Divorced and separated parents already have extra concerns on their plate. This summer, they can add one more: which parent will receive new Advance Child Tax Credit Payments?
As part of Biden administration’s American Rescue Plan, parents with children ages 17 and under are set to receive monthly advances of the 2021 enhanced child credit, starting this July.
This is coming up soon, so if you haven’t created a plan or come to an agreement yet with your ex on which one of you will receive these advance payments, time is of the essence.
Not sure what to expect? Here is a rundown of what the Advance Child Tax Credit is and the problems divorced or separated parents could encounter.
What is the Advance Child Tax Credit Payment?
The enhanced child tax credit is part of the American Rescue Plan signed into law by President Joe Biden in March. The Rescue Plan bumped up the child tax credit to $3,000 (from $2,000) per child under the age of 17 and gives an additional $600 benefit for children under the age of 6 for the 2021 tax year.
To assist with economic recovery, half of the credit will come to parents in advance payments spread out monthly from July – December 2021, averaging $250 per child or $300 for child under 6 years old.
Receiving payments is income dependent. The full credit is available to all children ages 17 and under in families with 2020 or 2019 adjusted gross income of less than $75,000 for single parents and $150,000 for a married couple filing jointly, and ends for individuals earning $95,000 and married couples filing jointly making $170,000. These higher income earners are still eligible for the regular child tax credit, just not the advances.
How are advance child tax payments treated for separated and divorce parents?
Here’s where these payments enter into a gray area for divorce and separated parents.
When couples with children divorce, the parent the children are with for the majority of the year — with exceptions for college and other temporary absences — is generally deemed the custodial parent for tax purposes, regardless of who is the primary financial provider. The custodial parent will claim the children each year on their taxes. Should these parents qualify under the income guidelines for the tax advances, they will receive the advance payments.
However, many other divorced parents negotiate dependent tax claims as part of the financial settlement of their divorce. It is very common for divorced parents to alternate years of claiming the children as dependents. One year, Dad might claim all the children as dependents, and the other year Mom will.
This is where a problem with these advance payments could erupt. According to the IRS, the government is using filers’ 2019 or 2020 tax status (whichever was the last filed) to determine who gets the advance payments. So, if your ex was the parent who claimed the kids in 2020, as of right now, the IRS has your ex down as the parent who will receive the payments.
There have been some indication that the IRS will add a tool to allow parents with alternating year agreements to explain how to treat the advances, but as of the latter half of June, this tool is not yet present.
What this means is that you may need to explore options with your ex about how to come to an agreement on your own about these advance payments. Here are two options:
- Create an agreement. For divorced or separated parents who have negotiated an every other year agreement and there is confusion about how to treat these advances, get your plan in writing. If money goes into your ex’s account, get it in writing that they need to send you a check within a certain number of days after the deposit. (Or vice versa if you are receiving money that should go to your ex because 2021 is their year to take the child tax credit.)
- Opt out of payments. If this issue is just too thorny — for example, if it is impossible to communicate with your ex over this issue — another option is to tell the IRS that you don’t want the payment. In this situation, the parent who will take the tax credit in 2021 will get to take it all off their taxes at that time. The IRS has a tool on their Tax Credit portal to unenroll from payments.
This may keep the peace or allow you to avoid interaction with a combative ex. However, it’s important to remember why these advance payments are being made in the first place. The pandemic has been economically devastating for so many families, hitting children perhaps hardest of all.
If you can’t come to an agreement with your or feel confused about what should happen to these payments, it’s a good idea to sit down with a family law attorney to discuss your situation and perhaps even get some mediation to help you and your ex strike an agreement. If you are just now going through a divorce, this may be especially important in case you haven’t yet tackled issues like tax deductions as you resolve your divorce.
It’s a given that changes and updates to these advance payments will happen in July. We’re watching this topic closely and will update this blog as updates become available.
Have concerns about your advance tax credit payments? Our attorneys are here to help. Please contact us today to schedule your initial confidential consultation. Call 888-888-0919, or please click the button below.