Millions of parents have been dealing with financial challenges due to COVID-19. To alleviate these difficulties and minimize their impact on children, the Biden Administration included an Advance Child Tax Credit in the American Rescue Plan passed last March.
The Plan increased the credit total from $2,000 to $3,600 per qualifying child under age six and $3,000 per child aged six to 17. Unless they opt out, parents receive half of the money via six monthly installments between July 15 and December 15 and the rest when they file their 2021 tax return.
Below are the criteria for receiving the advance child tax credit:
- You have an eligible child who will be 17 or younger at the end of this year
- You filed a 2020 or 2019 return in which you claimed the Child Tax Credit
- You lived in the United States for at least half of 2021
- You meet the income eligibility requirements
While the eligibility criteria appear to be straightforward, questions have come from separated and divorced parents in particular. Who is entitled to receive the credit? What if they have been alternately claiming their children? Should the parent who claimed the children last year opt out of the credit? If they don’t and try to keep the payments, what can the other parent do?
Are you legally separated?
For separated (but not divorced) parents who filed joint returns in 2020 and claimed the child tax credit for their children, the advance payments will be deposited into the bank account listed on the 2020 tax return (or 2019 if the 2020 return has not been filed yet) or a check will be mailed to their home address on record.
If this outcome isn’t consistent with your separation agreement, you or your spouse can log into the Child Tax Credit Update Portal on the IRS website and do an information update to confirm who will be claiming the children on their 2021 return. If your spouse refuses to cooperate, speak to your child custody attorney.
Are you divorced?
If you’re the custodial parent, you should be the one receiving the Advance Child Tax Credit payments. However, if you share joint physical custody with your former spouse and have been alternately claiming the credit, you should be aware that the parent who claimed it in 2020 may be the one to receive the advance payments this year, even though the payments actually belong to the other parent.
How does this happen? Taxpayers were automatically enrolled in Advance Child Tax Credit Payments, so a divorced parent could begin receiving monthly advance child tax credit payments for a child they are prohibited from claiming on their 2021 tax return.
If this happens, they should immediately visit the IRS website to unenroll and then reimburse the other parent. If their former spouse has fallen behind on court-ordered child support payments, they may be justified in keeping the tax credit money, but should only do so after speaking to an attorney.
When in doubt, get legal advice
When family law and tax law intersect, figuring out the answers can be complicated. If you are unsure who should receive these 2021 tax credit payments, seek the advice of an experienced family law attorney who can help you make an informed decision and, if necessary, protect your rights.