How Does the 2021 Child Tax Credit Affect Divorced and Separated Parents in Georgia?

The American Rescue Plan significantly boosted the 2021 Child Tax Credit, helping 65 million children and families across the U.S. It brings significant relief for households nationwide. However, its newly implemented advanced payment system has raised questions for divorced or separated parents that’ll we aim to answer below. 

What is the 2021 Child Tax Credit? 

The Child Tax Credit originated from the Taxpayer Relief Act of 1997 and was introduced to provide financial relief to families, so they could care for their children. The original credit was non-refundable credit was $400 per child under 17-years-old.

In 2001, it changed to a fully refundable tax credit, meaning it generates a tax refund even if a person does not owe taxes, or it reduces the amount of tax owed. Twenty years later, as of 2021, the American Rescue Plan Act was passed with additional benefits to relieve the pressure from the Covid-19 economic crisis.

What Changes Were Made From 2020 to 2021? 

The American Rescue Plan Act of 2021 (ARPA) made 4 key changes to the 2021 Child Tax Credit:

1. The credit is fully refundable.
2. 17-year-olds qualify as children.
3. The maximum credit amount increased from $2,000 to $300 per child and $3,600 for children younger than 6-years-old.
4. The ARPA authorized monthly advanced payments for the second half of 2021 for families with qualifying children. These payments will provide $300 per month for children under 6-years-old and up to $250 per month for children aged 6 to 17-years-old.

Who is eligible for Child Tax Credit?

Families must meet the following criteria to qualify for the Child Tax Credit:

• The child/children must be under the age of 17 at the end of the given tax year.
• The child must be a direct descendant of the adult applicant, i.e. daughter, son, stepchild, foster child, adopted child, brother, sister, stepbrother, stepsister, half-sister, half brother, grandchild, niece or nephew.
• The child has not provided for more than half of their own “support” (money used for their living expenses).
• The child must be claimed as a dependent on the federal tax return of the adult who is applying.
• The child must be a U.S. citizen, a U.S.national or a U.S. resident alien. The child is also required to have had a Social Security number since the beginning of the 2018 tax year.
• The child must have lived with the adult applicant for more than half of the tax year.

While nearly all families with children qualify, there are some limitations for those who have a higher income. They may receive a smaller credit or none, depending on their financial situation. Families earning less than $150,000 and single parents making less than $112,500 qualify for the additional 2021 Tax Credit amounts.

How is the 2021 Child Tax Credit Handled for Separated or Divorced Parents?

The IRS stipulates only one parent can claim per child per year. The parties may agree on which parent should receive the tax credit.  One parent may be awarded the credit or the parties can choose to alternate the credit. Discuss all factors with a qualified Georgia family lawyer to determine what options are best in your case.

Are there any special issues for divorced parents in Georgia?

Currently, at the time of writing, there is no guidance from the IRS or Treasury Department on how the Advance Tax Credit will be distributed for divorced or separated parents, especially for those who alternate Child Tax Credit claims on a yearly basis.

It is likely the parent who claimed a child in 2020 will be the one to receive the advanced payment in 2021. This may result in one parent receiving credit two years in a row. Should this be an issue, it may be advisable to opt out of advanced payments so parents can wait to claim credit when they file taxes next year. 

Summary

The 2021 Child Tax Credit is highly beneficial for most families, including if the parents are divorced or separated. If you are unsure how to file for the 2021 Child Tax Credit, you may want to seek legal guidance from a lawyer to avoid submitting applications with errors and delaying the Advance Tax Credit payments. 

Contact a Georgia Family Law Attorney

If you have questions about the 2021 Child Tax Credit it is wise to consult with a Family Law attorney on any concerns, significant issues or changes to your circumstances.

Attorney Sharon Jackson has years of legal experience in Gwinnett County and surrounding areas, sensitivity to family dynamics and has helped numerous Georgia parents secure favorable outcomes for themselves and their children in difficult family law cases.

Call Attorney Sharon Jackson today at (678) 436-3636 or use our online contact form to schedule an appointment.