Throughout 2021, the federal government has been sending stimulus payments and child tax credits to families across the country. This pandemic relief was essential for many families, but for separated couples and divorced parents, the advanced child tax credits may create more questions, and more legal trouble.
Dividing CARES Act 2021 Stimulus Payments When Separated
The government’s pandemic relief efforts began last year when Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020. Later that same year, the Consolidated Appropriations Act (2021) continued some Coronavirus aid into the new year. These laws sought to provide parents, families, employers, and small businesses with stimulus payments to pay their bills while the country dealt with shutdowns and layoffs.
Individuals received $1,200 per person, or $2,400 for married couples, plus an additional $500 per qualifying child. Families living together and filing jointly saw that money deposited into the bank accounts on record with the IRS. But if those families had separated since filing their 2019 tax returns, they could still be struggling with how to divide the funds. Legally speaking, the stimulus payment is a tax refund. Each person is entitled to their individual share. However, who receives the child’s portion of that stimulus payment could become more complicated.
Claiming the Child Tax Credit for Divorced Parents
Even before COVID, parents often negotiated and contested who got to claim the minor children as dependents or receive the child tax credit on their federal income tax returns. Often, Colorado parents would negotiate alternating exemptions, or dividing up their child-related tax refunds based on each parent’s income or time with the children.
COVID-19 has made those negotiations even more important. The American Rescue Plan changed the 2021 Child Tax Credit by:
- Increasing the amount credited from $2,000 to $3,600 for qualifying children under age six, and $3,000 for children under age 18.
- Including 17 year-olds (previously only children 16 and younger qualified)
- Allowing low-income families to receive the full child tax credit refund, even if they don’t owe that much tax
- Creating advanced child tax credits paid out throughout the second half of 2021
2021 Child Tax Credit Payments: Which Parent Gets Them?
The payment of advanced child tax credits in 2021 created a new problem for divorced parents. In previous years, parents could simply file their tax returns either claiming a child as a dependent, or waiving their claim so their ex-spouse would receive the benefit. However, the IRS issued the 2021 advance child tax credits to the parent who claimed the children in 2019. If parents planned to alternate claiming their children in 2020 and 2021, the wrong parent may have received the funds.
The pandemic also changed the way many families allocated their parental responsibilities. When one parent was able to work from home while the other was an essential worker, school closings and limited childcare options may have shifted expenses and supervision duties onto the remote worker. If one or both parents got sick, there may also have been extended periods where children stayed with a “non-custodial” parent to avoid exposure. All of these issues could mean that the parent who received the advance payments was not the parent who needed the money the most.
What to Do About Child Tax Credits Leading into the 2021 Tax Season
If possible, parents should negotiate disputes over child tax credits out of court. In most cases, the amounts are small enough that hiring an attorney to go to court over just that issue won’t make sense. However, if you have a pending divorce, or are going to court over custody, parenting time, visitation, or child support issues, you can ask the judge to resolve who should receive your child tax credit at the same time.
Once you and your co-parent decide who should receive the payments, you both can visit the Child Tax Credit Update Portal to opt in or opt out of receiving the advance payments. If you believe you have received payments in error, you should deposit them into a savings account and hold onto them until you have resolved the issue with your former spouse or through the court. There is a chance the IRS will demand overpayments back when you file your 2021 tax return, or that the court will order you to pay those funds to your co-parent. If you have already spent them, that could create even more trouble.
At Aviso Law, LLC, our child custody and child support lawyers know that the last thing parents need this year is trouble with the IRS over child tax credits. We want to help you negotiate with your child’s other parent to make sure you each receive the stimulus money you need to take you through this difficult time. We can advise you about your existing allocation of parental responsibilities, and help you negotiate this unique family law concern. We are here to serve you and your family. Contact us today to schedule a consultation.