Of the many complex financial issues that spouses may need to address during the divorce process, tax considerations can be among the most confusing. These issues can be a major concern for parents since the ability to claim children as dependents can affect the amount of taxes that a person will pay, the tax credits they can claim, and the tax refunds they will receive when filing their annual tax returns. Parents will need to be sure to understand how to address child-related tax issues both during the divorce process and after their divorce is complete. They will also need to understand how they will be affected by changes in tax laws, including the ability to receive advance child tax credits.
Advance Child Tax Credits for 2021
The American Rescue Plan Act, which was signed into law in March of 2021, allows parents to receive advance payments during the year for child tax credits that will be claimed on their tax returns for that year. For 2021, the child tax credit is $3,000 for a child under the age of 18 or $3,600 for a child under the age of six. Parents may receive monthly payments from the IRS between July and December of 2021, adding up to half of the total amount of the child tax credit. The remaining amount may be claimed on the parent’s tax return for 2021.
Children who will be 17 years old or younger as of December 31, 2021, will qualify for the advance child tax credit, and a parent may receive payments of up to $250 per month. For children who will be five years old or younger as of December 31, 2021, payments will be up to $300 per month. To qualify for the child tax credit, a child must have a valid Social Security number, and a parent must be able to claim the child as a dependent on their 2021 tax return. The tax credit is fully refundable, meaning that even if the amount of the credit exceeds the total taxes owed by a parent, the parent can receive a refund for the full amount of the credit. Even if a parent has an income of $0, they will be eligible to receive advance child tax credit payments, as long as they are eligible to claim tax credits for the child in 2021.
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