As the “gig economy” continues its growth, more and more of us are finding that we no longer work solely in one location. Instead, more than ever we’re working from home or other locations other than the traditional office. Doing so raises the question: how does Illinois account for home office expenses when calculating child support payments?
Child support in Illinois is calculated based on a percentage of the non-custodial parent’s “net income.” Net income is defined as the total of all income from all sources, minus the following deductions: (a) Federal income tax (properly calculated withholding or estimated payments); (b) State income tax (properly calculated withholding or estimated payments); (c) Social Security (FICA payments); (d) Mandatory retirement contributions required by law or as a condition of employment; (e) Union dues; (f) Dependent and individual health/hospitalization insurance premiums; (g) Prior obligations of support or maintenance actually paid pursuant to a court order; (h) Expenditures for repayment of debts that represent reasonable and necessary expenses for the production of income, medical expenditures necessary to preserve life or health, reasonable expenditures for the benefit of the child and the other parent, exclusive of gifts.
Illinois courts allows workers to deduct their home office expenses when calculating child support payments, so long as the expenses are properly deducted for legitimate, income-generating purposes as defined by the Internal Revenue Service (IRS). These deductions are allowed by Illinois courts because they are deemed “expenditures for repayment of debts that represent reasonable and necessary expenses for the production of income.” It should be noted first that Illinois courts are given wide discretion when calculating child support. While the courts look to prior cases and statutory law for guidance, ultimately they are charged with ensuring that the best interests of children are met, and are allowed to set child support in any amount they deem necessary to meet said interests.
For federal income tax purposes, home office deductions are governed by 26 U.S.C. § 280A. The statute provides for deductions when a private residence is used as: (1) the principal place of business; (2) a place of business used by patients, clients, or customers; or, (3) in the case of a separate structure or dwelling which is not attached to the dwelling unit, in connection with the primary trade or business of the taxpayer. 280A(c)(1). To successfully claim a deduction under this section, the I.R.S. requires a showing of regular and exclusive business use of the portion of the home claimed as a deduction. The “regular and exclusive” requirement is strictly adhered to. See Gomez v. Commissioner, T.C. Memo 1980-565, (1980). The I.R.S. gives tax-payers two options to claim home office deductions: the “regular” or the “simplified” options. Detailed explanations of the requirements for each deduction option can be found at the I.R.S. website located here: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction, but so long as the requirements are met, the deduction will be accepted.
Properly filed and accepted federal tax returns are the appropriate standard for determining net income, as Illinois appellate courts have recognized numerous times. Dept. of Public Aid ex rel. Schmidt v. Williams, 336 Ill.App.3d 553 (4th Dist. 2003); In re Marriage of Plyawka, 277 Ill.App.3d 728 (2nd Dist. 1996). Moreover, Illinois courts have long recognized that expenses that are necessary for the production of income, so long as they are reasonable, ought to be properly deducted when determining net income for child support payments. For instance, expenses that have been deemed deductible are student long payments and payments on a company airplane – both of which are likely to far exceed any home office expenses, and neither of which would be deductible for purposes of personal income taxes. See In re Marriage of Davis, 287 Ill.App.3d 846 (5th Dist. 1997); In re Marriage of Hart, 194 Ill.App.3d 839 (4th Dist. 1990).
While it is important to keep in mind that the courts have great discretion in setting child support payments and are not necessarily required to accept any specific deduction(s), it seems clear that so long as home office expenses are properly calculated and actually necessary, such expenses will be taken into account by a court determining net income. For more information on this issue, or for help with any family law issues that you might be facing, contact attorney Amil Alkass at Lavelle Law, at 847-705-7555, or on the web at www.lavellelaw.com.