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Child tax credit poses challenges for divorced parents

On Behalf of | Jun 1, 2021 | Child Custody And Support

The American Rescue Plan Act that was signed into law earlier this year provided many in Monterey with the financial lifeline they need during these tough times. One part of the Act that parents may be especially pleased with is the increase in the child tax credit to $3,000 annually per child ages six to 17 and $3,600 annually per child under age six. Advanced payments of up to 50% of the credit you are entitled to will start in July and continue for the next six months. However, these payments may prove to be complicated for divorced parents.

Claiming the child tax credit when you are divorced

Under Internal Revenue Service rules, each dependent child can only be claimed by one taxpayer. While this is not a problem for married couples who file jointly, it can present challenges for divorced parents since only one of them can claim the child as a dependent for income tax purposes.

Generally, the parent that has the greatest amount of custody time with the child will claim the child tax credit. However, if the child’s parents share joint physical custody and each have the child in their care 50% of the time, then the parent who has the highest adjusted gross income generally claims the child tax credit. It is important to note that divorced parents are free to negotiate their own arrangements for who will claim the child as a dependent for tax purposes.

Advanced payments present challenges for divorced parents

Under the American Rescue Plan Act, the IRS will send advanced payments to the parent that claimed the child as a dependent on their 2020 tax return. However, this could become problematic if the child is moving between households or if divorced parents have an arrangement in which they take turns annually claiming the child as a dependent for tax purposes.

The IRS recognizes these challenges and will provide an online portal where parents can provide updated tax information and name which of them should be the recipient of the advanced payments.

Divorced parents face challenges related to child custody

As this shows, divorced parents face challenges related to child custody that married parents in Monterey may take for granted. This post is for educational purposes only and does not contain legal advice. Those who want to learn more about child custody in California are invited to explore our firm’s website for further information.