How Should Divorced Parents Address the 2021 Advance Child Tax Credit?

 Posted on September 07,2021 in Divorce

There are a variety of tax issues that spouses will need to consider when they get a divorce. When parents are divorced or separated, a child can only be claimed as a dependent by one party. In many cases, the custodial parent who has the majority of the parenting time will be able to claim a child, although a couple’s divorce settlement may provide for other arrangements, such as each parent claiming a child in alternating years. The parent who claims a child as a dependent can receive a child tax credit when filing their tax return.

In 2021, this issue has been complicated by a law that provides parents with an Advance Child Tax Credit. Divorced parents or those who are going through the divorce process will need to be sure these tax credits are addressed correctly.

What Is the Advance Child Tax Credit?

As part of the ongoing efforts to provide assistance to people who have been affected by the COVID-19 pandemic, the federal government has begun making advance payments to taxpayers who will be able to claim a child tax credit for 2021. The total tax credit for children who will be five years old or younger at the end of 2021 is $3,600, and children who will be 17 or younger at the end of 2021 will qualify for a tax credit of $3,000. Half of this total credit is being sent to those who can claim children as dependents in monthly payments from July through December of 2021. Parents will receive $300 per month for each child under the age of six and $250 per month for each child under the age of 18.

In July, the IRS began making automatic Advance Child Tax Credit payments, and these payments are based on whether a person claimed a child as a dependent on their 2020 tax return. Parents who claim a child as a dependent every year usually will not need to do anything, and payments will usually be made through direct deposit to the bank account in which a person received their tax refund. However, parents who alternate claiming a child as a dependent each year will need to take additional steps to ensure that Advance Child Tax Credits are paid correctly.

A person who will not be claiming a child as a dependent in 2021 can unenroll from Advance Child Tax Credit payments, and the other parent may be able to contact the IRS to inform them that they will be claiming the child in 2021 and begin receiving advance payments. For those who are currently going through the divorce process, it may be best to unenroll from advance payments to ensure that child tax credits will be allocated correctly when filing tax returns for 2021. If a parent receives Advance Child Tax Credit payments in error, they may be required to repay these payments to the IRS.

Contact Our St. Charles Divorce Tax Issues Lawyers

At Goostree Law Group, we can advise you on how to address tax issues during your divorce, and if necessary, we can work with you to modify your divorce decree to address changes in your financial circumstances. Contact our Kane County divorce attorneys today at 630-584-4800 to arrange a free consultation.

Sources:

https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021

https://www.irs.gov/credits-deductions/2021-child-tax-credit-and-advance-child-tax-credit-payments-frequently-asked-questions