The American Rescue Plan Act (the “ARPA”) of 2021 recently increased the amount taxpayers can receive for the Child Tax Credit. For a taxpayer’s 2021 tax returns, the amount was increased by $1,000 (from $2,000 to $3,000) for children between the age of 6 and 18 at the end of the 2021 calendar year. Notably, this is different from prior years in which the qualifying age was 17. The amount was further increased by $1,600 (from $2,000 to $3,600) for a child who has not attained the age of 6 at the end of the 2021 calendar year.
However, high income earners will receive a reduced credit, and some may not receive any credit at all. The increased credit amount of $1,000 or $1,600 begins phasing out for incomes over $150,000 for married couples filing a joint return, $112,500 for those filing as head of household, and $75,000 for all other taxpayers. As in prior years, the standard tax credit of $2,000 begins phasing out for incomes over $400,000 for married couples filing a joint return and $200,000 for all other taxpayers.
Another change under the ARPA is that taxpayers may receive advance payments for part of their child tax credit before filing their 2021 tax returns. These advance payments of up to 50% of the child tax credit will be made from July to December 2021 and will be estimated based on the taxpayers’ 2020 tax returns or their 2019 returns if they have not filed their 2020 returns. The other 50% will be claimed on the taxpayer’s 2021 tax return. This differs from prior years where the child tax credit was only be claimed when filing your tax return.
For married couples who filed joint tax returns in 2020 (or 2019 if you haven’t filed your 2020 tax returns), you may be wondering how to handle these advance child tax credit payments if you and your spouse are now separated. Where do the payments go, and which parent is entitled to keep the payments? People who are already divorced may not know how to approach these unprecedented payments from the government. However, if you have a marital settlement agreement or a judgment of divorce, you may want to check them to see if they address tax issues. It is possible that such an agreement or court order may address tax issues in such a way that the new child tax credits would apply to your current situation. If you are separated and do not have an agreement with your spouse that addresses tax issues, you may want to include that and other forms of taxpayer assistance that may be offered in the future in your marital settlement agreement.
This article does not contain tax advice. You should seek the assistance of an accountant or lawyer before entering into any agreement or presenting any case in court that involves tax issues of any kind.
This has been prepared by Tydings for informational purposes only and does not constitute legal advice.