How the Advance Child Tax Credit Affects Divorced Parents
When President Joe Biden passed the American Rescue Plan in early 2021, one objective was to provide child poverty relief by issuing tax credits for parents. But, these tax credits have created some confusion about the eligibility of divorced parents. New Jersey’s Law Office of Jordan B. Rickards wants to help alleviate the confusion.
What Is the Advance Child Tax Credit?
The Advance Child Tax Credit legislation provides relief to families with children. Parents are eligible to receive a $3000 tax credit for children under 17 years of age. Eligible parents with children six years old and under will also receive an extra $600 for the 2021 tax year.
One of the stipulations in the law permits parents to accept advance payments of the child tax credit, starting in July 2021 and ending in December 2021. Each average monthly payment will be around $250 to $300 per child in households that meet income guidelines.
What Does This Mean for Divorced Parents?
Divorced parents are at a disadvantage. The reason is that only one parent can claim a child tax credit.
The Advance Child Tax Credit is set up to send payments to the custodial parent, which generally means the parent who cares for the children the majority of the year. But some parents have an agreement as part of their divorce settlement where they switch claiming the children each year. Confusion occurs because the parent who claimed the credit in 2020 will receive the advance payment. However, the parent with the tax credit claim in 2021 should receive the payments.
What Options Do Divorced Parents Have?
Parents have some options, none may necessarily be ideal, especially if the divorced couple doesn’t get along. However, this situation will require some sort of agreement between the divorced parents.
Some options are:
- Try to split the credit between the parents after the monthly payment has arrived.
- Have the parent who claimed the children in 2020 give the full payment to the parent who will claim in 2021.
- Opt-out of receiving the monthly payments and wait to claim the full credit when filing the 2021 returns.
What Happens if There Is a Dispute?
If the divorced parents can’t agree on a resolution, hiring an experienced family lawyer may be the best option for your family. Your attorney may suggest a mediation process to sort out how to handle the payments. Or they may write a new agreement into the divorce contract specifically for this unique situation. Whatever method you choose, be sure to get it in writing.
The Law Offices of Jordan B. Rickards Can Help
While this Advance Child Tax Credit situation may seem chaotic, it doesn’t have to be. Reach out to the Law Office of Jordan B. Rickards, in New Jersey, for experienced help. Call today to schedule an initial consultation and take the first step in tackling this challenge.
