When divorced parents share custody of their children equally, there are different ways they can claim child tax credits. If they have one child, they may alternate years claiming that child as a dependent. If they have more than one child, they may each claim one or more. Their choice may also depend on each parent’s income.
What has changed about the child tax credit?
The American Rescue Plan signed into law in March increases the $2,000 annual child credit significantly. For children under 6 years old, it’s been raised to $3,600 beginning with the 2021 tax year. For children from 6 to 17 years old, it’s increasing to $3,000.
Under the new law, the Internal Revenue Service (IRS) will begin paying child tax credit payments on July 15 and on a monthly basis thereafter. How do parents who share custody navigate these early payments?
So far, the IRS has not provided specific guidance. It is making these advance payments based on parents’ 2020 tax returns if they were filed. That means if a parents alternate years claiming their child as a dependent, the person who claimed their child last year will receive these advance payments.
Opting out of the advance payments is an option
Parents are allowed to opt out of these advance payments. If they do, they’ll simply get the full amount when they file their 2021 tax returns. This may be a simpler solution for some divorced parents than having one parent get tax credit money for their children two years in a row.
Based on the information currently available, as long as the parent who would be receiving advance payments for 2021 doesn’t opt out, they’ll receive them – regardless of what the other parent wants. If you and your child’s other parent cannot agree on this issue, it is best to have your lawyer assist you with ironing out the arrangements.