16.3 Income Deductions

16.3.1 Support Payments
16.3.2 Pre-Tax Deductions
16.3.3 Tax Deductions

16.3.1 Support Payments

Child support payments are not allowed as an income deduction.

The income deduction for a monthly court ordered support expense is the amount that the member is "obligated" to pay as stipulated in the court order. The court ordered obligated amount is allowed even if actual payments are not being made. The deduction can only be made from the income of the person with the court ordered obligation. Do not allow payments for arrearagesPayments of child support which were due for a prior period. and annual receipt and disbursement (R & D) expenses.

Actual payments may be deducted for court ordered lying in costs (for the costs of the birth of the child). Unlike monthly court ordered expenses, actual payments for lying in costs are frequently paid at various times and are usually not tied to a regular payment schedule.

Note: If the court order stipulates that the individual must pay a monthly amount toward lying in costs, allow the court ordered monthly amount (obligated amount) as an income deduction. If the member is required to pay lying in costs, but no specific monthly amount is ordered, allow actual payments for lying in costs as an income deduction.

16.3.2 Pre-Tax Deductions

Pre-tax deductions are allowed if the payments are taken out of the individual’s paycheck on a pre-tax basis. Examples include but are not limited to:

Health Insurance premium payments, including pre-tax premium payments for medical, dental or vision plans
Health Savings Account (including flexible spending accounts) contributions
Retirement contributions
Parking & Transit costs
Child Care Savings Account contributions
Group Life Insurance premium payments

16.3.3 Tax Deductions

Monthly expenses related to tax deductions from page one of the IRS Form 1040 are allowed as income deductions for the current year, even if the individual does not plan on filing taxes. If the expense is not incurred on a monthly basis, it will be prorated and counted as a monthly expense.

Most of these deductions are not common, and they do not include itemized tax deductions, like charitable contributions or mortgage interest.

A net loss carryover from previous periods (long-term capital loss), known as an NOLnet operating loss on IRS tax forms, is allowed as an income deduction. If claimed, it would be found on Line 21 of the IRS Form 1040.

In addition, a few deductions have caps, as noted in detail below. If an individual reports and verifies a monthly expense that is more than the monthly cap, the deduction will be the amount of the cap.

Student Loan Interest. Interest on a loan taken to pay for school expenses for the following persons at the time the loan was taken out:

- His or her spouse;
- His or her child under age 19; or
- His or her child under age 24 who was a student, lived with the individual for more than half a year, did not provide more than half of his or her own support for that year, and did not earn more than $3,900 during that year.

Do not count interest on a loan used for anything besides paying for education or if a relative or employer gave the loan.

This deduction is capped at a monthly amount of $208.

Higher Education Expenses. Includes tuition and amounts paid for books or fees, but only if those amounts are required to be paid to the institution as a condition of enrollment or attendance. This deduction may not be claimed for expenses that were paid with tax-free educational assistance. Grants and scholarships used for tuition and fees are generally non-taxable, therefore this deduction cannot be claimed for the portion of tuition and fees that were paid for with grants and scholarships. This is capped at a monthly amount of $333.
Self-employment Tax Deduction. Applies to individuals who are self-employed, who owe self-employment tax, and who are able to deduct a portion of the self-employment tax they pay. Only deduct the portion that the person can deduct on their tax return (as calculated on Schedule SE), not the entire amount of self-employment tax that is paid.
Spousal Support, Alimony or Maintenance. The amount paid for court ordered spousal support, alimony or maintenance or payments under Section 71 for a current or prior spouse as a result of a legal separation or divorce. Do not deduct more than the court ordered amount. Do not allow any deduction if the court order designates the payments as being non-taxable.
Teachers’ Tax-Deductible Expenses. Applies to K-12 teachers who have up to $250 in out-of-pocket work expenses (expenses not paid for by the employer). This is capped at a monthly amount of $21.
Self-employed SEP, Simple or Qualified Plan Contributions. Examples of these plans include:
- Simplified Employee Pension (SEP) Plan
- Savings Incentive Match Plan For Employees (SIMPLE)
- Qualified Plan Contributions
Penalties for Early Withdrawal of Funds. Penalties to a bank or financial institution for withdrawing funds early from a savings account where money must be left in the account for a fixed period of time, such as a time saving account, certificate of deposit (CD) or an annuity.
Performing Artists Tax-deductible Expenses. Applies to performing artists who have out-of-pocket business expenses not paid by the employer and meet the following criteria:
- Worked for at least two employers who each paid at least $200;
- Did not earn more than $16,000 for his or her work in the current year; and
- Out-of-pocket expenses were more than 10% of his or her earnings.
Military Reserve Members’ Tax-deductible Expenses. Applies to travel expenses for members of the Armed Forces Reserve who travel more than 100 miles away from home to perform work for the Armed Forces Reserve.
Out-of-pocket Costs for a Job-related Move. Applies to individuals who paid out-of-pocket expenses for a job-related move and meets the following criteria:
- The move must be for a job-related reason, such as starting a new job, and
- The new job must be at least 50 miles farther from the individual’s old home than the old home was from the individual’s old job or must be at least 50 miles from the old home if the individual did not have a job before.
Loss from Sale of Business Property. Applies to self-employed individuals that had a loss from the sale or exchange of property that they owned for their business.
Individual Retirement Account (IRA) Contributions. Applies to individuals who had income from a job and made contributions to an individual retirement account (IRA). Also applies to self-employed individuals who made contributions to an IRA they set up themselves.
Fee-based Official Tax-deductible Expenses. Applies to individuals who are fee-based officials and have out-of-pocket business expenses. Examples of fee-based officials include chaplains, county commissioners, judges, justices of the peace, sheriffs, constables, registrars of deeds or building inspectors.
Domestic Production Activities Deduction. Applies to self-employed individuals who led the production of things like property, electricity, natural gas, or potable water, as long as these things were produced in the United States. This also applies to individuals who invented or created software, recordings, or films in the United States.

Note: This deduction is not common.
Health Savings Account Deduction. Applies to contributions made to a health savings account for someone enrolled in a high-deductible health plan, as specified on Form 8889. Contributions made by employers, through roll-overs, or through distributions from Individual Retirement Accounts are not deductible.
Self-Employed Health Insurance Deduction. Applies to self-employed individuals who are paying premiums for a medical, dental or long-term care plan established under their business that covers them, their spouse, and/or their dependents.
Allowable Write-in Expenses. These deductions include:
- Contributions to Archer MSAs
- Deductions attributable to rents and royalties
- Certain deductions of life tenants and income beneficiaries of property
- Jury duty pay given to the employer because the juror was paid a salary during duty
- Reforestation expenses
- Costs involving discrimination suits
- Attorney fees relating to awards to whistleblowers
- Contributions to section 501(c)(18)(D) pension plans.
- Contributions by certain chaplains to section 403(b) plans

This page last updated in Release Number: 17-01

Release Date: 04/11/2017

Effective Date: 02/16/2017