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Who claims the 2021 Child Tax Credit when parents divorce?

Tax laws in the United States change frequently. As the average family size and economic situations shift on a national level, lawmakers will often change tax policy accordingly. The Internal Revenue Service (IRS) will enforce the changing tax rules, sometimes levying major penalties and interest against those who underpay their taxes or make inappropriate claims on their tax returns.

The advance child tax credit

Child tax credits are beneficial policies in place for parents of minor children. Usually, parents claim these credits when they file their annual tax returns for the year. However, in 2021, lawmakers created an advance child tax credit payment program that deposited additional funds into the bank accounts of parents responsible for minor children. The advance deposits started in July 2021 and ended December 2021.

Now that tax season is upon us, many divorced or divorcing parents have questions about the impact of the advance child tax payments.

Custody orders specifically address income tax considerations

The IRS has regulations to determine who may claim a child tax credit on their return. Many divorce agreements, however, include an agreement between parents about sharing the tax benefits related to their children. In those situations, the IRS defers to the terms of the parents’ agreement.

For parents who already signed an agreement before the advance child tax credit plan was enacted, confusion has emerged. In some cases, a parent has received advance payments for a child he/she only claims every other year. This could impact the return for the current tax return and may result in a debt to the IRS, duplicate claims or other issues. Parents in this situation should consult with counsel to explore options about adjusting the how to handle the tax credit and balance the impact of the new program.

Negotiating financial issues is important in early divorce

For those in the midst of a divorce, new developments such as government stimulus payments and the advance child tax credit plan have highlighted the importance of properly addressing tax issues in an agreement. The guidance of a knowledgeable family law attorney can help to establish clear rights and protocols in an agreement that can apply even to unknown future developments in tax code. Tax concerns, support issues and other financial matters can become complicated in divorce, and could lead to more significant issues in the future if not handled with qualified legal assistance.