28 May Who gets the child tax credit when parents are divorced?

Q. Two parents divorced in 2020 and share legal custody of a 17-year old child. The mother claimed the child as a dependent on her tax return for 2020 and the father will claim the child as a dependent in 2021. Their 2019 tax refund and coronavirus stimulus payments have been complicated and delayed because their former joint checking account is closed and both parents have moved since the divorce. Will either parent benefit from the new coronavirus relief child tax credit that is supposed be paid in monthly installments starting in July?
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A. Your question is a good one.

The expanded child tax credit from the American Rescue Plan is a big benefit for families with children.

Under the legislation, the child tax credit is $3,000 per child from ages 6 through 17, and $3,600 per child for those under the age of 6, said Jeralyn Lawrence,  a family law attorney with Lawrence Law in Watchung.

“The IRS will use tax returns from the immediately preceding tax filing year to determine who qualifies for the credit,” she said. “Additionally, the federal government will allow half of the eligible 2021 child tax credit to be paid in advance to whichever parent claims the child for the 2020 tax filing year.”

These advance payments will be in monthly installments of up to $250 or $300, depending on the ages of the children and your eligibility, from July through December, she said.

For a divorced or separated couple who only share one child, and this child is claimed as a dependent in alternating years, this could create difficulty, Lawrence said.

“If the legislation is not amended, then it appears that the parent who claims the child as a dependent in 2020 will likely be the one who is entitled to the advance payments,” Lawrence said. “Essentially, one parent would get the credit for two years in a row, unless they have not filed returns for 2020, or filed an extension for 2020, in which case, the IRS may look to the 2019 income tax return.”

In that event, the parent who claimed the child as a dependent in 2019 may receive the advance payments, she said.

While the Treasury Department and the IRS have not yet released any details on how they will administer advanced payments to parents in split custody arrangements, the American Rescue Plan directs the IRS to implement an online portal to help administer these payments, she said. The portal should allow parents to update their tax information and specify which parent should receive the advanced payments so that one parent is not getting the tax credit two years in a row if they alternate claiming the child as a dependent.

On your bank account, if the IRS attempts to use direct deposit but an account is closed or no longer active, the bank will reject the deposit, and the IRS will mail you a paper check with the address it has on file for you, Lawrence said. If your address has changed since the filing of your tax returns, you should first make sure your mail is being forwarded to your new address by notifying the United States Postal Service (USPS), but also be sure to notify the IRS by filling out a Form 8822.

“Should an issue arise between divorced or separated couples with respect to the sharing of the child tax credit, it is recommended that you speak with an experienced family lawyer who can discuss this issue in greater detail in light of the circumstances surrounding those particular parties,” Lawrence said.

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This story was originally published Mau 28, 2021.

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