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FAQ: Expanded Child Tax Credit for Shared Custody

Our Freehold child custody attorneys have received questions in recent months regarding the expanded child tax credit and how it will be paid to separated or unmarried co-parents. What we can say is that it will only be paid to one parent, and the recipient will be whoever claimed the child on their tax returns for last year.

This is the new, temporary tax benefit through which most families (9 in 10) will receive somewhere between $3,000 to $3,600 per child under the age of 17 claimed as a dependent on their tax returns. Previously, the tax credit awarded $2,000 per child under 16. The American Rescue Plan grants $3,600 for children 5 and under, $3,000 for children 17 and younger and $500 for dependents 18 to 24 enrolled in full-time college. For minors, half the benefits will be granted in monthly installments, and the rest when tax refunds are issued, starting in July.

The payments are an expanded version of the already-existing (but largely inadequate) Child Tax Credit. The changes make the benefit fully refundable, and now available to parents of all income levels, up to a certain threshold. (Previously, those who paid little or no income tax didn’t receive a child tax credit.) Families can choose to forego the monthly payments and instead receive the entire credit in a lump sum when filing 2021 taxes next year. This is a transitory program, though there’s talk that it could be extended.

The questions we’re receiving pertain to how this is going to work for single parents who share child custody. What has made it especially confusing is that the first two stimulus payments allowed two unmarried parents with joint custody to both receive stimulus payments for the same child if they took turns claiming the child on their individually-filed returns. That loophole was closed by the time the third stimulus check rolled around.

As it stands for the new expanded child tax credit, only one parent in the child custody arrangement is eligible to receive it. If both of them receive it this year, one will have to repay it next year.

Typically, the parent who has custody of the child for more time is going to be the one who has the right to claim the credit. However, if you have a 50/50 split, then it’s probably the parent with the higher adjusted gross income who can claim it. But that doesn’t mean you couldn’t work out your own arrangement, especially if you have multiple children and divide your dependents or you both alternate years. Advance payments will likely be sent to the person who claimed the child on their 2020 tax return, as the IRS is going to go by the most recent information on file. Of course, that may not be reflective of where the child actually lives or who is supporting him/her at the moment. If you decide to change the default recipient, you’ll need to fill out an IRS Form 8332.

If you can communicate with your co-parent to determine the fairest way to divvy this up, you should. If you need a mediator or New Jersey family law attorney to walk you through it, that may be smart as well, particularly if this ends up being an ongoing benefit.

What if one parent owes past-due child support?

Our research indicates that the law exempts the periodic child tax credit from serving as an offset for past-due child support. However, the amount claimed on one’s 2021 and 2022 tax returns could be subject to offset and redirected to cover child support debt that’s overdue. If this is an issue in your case, discuss your concerns with a family law attorney.

It should be noted that lawmakers incorporated a safe harbor provision allowing any mistaken overpayments to someone making less than $40,000 (or couples filing jointly and making less than $60,000) won’t need to be repaid.

Call Rozin|Golinder Law, LLC today at (732) 810-0034 for a free and confidential consultation.

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