How Are Advanced Child Tax Credit Payments Handled For Divorced Parents?

 Posted on July 20, 2021 in Illinois family law attorney

On July 15, families in Illinois and around the country began receiving direct deposits or checks for advanced child tax credits for the tax year 2021. These payments are part of the American Rescue Plan. While the advanced payments are a welcome financial relief for many families, some parents are wondering how the IRS will ensure that the parent who receives the advanced tax credit funds is the same parent who claims the child as a dependent in situations where the parents are no longer together, and a parenting plan has been established.

American Rescue Plan

In March, President Joe Biden signed the $1.9 trillion American Rescue Plan. The plan was Washington D.C. lawmakers’ response to helping people financially recover from the COVID-19 pandemic. One provision in the plan calls for an increase in the child tax credit. For children between the ages of 6 to 17, the credit will be $3,000. For children under 6, the credit will be $3,600. The provision also calls for parents to receive advance payments of up to half the credit amount they will be entitled to for tax year 2021.

The move was lauded by both family advocates and economists who say that the increase and advanced payments will cut child poverty in half in both Illinois and throughout the country.

Advanced payments will be made monthly, at up to $300 per payment. According to the IRS website, the payments will be sent to whoever claimed the child as a dependent on their 2020 federal tax returns. While this is not an issue for married parents, it can cause an issue for parents who are no longer together if there is a yearly or other periodic change in how the parents claim the child.

Claiming a Child as a Dependent

In every parenting agreement, there should be a stipulation regarding which parent can claim the child each year on their income taxes. This is because the IRS only allows a dependent to be claimed by one taxpayer.

There are a variety of ways this can be addressed. Some common agreements include the following:

• If one parent will have custody of the child more than 50 percent of the time, that parent usually gets to claim the child as a dependent.

• If the parents have equal custody, one option is to alternate years. For example, one parent claims the child on odd years, the other parent claims the child on even years.

• If the parents have shared custody, the parent who at the end of the year had the child for more hours than the other gets to claim the child.

There is nothing in the current IRS plan for issuing advanced credit payments that could ensure the parent who will be claiming the child for 2021 will be the parent who is receiving the payments. However, the IRS does have a portal on their website where parents can update this information. There is a way for parents to enroll to receive their payments, as well as a way for parents to unenroll if they claimed the child on 2020’s taxes but will not be eligible to claim the child for 2021.

Although this portal is available, it is currently up to each parent to take the appropriate steps if they are not entitled to the payments. If a parent receives payments they are not entitled to and refuses to correct the issue, the IRS will eventually get the credit to the right parent, but that could take significant time. In these situations, the parent losing the credit should contact their family attorney for assistance.

Let a Kane County Family Law Attorney Help

If you are going through a divorce in which you will need to address the custody of your children, a skilled Aurora, IL child custody attorney can help you understand the issues that will affect you, including your ability to claim children as dependents and receive tax credits. Call the Law Office of Matthew M. Williams, P.C. at 630-409-8184 to schedule a confidential consultation and find out how we can help.

Sources:

https://www.cnbc.com/2021/03/11/biden-1point9-trillion-covid-relief-package-thursday-afternoon.html

https://www.whitehouse.gov/child-tax-credit/

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

https://www.irs.gov/credits-deductions/child-tax-credit-update-portal