Article by: Brett W. Martin, Esq.
Determination of Income for Colorado Child Support Calculation Purposes: Are Tax Refunds/Credits Counted as Income?
C.R.S. § 14-10-115(3)(a) defines income as "actual gross income." Subsection (5)(1) specifies that gross income includes "income from any source."
In Colorado, the before-tax income is used rather than the after-tax income of a parent. Logically, therefore, a refund of taxes paid in during the year would not be added to what the W-2 or paycheck shows is the gross income of the parent because to do so would be double counting.
If the parent's employer pays the employees taxes for them in addition to normal wages, then the amount paid by the employer is counted as part of the gross income of the parent for child support calculation purposes. Marriage of Stress, 939 P.2d 400 (Colo. App. 1997).
What if the parent receives a refund from the IRS that exceeds what they paid in during the year? This would be a refund or payment of a tax credit by the IRS over what the parent had withheld from their wages or paid in during the year. Is the excess tax refund to be included in calculating the parent's gross income for child support calculation purposes?
Oftentimes the father does not receive significant tax credits from the IRS, either because he earns too much or can't claim the children for the tax credits available. Two particular tax credits come to mind: the Earned Income Credit (EIC) and the Additional Child Credit. Often the mother is able to take these tax credits and the result is a refund from the IRS that greatly exceeds what she paid in - sometimes the refunds reach $5,000 or more each year. This "refund" is significant. Can it be included in calculating her income for child support purposes?
If it is included, then the annual amount received would be divided by 12 to determine the monthly average to be added to other wages received in filling out the child support worksheet. Lottery winnings that must be collected at the lottery office rather than paid out at the store where the ticket was purchased are handled this way, as are an employer's bonuses.
The tax refunds or credits paid by the IRS over the amount paid in by the parent should be included in income calculations unless they are specifically excluded by statute from the gross income definition. The specific exclusions are listed in C.R.S. § 14-10-115(5)(II). One of the exclusions are "Benefits received from means-tested public assistance programs." At the time of writing this blog commentary, the Colorado appellate courts have yet to have issued an opinion regarding whether the Earned Income Credit or the Additional Child Credit are included or excluded in calculating gross income for child support purposes. It is an undecided question under Colorado law, which means it is open for debate and clarification in the future either by the legislature or the Colorado appellate courts.
The opinion of the author of this blog article is that it should be included when calculating the parent's gross income for child support purposes. This opinion is based upon the rationale that gross income includes "income from any source" and the list of what is included in calculating income set forth in C.R.S. § 14-10-115(5)(I), is prefaced by "includes, but is not limited to" the list of what is specifically included. Further, the excess tax refunds benefit the receiving parent, provide additional spending money that may be used on the children or, as occurred in a recent case - to buy a car. Monetary gifts are on the list of what is specifically included - the excess tax refund could be considered as a "gift" from the IRS to the receiving parent (at the expense of other taxpayers).
Researching the issue found only one case at this time in the United States dealing with the tax credit income question: An appellate court in Kentucky ruled that the Earned Income Credit is to be excluded from the calculations while the Additional Child Credit was to be included in determining income. Brausch v. Brausch, 265 S.W.3d 837 (Ky. App. 2008). The Brausch court relied heavily on an analysis of the tax credits published by the U. S. Bankruptcy Court in the Western District of Kentucky in the case of In re Brown, 186 B.R. 224 (Bankrtcy. W.D. Ky. 1995). The Kentucky court decision is not binding on Colorado courts, but it may be influential when the Colorado appellate courts consider the question.
When interpreting the Colorado child support statute, courts look not only to what is written in the statute, but also what is not written. An argument can be made that if the Colorado legislature had wanted to include the Earned Income Credit and Additional Child Credit in the determination of gross income, it would have included it the list of what is specifically included. Likewise, if the legislature had wanted to specifically excluded it from the calculation, it could have said so and specifically listed it in what is to be excluded. The tax credits are not listed in the list of what is specifically excluded and Colorado appellate courts have ruled that, while what is included in the calculation is general and broad, what is excluded is limited and specific. See Marriage of Tessmer, 903 P.2d 1194 (Colo. App. 1995).
Some other states have been specific in listing the Earned Income Credit (EIC) as funds not to be counted when determining income for child support. Nebraska's child support statute specifically mentions the EIC in stating what is to be excluded in income calculations. See Neb. Ct. R. § 4-204; Gangwish v. Gangwish, A-07-1186 (NECA 2009). In contrast, Colorado does specifically state that the EIC is excluded from the income calculations for child support. It can be argued that had the Colorado legislature wanted to exclude the EIC from the definition of income, it could have said so.
Therefore, in the author's opinion, the EIC and similar tax credits received in excess of the income taxes paid in should be included as income for child support calculation purposes.