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Will I be Affected by Changes to the 2021 Child Tax Credit?

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American Rescue Plan Act of 2021

Recently it was announced that under the American Rescue Plan Act the expanded Child Tax Credit would be distributed differently in 2021. This year, half of the tax credit will be distributed on a monthly basis beginning in July and the other half will arrive with your 2021 tax refund. While this tax credit is a welcomed relief for many families who are struggling to make ends meet, it also spells confusion for most folks who are going through or already divorced.

 

How will this tax credit be distributed if I am divorced?

 

The Child Tax Credit can only be claimed on one tax return, so if you are divorced or filing separately this means that only one parent will be able to claim the tax credit. A court order or separation agreement will name the person eligible to claim the tax credit, this is typical whichever parent has primary custody. There are several ways a 50/50 custody arrangement might address this, for example, some may choose to file with the tax credit every other year.

 

Can the courts rule that this year’s tax credit be split?

 

In most cases, the courts will follow whatever was agreed upon in your separation agreement or court order. However, this is not the end of the line if you wish to treat this year’s tax credit differently. For example, if your ex claims the tax credit every year but you are able to come to an agreement with them that you will file for the tax credit this year, you can file an IRS Form 8332. This form is a right of tax benefit transfer, which would allow you to claim for this year. Please be aware that it is important you check with your attorney first before moving forward with anything that deviates from your separation agreement. We also suggest seeking out a tax professional for help with filing your taxes.

 

Can the tax credit payments be garnished for child support if I am behind on my payments?

Per the American Rescue Plan Act, this tax credit is not subject to garnishment meaning you will receive the full amount from the government. However, this does not protect that payment from garnishment or levy once the money is in your bank account. Another consideration is that while it won’t be garnished when distributed when you file your taxes at the end of the year it may be subject to offset.

 

What do I do if the tax credit was claimed by my ex, but I was supposed to claim it this year?

 

The best way to handle this is to get in touch with your attorney. They will be able to help you chart the best course of action, whether that be reaching out to negotiate with your ex and coming to an amicable resolution, or filing a motion of contempt with the courts.

 

If you have questions, please reach out to one of our experienced attorneys today.