Opinion ID: 2000657
Heading Depth: 1
Heading Rank: 6

Heading: deductibility of self-employment taxes

Text: Paul claims that in connection with the calculation of child support, he was entitled to a deduction from gross income for the entire amount of self-employment taxes he was obliged to pay as an independent contractor. Although the trial court did not explicitly rule on Paul's self-employment tax contention, by its adoption of Ann's calculation which did not show Paul's actual self-employment tax obligation, we understand the trial court's order to be an implicit rejection of Paul's argument. Paragraph E of the guidelines provides, in pertinent part: Deductions. The following deductions should be annualized to arrive at monthly net income: ... 2. FICA. Social security deductions, or any other mandatory contributions in lieu of social security deductions. FICA contributions or a mandatory contribution in lieu of Social Security are deductible for Nebraska Child Support Guidelines purposes. The self-employment tax is for the most part in lieu of Social Security. See 33 Am.Jur.2d Federal Taxation § 620 (1999). In a conventional employer-employee relationship, an employer withholds and deposits the employee's portion of the taxes, and the employer must also pay an employer's contribution in a matching amount for the benefit of the employee. See, e.g., Internal Revenue Service, U.S. Dept. of Treasury, Pub. No. 15, Circular E, Employer's Tax Guide (1999). A self-employed person is liable for self-employment taxes in an amount roughly equivalent to the employee's and employer's contributions in a conventional employment relationship, subject to FICA. See, 26 U.S.C. § 1401 (1994); 33 Am.Jur.2d, supra. Paragraph E of the guidelines provides that a FICA or Social Security payment deducted from a parent's gross monthly wages, or other mandatory contribution made in lieu thereof, should be deducted from the parent's gross monthly income in calculating net income available for child support. Neither paragraph E nor any other provision of the guidelines limits the amount of contributions which may be deducted from a parent's gross income in calculating child support pursuant to paragraph E. Accordingly, we conclude that where the evidence establishes that a self-employed parent pays self-employment taxes, such payments are available to that parent as a deduction under paragraph E. In other jurisdictions, the cases or guidelines provide that if a parent introduces evidence that establishes that he or she has paid both the employee and employer portions of mandatory FICA contributions, other mandatory payments made in lieu thereof, or self-employment taxes, the entire sum paid by the parent may be properly deducted from gross income to arrive at net income for purposes of calculating child support. See, e.g., Borowenski v. Borowenski, No. CN95-10296, 1997 WL 878437 (Del.Fam. Sept.22, 1997); In re Marriage of Anderson, 400 N.W.2d 84 (Iowa App.1986); Marriage of Gainey, 89 Wash.App. 269, 948 P.2d 865 (1997). A party seeking to modify a child support order must show a material change of circumstances which occurred subsequent to the entry of the original decree or a previous modification and which was not contemplated when the prior order was entered. Rauch v. Rauch, 256 Neb. 257, 590 N.W.2d 170 (1999). Evidence of a material change in circumstances warranting modification must be proved at trial and contained in the record on appeal. Swenson v. Swenson, 254 Neb. 242, 575 N.W.2d 612 (1998). At trial, Paul introduced exhibit 17, which established that Interactive Medicine treated Paul as an independent contractor. Paul's testimony was in accord with exhibit 17. At the time of trial, Paul had been associated with Interactive Medicine for under a year and income tax returns for the calendar year 1997 were not yet due. Notwithstanding paragraph D of the guidelines, given the foregoing timing of relevant events, Paul adequately established that he was entitled to the self-employment tax deduction, and the trial court's implicit rejection of Paul's claim was error.