Federal Child Tax Credit Updates
Most readers are aware that the American Rescue Plan Act (the Covid-19 Relief Package) contained provisions to provide direct stimulus payments in the amount of $1,400 to Americans with a single adjusted gross income of $75,000 or less, and married couples with adjusted gross income of $150,000 or less. In addition to direct stimulus payments and extension on unemployment benefits, the Act also increases child tax credits for families with child dependents. Depending on the age and number of your children, you could be looking at least $600 extra a month for 6 months, starting in July 2021 via direct deposit or paper check from the IRS. But how does this new addition affect divorced or divorcing couples?
Understanding the Child Tax Credit Updates
The new child tax credit increases from $2,000 per child dependent to $3,600 per child under 5, for this year only. Even if you have already received your tax refund for 2021 taxes, if you have child dependents you should expect to see an additional $600 monthly payment per child, starting in July of 2021. The payments, via direct deposit or paper check, will occur monthly through December 2021, amounting to $1800. Then, when parents file for 2021 taxes in 2022, they will receive an additional $1,800 lump sum child tax credit. The IRS states that parents can opt out of monthly payments and elect for one lump sum payment in July. To do so, they need to notify the IRS in advance using a portal that has not been made accessible yet.
In addition, if you have children over the age of 5, the enhanced tax credit is reduced to $3,000 total per child. And if your child is turning 6 at the end of the year, your second lump sum payment in 2022 is reduced by $600. If you recently gave birth or are expecting a child this year, you can also file for monthly payments once your child has been issued a social security number, and you update your dependent status with the IRS. Payments are phased out for married couples making more than $150,000 per year in adjusted gross income (AGI), and parents filing as head of household ($112,500) or single with an AGI of more than $75,000 per year.
Implications on Divorced & Divorcing Couples
Divorcing couples should be working towards completion of a Parenting Plan or Parenting Agreement, along with a Marital Settlement Agreement. These documents should contain provisions regarding tax implications, and what parent claims the child as a dependent, on which year. If both parents share legal and physical custody (50/50 overnights), they are both entitled to claim the child as a dependent on state and federal taxes. This means if the parents share one child, one parent might claim the child on odd years, and the other on even years. If parents share two children, they might agree that one parent claims one child every year, and the other parent claims the other child every year. Three or more children is likely divided based on odd and even years.
But these rules only apply to parents who share physical custody including overnight custody with their children during the previous year. If one parent has visitation twice a month, they do not qualify for a child tax credit and cannot claim the child as a dependent, even if they pay child support. If a previously divorced party has recently sought a modification to custody or support, this might impact future tax implications, but the IRS will look back on the previous calendar year (2020) to make determinations for this new increased child tax credit. If you have a child on the way or were divorced in the last few months, you can update your filing status on the portal the IRS hopes to have completed by July 2021.
Call Attorney William Wallshein Today
If your ex-spouse has illegally claimed your shared children as dependents on his taxes, demanded his “share” of your stimulus payments, or is threatening additional actions against you, you need legal counsel, and fast. While there are economic and criminal repercussions for defrauding the IRS and Florida Treasury, a direct impact is felt on blended families and children of divorce. If you have primary custody of your children, your ex cannot and should not be claiming them to receive the additional child tax credit, period. West Palm Beach family law attorney William Wallshein possesses more than three decades of experience, including at the intersection of tax law and family law issues. He will fight for your interests and the best interests of your children. Call today to schedule a consultation.