By Jim Bullard
Under the American Rescue Plan Act, millions of families may receive direct deposit payments from the Internal Revenue Service (IRS) based on an increase to the child tax credit as early as July 15, 2021.
A parent or family claiming a child may receive a tax credit up to $3,000 for children ages 6 to 17 and up to $3,600 for children under age 6. Up to half of that credit will be sent as monthly payments made via direct deposit to the bank account the IRS has on file. The other half will be received as a credit on 2021 tax returns. The amount of the credit also takes into consideration the taxpayer’s income. The Washington Post provides a helpful calculator to determine your potential benefits. Importantly, you may be eligible to receive the credit, even if you do not earn enough income to file tax returns.
For divorced or separated families, this credit may be complicated – because only one parent – the one who claimed the child in 2020, will receive the entire credit. For parents who alternate who claims the child(ren) each year, the IRS is creating a portal (expected to be available by July 1) to allow parents to update their tax information and specify who should receive the advanced payments and credits, so one parent is not receiving the tax credit multiple years in a row.
While Democrats hope to extend these benefits through 2025, they are currently in place through December 2021. For parents who alternate claiming the child(ren) each year, this can create a situation where one parent receives an enormous windfall because of the timing of the enactment of the legislation – something that was likely not contemplated by most Divorce Decrees.
It’s important you discuss this issue with a qualified family law attorney and tax advisor to determine how you may receive these benefits, if filing a tax extension is advisable, and if any forms or litigation are necessary to ensure these benefits are shared equally amongst parents. For guidance on family law matters related to stimulus tax credits, contact us at 918-582-1211 or jbullard@dsda.com.
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