In devising the Indiana Guidelines, an average tax factor of 21.88 percent was used to adjust the support column. Of course, taxes vary for different individuals. This is the case whether a gross or net income approach is used. Under the Indiana Guideline, where taxes vary significantly from the assumed rate of 21.88 percent, a trial court may choose to deviate from the guideline amount where the variance is substantiated by evidence at the support hearing.
When making this adjustment do you use the payor's effective tax rate or their tax bracket based on their income? A recent case answered this question as follows:
He asserts that his federal tax bracket is 28%, but the trial court found that his federal tax obligation, as a percentage of his income, was only 23.3%. The trial court was correct. The Child Support Guidelines speak in terms of tax rates, not tax brackets.
See this a previous post that explains how this adjustment can be used to adjust the income not only high earners, but also lower earners. Additionally, these adjustment can be made to either parent's incomes, not only the paying parent. Adjusting the non-paying parent's income could have a significant effect on the child support obligation.
For more on child support, including discussions on how the Indiana Child Support Guidelines were amended on January 1, 2010, and links to child support calculators, see our postings on child support.