Child Tax Credit Advance Refunds

rsz child tax credit

Starting July 15, 2021, millions of American families will start receiving monthly Child Tax Credit payments. As part of the $1.9 trillion American Rescue Plan of 2021, signed into law in March 2021, roughly 39 million families will receive periodic advance payments on the Child Tax Credit of up to $300 per month per child. As of yesterday, these advance payments only affect the 2021 income tax year.

There are aspects of the advance payments that may be difficult to comprehend for parents who are divorced. If you don’t believe you are receiving the payments that you are entitled to, you can contact the IRS to discuss if you are receiving the wrong amount. If you are a parent who is sharing custody with your former spouse, you should become familiar with the Child Tax Credit changes for 2021.

The first change is the Child Tax Credit has increased. For 2021 only, a parent can receive up to $3,600 per child under 6 years old, and $3,000 per child between 6 and 17 years old. Previously, the Child Tax Credit was $2,000 for all eligible ages.

The second change for 2021 is the credit will apply in full, even if there is no tax due. So, if there is no tax due, the credit will take the form of a direct payment from the government to you (as the taxpayer).

It is important to note that the credit phases out for higher incomes. For a head of household, the phase-out begins at $112,500 of income. For single or married filing separately, it begins at $75,000. For couples filing jointly, it begins at $150,000.

Who will receive the Child Tax Credit and advance monthly payments?

The third big change is that the IRS is giving advance refunds of the credit. Prior to 2021, the Credit was received in a refund payable to a taxpayer upon filing a Federal Income Tax Return. As a result, the taxpayer received the Credit in the following February, March, or April of the tax year the Credit was actually earned. In 2021, the Child Tax Credit will be paid in advance. Eligible households receiving the full Credit amount can expect monthly payments beginning as early as July of $300 for children under 6 and $250 for children over 6 years of age.

To determine eligibility for the credit, the IRS will use your 2020 Federal Income Tax Return. That Tax Return sets forth the income of the filing party, the Social Security numbers of the dependent children, and which party is claiming the exemption for those children. This Return provides enough information for the IRS to calculate the new Child Tax Credit.

The advance payment of the Child Tax Credit is intended to total half of an eligible household’s total credit. The remaining half will be claimed as part of the 2021 Federal Income Tax Return in the traditional way.

You do have the option to decline the advance payments for 2021 and choose to take the full Credit in 2022 as you would have in prior years. The IRS is working on a website where you can log in and make that selection along with other selections which would be relevant for divorced parents. For example, you may have been married in 2020 but divorced already in 2021. As a result, a different parent than expected by the IRS may be claiming the exemption in 2021. Hopefully, the IRS website will also enable divorced parents to change that important information to avoid payments being received by an unintended recipient. If such a payment error does occur, the IRS is not going to attempt to recover the full amount; therefore, you may need to speak with your attorney should you be unable to resolve with your former spouse.

Should you need the advice of a divorce attorney or have questions or concerns about your situation, know that we are here to help and discuss those issues with you.

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