By Amanda Singer
Earlier this year I wrote a two-part blog on stimulus checks and divorce and the second part focused on the 2021 child tax credit. You can read that article here. I wanted to provide a short update on this topic now that the IRS has provided more information and payments started July 15th to many who qualify. As part of the $1.9 trillion American Rescue Plan that was signed into law in March of this year millions of families are eligible to receive periodic advance payments on the Child Tax Credit of up to $300 per month per child. Currently, these advance payments only affect this 2021 tax year, however, that can certainly and hopefully will change and this already becoming a part of our divorce mediation conversations.
What Is the Child Tax Credit Payment?
As a reminder, the Child Tax Credit Payments increased for 2021 so a parent can receive up to $3,500 per child ages five and under at the end of 2021 and $3,000 per child between six and seventeen at the end of 2021. The credit is also fully refundable, meaning even if you don’t owe any taxes, you can still receive the credit as a direct payment to you. The credit does phase out for higher incomes, $75,000 for singles, $112,500 for head of households, and $150,000 for married couples, and they fully phase out for unmarried taxpayers earning $200,000 or more and for married couples earning $400,000 or more. The phase out is important to think about because in some couples one will benefit and the other wouldn’t and if you and your co-parent are willing to work together you can be strategic about making sure you maximize the total benefit you guys receive.
About Advance Payments
The advance payments began on July 15 and will continue through the rest of the year for half of the benefit and the other half will be claimed as part of the 2021 tax return in a traditional way. To determine eligibility for the tax credit, especially the advance payments the IRS will use your 2020 federal tax returns which can certainly cause issues for divorced parents who alternate the tax credit. What I mean by this is let’s say in odd years you claim your child and in even years your co-parent does. Well, if you should receive it this year the IRS is going to assume based on the 2020 tax returns that you wouldn’t get it and so you won’t receive the advance payments. That doesn’t mean you won’t necessarily get the payment, it’s just that you’ll end up having to wait till you file your taxes to receive it. For lower-income households who could really benefit from these payments throughout the year for their children that is unfortunate. If you’re unsure ether you’re enrolled to receive payments or if you qualify you can check on the IRS website (https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021)
If you have questions on the 2021 child tax credit payments or want assistance discussing this issue with your co-parent, contact us today to assist through mediation. Call (858) 736-2411 or use our online contact form.