The Child Tax Credit’s Impact on 2021 Tax Returns

While filing taxes this year, parents must claim payments made as part of the 2021 Child Tax Credit in addition to their normal income and asset reporting. For divorced parents, accounting for the Child Tax Credit can present challenges as only one parent can claim dependents on his or her 2021 tax return.

Kogut & Wilson discusses how to determine which parent should claim the credit for this year’s tax season.

What is the Child Tax Credit?

The Child Tax Credit, part of the American Rescue Plan Act of 2021, refers to a tax benefit granted to parents or guardians for each qualifying dependent child.

The Child Tax Credit offered up to $3,000 per qualifying dependent child aged 17 years or younger on December 31, 2021. The credit increased to $3,600 if the child was under the age of 6 on December 31, 2021.

As the tax credit was paid during the 2021 calendar year, this benefit is considered a 2021 tax year benefit.

Families with dependent children should have previously received an advance on half of their 2021 Child Tax Credit. To receive the second half of the Child Tax Credit, parents must file their 2021 tax returns.

If a parent did not receive the Child Tax Credit advance payments from July to December 2021, parents can still receive the full payment by filing their 2021 tax return.

How to Divide the Child Tax Credit

A minor child or children can only be claimed as a dependent by one parent. Divorced parents who share custody of their children may stipulate in their Marital Settlement Agreement to alternate the years in which they claim the child or children as dependents.

Whichever parent claimed the minor child or children on their 2020 taxes received the first half of the Child Tax Credit in monthly installments from July to December 2021. After filing his or her 2021 tax return, the parent claiming the dependent child or children will receive the second half.

Because the payments depend on which parent claims the dependent child or children, disagreements between divorced parents may arise with discrepancies between who claims the child or children each year. Parents may also experience disagreements as the payments are technically an advance on the parent’s 2021 tax refund, assuming he or she would claim the child or children on the 2021 tax return.

To avoid potential disputes with an ex-partner, contact a Kogut & Wilson family law attorney to navigate the Child Tax Credit.


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