With President Biden’s signing of the American Rescue Plan Act of 2021, many people will see new stimulus money deposited into their bank accounts very soon. One new part of this stimulus package is the expansion of the child tax credit for 2021. For 2021, the child tax credit has been increased to $3,000 per child (or $3,600 per child under the age of 6). This credit is particularly unique because half of it will be received in monthly advances sent by the IRS from July to December.
What does this mean if you are divorced? As we’ve discussed before, the parent who last claimed the child(ren) is most likely going to be the parent that receives the new stimulus funds for that child(ren). Keep in mind there are still income limitations on who receives these funds and the IRS will use your 2020 tax return to determine your eligibility to receive the periodic payments (or a 2019 return if you have not filed 2020 at the time the payments are mailed out).
What if your information has changed? According to Kiplinger, the IRS will be developing an online portal where individuals can update their income, marital status, and the number of qualifying children or opt out of the advance payments (which would mean the entire credit would just be taken on the 2021 tax return).
What if you are going through a separation or divorce? Talk to your lawyer! If you don’t have a lawyer, contact Cairns Rabiola Vance, LLC, for a consultation so that you can ensure you aren’t missing out an opportunity to receive all or a portion of these additional tax benefits.
Is there anything to be worried about? Taxes are always complicated so there’s always something to be concerned about. This new child tax credit is no exception. There are some circumstances where people may receive more in the advanced child payments than they are entitled to. Depending on your income level, you may have to pay back these funds (specifically, if your income is greater than $80,000 on a single return, $100,000 on a head of household return, or $120,000 on a joint return, the entire amount may need to be repaid). If you are concerned about repayment, you should discuss this issue with your tax professional to avoid a future tax liability that you are not prepared for!
Have additional questions? Depending on your question you may need to talk to either a tax professional or a lawyer. If you’ve been through a divorce or paternity action, the Indianapolis family law attorneys of Cairns Rabiola Vance, LLC, can help you understand your current rights and help you decide if a modification of your prior orders is necessary to address these new stimulus funds. Contact us here.