Things Parents Who Share Custody Need to Know About the Child Tax Credit
The Child Tax Credit is part of the American Rescue Plan. It increased the child tax credit to $3,600 for children under the age of six and $3,000 for children between the ages of six and seventeen. However, it also changed how this credit was paid out to parents. If you share custody of your children with a co-parent, learn more about how the Child Tax Credit may affect your tax situation.
Struggling with the Child Tax Credit and other co-parenting issues? Let us help. Schedule a consultation with the team at Haygood, Cleveland, Pierce, Thompson & Short by calling us at 334-821-3892.
Only One Parent Can Claim It
Only one parent can claim the expanded Child Tax Credit. This isn’t technically new—in previous years, only one parent could claim the standard credit. However, it does mean that the parent legally permitted to claim for the 2021 tax year will get more than usual. Whether or not you get the credit this year depends entirely on the specifics of your divorce settlement or co-parenting agreement.
If custody is split equally, it’s common for parents to claim the children every other year. Currently, the larger Child Tax Credit is set to expire after 2021. It may get extended if the relevant legislation is pushed through.
What You Get at Tax Time Depends on Whether or Not You Received Monthly Payments
In summer of 2021, the government began sending out partial monthly payments to families that qualified for the Child Tax Credit. The monthly payments amounted to $300 for children under the age of six and $250 for children six and older. This may complicate your tax filing, as automatic payments were based on 2020 tax filings.
If you use an every-other-year structure, the parent who will not claim the child for 2021 may have received part of the tax credit. If this is the case, discuss it with your attorney. The other parent may have to pay back the wrongfully received credit via their tax return.
If you did not receive six monthly payments, the full $3,000 or $3,600 will be included in your tax return. If you did receive the partial payments, your tax return will include $1,500 or $1,800.
Advance Payments Won’t Be Seized to Pay Child Support
Advance payments of the Child Tax Credit will not be seized by the IRS for past due child support, back taxes, state debts, or federal debts. This does not extend to private creditors and collection agencies. If there is a garnishment in place, your advance payments can be seized to cover those debts.
The second half of the Child Tax Credit, which is included in your tax return, is subject to different rules. This part of the credit can be seized to cover overdue child support, taxes, and government debts. It is also subject to garnishment by private creditors and collection agencies.
Know If You Qualify or Not
The qualifications for the Child Tax Credit are fairly lax, allowing many families to benefit from this financial boost. There is no minimum income requirement. The tax credit does begin to phase out at higher income levels. For single individuals, phasing out begins at an adjusted gross income of $75,000. The amount is $112,500 for those filing head of household and $150,000 for married couples.
To receive payments, you must have a valid SSN or ITIN. The child must be 17 or younger on the last day of 2021. Note that this means you can claim the credit for any child born in 2021. The child must live with you for at least half of the year and have a valid SSN. Your child must not provide more than half of their own financial support and must be considered a dependent.
Tackle Your Co-parenting Issues with Haygood, Cleveland, Pierce, Thompson & Short
Topics like taxes, parenting schedules, and medical decisions can make co-parenting difficult—especially if you’re in a high-conflict situation. Having a strong legal team by your side can make this much easier and less stressful. Find out how we can help by calling us at 334-821-3892 or filling out our online contact form.
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