As a part of President Biden’s American Rescue Plan, monthly child credits are starting this July. But if you share custody with your ex-spouse, who claims the child tax credit?
President Joe Biden recently signed into law the $1.9 trillion American Rescue Plan Act. Amongst other things, the legislation will increase the child tax credit to $3,000 per child ages 6 to 17 and $3,600 annually for children under 6 for the tax year 2021. Here’s what else you should know…
How Claiming Child Tax Credit Typically Works
When parents share joint custody, they usually work out a schedule according to their work requirements, housing arrangements and the children’s needs. This includes financial plans like which parent is eligible for child tax credit payments.
However, if you are recently divorced or separated – or simply don’t have a plan in place – which parent claims the new tax credits?
Fundamentals of the New Child Tax Credit
The American Rescue Plan temporarily expands the child tax credit for 2021 which aims to substantially reduce child poverty by supplementing the earnings of families receiving the tax credit. The U.S. Department of the Treasury states that Child Tax Credit has been revised in the following ways:
- The credit amount has been increased. The American Rescue Plan increased the amount of the Child Tax Credit from $2,000 to $3,600 for children under age 6, and $3,000 for other children under age 18.
- The credit’s scope has been expanded. Children 17 years old and younger, as opposed to 16 years old and younger, will now be covered by the Child Tax Credit.
- Credit amounts will be made through advance payments during 2021. Individuals eligible for a 2021 Child Tax Credit will receive advance payments of the individual’s credit, which the IRS and the Bureau of the Fiscal Service will make through periodic payments from July 1, to December 31, 2021. This change will allow struggling families to receive financial assistance now, rather than waiting until the 2022 tax filing season to receive the Child Tax Credit benefit.
- The credit is now fully refundable. By making the Child Tax Credit fully refundable, low- income households will be entitled to receive the full credit benefit, as significantly expanded and increased by the American Rescue Plan.
- The credit is now extended to Puerto Rico and the U.S. Territories. For the first time, low- income families residing in Puerto Rico and the U.S. Territories will receive this vital financial assistance to better support their children’s development and health and educational attainment.
To facilitate the disbursement of Child Tax Credit advance payments during 2021, the American Rescue Plan requires the IRS to establish an online portal for taxpayers to update relevant data for mid-year payment adjustments (for example, the birth of a child during 2021). In addition to this online tool, the Treasury Department and the IRS will carry out a sweeping public awareness campaign parallel to its Economic Impact Payment campaign to reach all Americans who may be eligible for this financial assistance.
What Are The Updated Requirements For The New Tax Credit?
There are net income limits and rules to be aware of. But simply put, if your adjusted gross income is $75,000 a year or less and you are a sole taxpayer, you can receive a full tax credit for your child. It fluctuates as your net income increases.
For now, the tax credit extends to:
Children ages 5<
- $3,600 per child
Children age 16<
- $2,000 per child
Children age 17<
- $3,000 per child
Children 18-24 currently enrolled in college and full-time status
- $500 per child
To help see exactly how much money you’ll receive in advance, Kiplinger has released a Child Tax Credit Calculator. Try it out here.
Can Both Parents Receive The Monthly Payment In A Shared Custody Situation?
For parents who share custody, child support can sometimes add complications to their stimulus check total and eligibility. Furthermore, rules for the third payment have changed from the first two payments, removing a loophole that allowed some families to “double-dip” (both parents receiving their own dependent payment for the same child), among other major changes as listed earlier. If you are wondering if there are the same loopholes when it comes to claiming the new child tax credits, the short answer is “no”. Only one parent can claim a child and receive the credit.
So which parent gets the tax credits? When the terms of the divorce clearly identify a custodial parent — the parent who has primary custody of the child — that parent is legally entitled to claim the child as a dependent and receive any associated tax refunds. Many parents have a 50-50 custody agreement but don’t have a written agreement regarding which of the parents claims the child on their taxes. Whether you have primary custody or joint custody of a child after divorce, the fact remains that only one person can claim the child on each year’s tax forms.
Be aware that if you falsely claim your child, you will possibly have to pay all or a portion of that payment back the following year.
Can The Tax Credit Money Pay For Overdue Child Support?
If you are divorced and haven’t been paid the correct child support unfortunately, the tax credit cannot be used for overdue payments – according to the congressional research service. However, the credit you will claim in 2021 and 2022 can be subject to overdue child support CRS stated.
What Action do Families Need to Take to Receive the Payment?
Most families won’t have to do anything to receive their child tax credit payment starting July 15. Similar to the stimulus payments, the CTC payments will be automatically deposited into the taxpayer’s bank account, or sent in the form of a prepaid debit card or paper check (depending on what information the IRS has on file for each qualifying taxpayer).
However, action should be taken for non-filers. Even those who made too little to file a 2020 tax return should do so now in order to receive the advanced monthly CTC payments in the future. The Treasury Department and the IRS say they will continue efforts to make more families aware of their eligibility.
If you have children or other dependents under the age of 17, you likely qualify for the Child Tax Credit that hits bank accounts July 17. When you address the issue of claiming children on taxes, it’s important to research your rights and make your claim correctly.
If you need further assistance with a parenting plan or child support, you can contact Masters Law Group to schedule a consultation. We represent individuals in the Chicagoland area in both their initial quest to set a parenting time schedule, as well as parents looking to modify a previously determined schedule, child support orders and allocation of parental responsibilities.