How Should Divorcing Parents Address the Advance Child Tax Credit?

 Posted on September 15, 2021 in Taxation Law

When a couple gets divorced, they will need to address a wide variety of financial issues, and they should be sure to understand how the decisions they make will affect the taxes they will be required to pay and the deductions and credits they can claim. One divorce-related tax issue that may affect people in 2021 is the Advance Child Tax Credit. Parents will need to be sure to understand how this credit will be handled during the divorce process and after their divorce has been completed.

Claiming Child Tax Credits and Receiving Advance Payments

When a parent can claim a child as a dependent, they will be able to receive a child tax credit when filing their annual tax return. In 2021, Congress passed a law that provides parents with advance payments for this tax credit. Between July and December of 2021, a parent who will claim the child tax credit for this year can receive monthly payments. The monthly payment for children under the age of 6 is $300, and the monthly payment for children under the age of 18 is $250. To qualify for these payments, children must meet the applicable age requirements on December 31, 2021. 

Parents who are married generally do not need to do anything to begin receiving Advance Child Tax Credit payments. If parents claimed a child as a dependent on their tax return for 2020 and they received a tax refund through a direct deposit to their bank account, the IRS will automatically make monthly payments to the same account.

For parents who are going through the divorce process, determining how to handle Advance Child Tax Credit payments may be more complicated. As a couple begins to separate their finances, the question of who should receive these payments may not be fully settled. To avoid disputes, parents may choose to opt out of Advance Child Tax Credit payments, and when filing tax returns for 2021, the parent who will claim a child as a dependent will be able to claim the full child tax credit.

Going forward, parents will need to determine how they will claim tax deductions and credits for their children. In some cases, one parent may claim a child as a dependent each year while in other cases, parents may claim a child as a dependent in alternating years. If the Advance Child Tax Credit is extended into 2022 or beyond, a parent who claimed a child in one year but who will not be claiming the child the following year may need to contact the IRS to unenroll from monthly payments. The other parent may be able to enroll in monthly payments, or they may wait until filing their tax return for that year to claim the child tax credit.

Contact Our San Jose Tax Attorney

By handling the child tax credit correctly during your divorce, you can avoid complications in the future. If you receive Advance Child Tax Credit payments in error, you may be required to repay this amount to the IRS, but in some cases, you may be exempted from these requirements. At John D. Teter Law Offices, we can advise you on how to address tax-related issues during your divorce, and we can provide you with representation when addressing taxes or penalties owed to the IRS. Contact our San Jose tax lawyer today at 408-866-1810 to learn more about how we can help.

Source:

https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021