The New Child Tax Credit: Implications for Parents with Shared Parenting Responsibilities

The $1.9 trillion American Rescue Plan Act (“Act”) was signed into law by President Joe Biden on March 11, 2021. Intended to assist Americans in recovering from the economic and health effects of the COVID-19 pandemic, the Act provides a host of benefits, grants, and public spending measures, one of those benefits being an increase in the 2021 child tax credit and advance payments of the same.

The IRS allows each dependent to be claimed by one taxpayer, creating issues for divorced parents and parents with shared parenting responsibilities, who do not file their taxes jointly. While some parents allow for the parent with more parenting time (formerly, “custody”) to claim the minor child(ren) each year, many parents have an agreement where they share or rotate who claims the minor child(ren).

The advance child tax credit payments amount to half of the 2021 child tax credit, and as of July 15, 2021, were sent out in monthly increments up to $300.00. The remainder of the credit will be paid in a lump sum when parents file their 2021 taxes. The advance payments, however, are based on 2020 tax filings, meaning whoever received the credit in 2020 will receive the advance payments for 2021. This creates difficulties for parents who share who claims the minor child(ren) from year to year.

If you do, in fact, share who claims your child(ren) from year to year with another parent, these advance payments can be risky. If you are not entitled to claim the minor child(ren), you may be required to return these payments when you file your 2021 tax returns. If you are in a position where you share claiming your minor child(ren), sign in to the IRS Child Tax Credit update portal (https://www.irs.gov/credits-deductions/child-tax-credit-update-portal) and ensure that you make the IRS aware of your arrangement.

If you have already received advance payments and you are unsure whether you are entitled to the same, or if you think you should have received advance payments that have not been sent to you, please do not hesitate to contact me at 847-705-7555 or vpaton@lavellelaw.com and find out how we can help.