculate child support based on the new numbers, but it seems likely that Congress will further act in the new year to change social security taxes, marginal tax rates and tax brackets, in which case calculation of child support would change during 2013. Stay tuned.

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