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Why the early CTC payments can complicate things for divorced parents

This month, millions of parents began receiving advances on their child tax credits (CTC) for Tax Year 2021. The credits increased thanks to the American Rescue Plan Act passed by Congress and signed into law by the president earlier this year. 

Moreover, parents can receive a portion of the money they’ll be able to claim on their taxes next year monthly beginning on July 15 through Dec. 15 if they choose. Under the new law, parents whose income qualifies them can claim an annual CTC of $3,600 for each child in their household under 6 years of age and $3,000 per child between 6 and 17 years of age. That’s either $300 or $250 per month per child for parents who don’t decline the advance payments.

Which parent receives the advance payments?

While this is good news for everyone, the advance payments can complicate things for divorced parents who share custody of their children. Just as only one parent can claim a child in any given year, only one can receive the advance payments.

Say you and your co-parent share custody roughly evenly and take turns reporting that your child resided with you for over 50% of the previous year when you file your taxes. That parent receives the CTC. If your co-parent was the beneficiary of the CTC for Tax Year 2020, they’ll also get the advance payments. That’s because the government is using 2020 returns (or the last year filed) to determine who receives the advance payments.

You can opt-out of the early payments

Some divorced parents are just happy to get the extra money a little early and can find a way to use it for the benefit of their kids and their families with little or no conflict. However, for other parents, it’s just one more thing to cause a battle. 

If you and your spouse fall into the latter category, you may find that it’s best not to take the advance payments. The parent who claims the children for 2021 will get all of the money next year after they file their taxes. You can opt-out at any time for the remaining advance payments through the IRS website.

This is a unique situation that likely won’t reoccur in future years. Therefore, you just need to decide what is best for your family. If a conflict does arise, it may be time to get some legal guidance about your options.