Tax Insights

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Custody and advanced child tax credits

Your custody situation may affect the advanced child tax credit credits. New legislation is allowing advance payments of the Child Tax Credit in 2021. Half of the total credit is being paid automatically (you can opt out) by the IRS in advance monthly payments while the other half can still be claimed when you file your 2021 income tax return.

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If you share custody of your children, you need to be aware of how the advance child tax credit payments are calculated. It is important to remember that these are advance payments of a tax credit that taxpayers expect to claim on their 2021 tax return. Several issues and questions arise when there is shared custody of children.

If two parents share custody, how will the IRS decide which one receives the advance child tax credit payments? The 2021 advance child tax credit payments are based on the information on the 2020 tax return, or the 2019 return if the 2020 tax return has not been processed. The parent who claimed the child tax credit on their 2020 return will receive the 2021 advance child tax credit payments.

If a parent is receiving 2021 advance child tax credit payments and they shouldn’t be, what should they do? Parents who should not be receiving the 2021 child tax credit should go to IRS.Gov and unenroll to stop receiving monthly payments using the Child Tax Credit Update Portal.

Receiving monthly payments now could mean they have to return those payments when they file their tax return next year. If their custody situation changes and they are entitled to the child tax credit for 2021, they can claim the full amount when they file their tax return next year.

If one parent is receiving the advance child tax credit payments even though the other parent will be claiming the child tax credit on their 2021 tax return, will the parent claiming the qualifying child still be able to claim the full credit amount? Yes. Taxpayers will be able to claim the full amount of the child tax credit on their 2021 tax return even if the other parent is receiving the advance child tax credit payments. The parent receiving the payments should unenroll, but their decision will not affect the other parent’s ability to claim the child tax credit.

Here are some important things to note about the advanced payments:

  • For parents who alternate years claiming their child on their tax return, the parent who claimed the child on the 2020 tax return will be receiving the advanced payment. If a taxpayer won’t be claiming the child tax credit on their 2021 return, they should unenroll from receiving monthly payments using the Child Tax Credit Update Portal.
  • Some taxpayers may qualify for repayment protection if they meet the following requirements: Their main home must have been in the US for more than half of 2021 and their AGI is at or below the following amounts on their 2021 tax return:
    • $60,000 if you are married and filing a joint return or if filing as a qualifying widow or widower.
    • $50,000 if you are filing as head of household; and
    • $40,000 if you are a single filer or are married and filing a separate return.

IRS has additional information at their website.

If you have any questions, contact your Henry+Horne advisor.

Brandon Broschinsky

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