If you share custody with your ex, you may be wondering how your custody arrangement will be affected by the Child Tax Credit, a credit included as part of the federal government's American Rescue Plan of 2021. The credit is a tax benefit that lowers taxpayers' liability. It increased the annual credit from the $2000 allowed per child under the age of 17 in 2020 to $3000 per child under the age of 18 in 2021. Parents with children up to the age of six receive $3600 per child.
These fully refundable credits were dispersed to taxpayers starting in July 2021 and continue through the end of the year as monthly payments. At present, the credit will only last for one year although Democrats are hoping to make the move permanent.
Which Parent is Eligible for the Child Tax Credit?
Child Tax Credit eligibility is based on income. In the past, parents needed to have an annual income of at least $2,500 in order to qualify for the credit, but there were no minimum income requirements attached to this credit.
If you share custody with your ex, you may be wondering which one of you will get the tax credit. The IRS has included guidance regarding the Child Tax Credit that should make it easier for parents sharing custody to manage their expectations.
Special Rules for Parents With Shared Custody
If you're a parent who shares custody with your ex, the IRS has laid out the process for how the child tax credit will be paid out.
Whichever parent claims the child or children in 2021 should get the credit. The credit will be based off of the 2020 tax return or whatever the latest tax return the IRS has on file. If the same parent always claims the children on their taxes, this shouldn't be an issue. If the parents alternate years, whoever claimed the child on their 2020 tax return will get the credit.
What Happens if You Get the Credit But Shouldn't Have?
If you're a parent who got the tax credit, but you weren't supposed to, you may have to end up repaying a portion of or the entirety of the payment back next year. In order to avoid this, you can contact the IRS and waive the payment.
Can These Payments be Offset or Subject to Garnishments?
The child tax credit is exempt from being offset due to overdue child support, but the amount of the credit that you include on the tax returns that you file in 2022 may be subject to offset to recover any overdue child support still owed.
Who Can I Speak With About the Child Tax Credit?
To ensure that your children get the financial benefits they deserve after your divorce or split, you may benefit by working with an attorney who can help you get to a child custody arrangement that is fair, equitable, and helps ensure that your children continue to thrive after the split. Going it alone can result in financial instability that could affect you for years to come. Reach out to attorney Joseph D. Lento and the Lento Law Firm at 888-535-3686 for more information.