14 Jan Subchapter S Corporations & Child Support Calculations

Subchapter S Corporations

With an S corporation, the income and losses of the business are “passed through”  to shareholders and included on their individual tax returns. This is can be advantageous to the shareholder because there isn’t a “double taxation”.  That is, unlike other forms of corporations, the company is not taxed once upon the earning of the income and then again when the distribution is disbursed to the shareholder. The business only pays income tax when the shareholders pay their individual income taxes.  This, of course, can render calculating a parent’s income for purposes of a child support calculation difficult.

Child Support Calculations

Child support in Florida is calculated using both parents’ gross income, which includes their “business income” (see Florida Statute §61.30(2)(a)3). This statute defines business income as the company’s gross income minus the ordinary and necessary expenses used to keep the business up and running. Even though the income of Subchapter S Corporations “passes through” to the individual shareholder,  if the income is not distributed to the shareholder parent but is instead held for the ordinary and necessary expenses used to keep the business up and running, it is not technically available income under the statute. Therefore, the number of operating expenses held by the company can be excluded from the shareholder parent’s gross income for child support purposes (see Zold v. Zold, 911 So. 2d 1222, 1231 (Fla. 2005)).  So only the actual disbursements (including wage distributions, etc) are included in the calculation of child support under Florida law, not the overall income of the Subchapter S corporation, in spite of the company’s “pass-through” feature.

If you have any questions regarding child support calculations under the state of Florida’s guidelines, feel free to give us a call at +1.786.309.8588.