Tips for Parents who Alternate Child Tax Benefits

By Amanda Singer

Many divorced parents, especially those with only one claimable child, often alternate which parent is entitled to claim them dependent on their taxes. This, however, can cause issues with the IRS, and there are some essential things to know before filing your 2021 federal tax return.

 

Economic Impact Payments and the Recovery Rebate Credit

In 2021 there was a third economic impact payment that was an advance payment of the 2021 recovery rebate credit. The IRS used the taxpayers’ 2019 or 2020 tax information to determine their eligibility depending on whether 2020 taxes had been filed at that time. This meant that for divorced parents who alternate years for a qualified dependent that the person who received the third economic impact payment in 2021 based on their 2020 taxes may not be the one who should have received it. Suppose an eligible taxpayer did not receive the payment for a qualifying dependent they are claiming on their 2021 tax return. In that case, that parent can still claim the 2021 recovery rebate credit on their taxes, regardless of what the other parent may have received. Additionally, suppose the other parent did receive a third-round payment for a dependent. In that case, they actually won’t be claiming on their 2021 tax return. They are not required to pay back any of the money they may have received.

 

Child Tax Credit

In 2021 the IRS began making advance child tax credit payments to qualifying taxpayers. You can find more about the child tax credit in our previous blogs. Now for this, the IRS based the information on 2020 tax returns or 2019 if the IRS had processed their 2020 return. So, the issue here is that for parents who claimed a qualifying child on their 2020 return but alternated each year, that parent would have received the advance child tax credit payment in 2021 but then won’t be claiming that same child on their 2021 taxes. For parents who knew they would not be claiming the child on their 2021 return, they had the option to unenroll from receiving monthly payments by using the Child Tax Credit Update Portal at IRS.gov; however, many parents probably didn’t know about this. Anyone who did not unenroll and received the monthly payments during 2021 for a child is now not claiming on their 2021 taxes; they could now have to repay those payments when they file. There are some exceptions for some or all of the excess amount if they qualify for repayment protection. The eligible parent who did not receive the advance payments for the qualifying child will be able to claim the full amount on their 2021 tax return.

 

Need help with an agreement regarding the child tax credit? Contact West Coast Family Mediation Center. Call (858) 736-2411 to schedule a free virtual appointment with one of our mediators.

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