What Constitutes Income In Pennsylvania?

In determining a support obligation in Pennsylvania all income, direct and indirect, from all sources must be considered. Below is a broad, but not exhaustive, statutory list of what constitutes income in Pennsylvania:

  1. Compensation for services, including, but not limited to, wages, salaries, bonuses, fees, compensation in kind, commissions and similar items;
  2. Income derived from business;
  3. Gains derived from dealings in property;
  4. Interest;
  5. Rents;
  6. Royalties;
  7. Dividends;
  8. Annuities;
  9. Income from life insurance and endowment contracts;
  10. All forms of retirement;
  11. Pensions;
  12. Income from discharge of indebtedness;
  13. Distributive share of partnership gross income;
  14. Income in respect of a decedent;
  15. Income from an interest in an estate or trust;
  16. Military retirement benefits;
  17. Railroad employment retirement benefits;
  18. Social security benefits;
  19. Temporary and permanent disability benefits;
  20. Workers’ compensation;
  21. Unemployment compensation;
  22. Other entitlements to money or lump sum awards, without regard to source, including lottery winnings;
  23. Income tax refunds;
  24. Insurance compensation or settlements;
  25. Awards or verdicts; and
  26. Any form of payment due to and collectible by an individual regardless of source.

Earning Capacity

Income is not always the only thing that is considered when calculating support in Pennsylvania. A support order must be based on current income and also earning capacity.

Pennsylvania courts have found that earning capacity is more indicative of a party’s ability to pay support than actual earnings, and is defined as the amount that a person could reasonably earn, taking into consideration such factors as the party’s age, health, training and education.

This concept ensures that a party to a support action cannot avoid a support obligation by quitting their job or reducing their salary. When a party is deemed to have voluntarily reduced their income, they will be held to their earning capacity and the support amount dictated by that level of income.

It is broadly accepted that earning capacity and not actual income will be what is considered for support purposes when there is a voluntary reduction in income. However, there are certain circumstances where actual income may be considered.

A voluntary reduction in income may cause a reduction in earning capacity when the party can prove that is was for valid reasons, specifically that it was not for the purpose of lowering or avoiding a support obligation, and that they have validly attempted to find other employment at their previous income level.

Being fired from a position “for cause” can be construed as a voluntary reduction in income, and a party may be held to their earning capacity, in which past wages are factored. The party would have to attempt to show that they were not attempting to avoid their support obligation and that they have made significant, good faith efforts to secure new employment at their previous income level.

Even if a person is laid off from work through no fault of their own, earning capacity is still an issue. The party should be prepared to show their efforts at securing new employment if they want to seek a downward modification in their support order.

If a party to a support action has undergone a reduction in income and wants to modify a Pennsylvania support order accordingly, then it is important to be able to show that the reduction was not motivated by a desire to avoid or lower support and that good faith efforts were made to secure employment at the party’s earning capacity.

Pittsburgh and Philadelphia Family Law Attorneys

If you are a man facing divorce and are susceptible to possibly paying support in Pennsylvania, please consult with a divorce lawyer in your jurisdiction to ensure your rights are protected. Cordell & Cordell has offices and family law attorneys located in Philadelphia, Pittsburgh, and Radnor should you seek additional information or possible legal representation.