The American Rescue Act passed by Congress in 2021 vastly expanded the Child Tax Credit for families in South Carolina and other states. Under the legislation, families with children under the age of 6 are provided a $3,600 tax credit per child, and those with children up to 17 will receive $3,000 per child. This is a benefit for many working parents as the half of the credits are being distributed in 2021 while the other half can be used to reduce parent’s tax burden. However, if you are divorced or separated, understanding who is eligible for the tax credits can be confusing.
In most cases, the parent who has physical custody of the child for most of the time is the one who is eligible to claim the child as a dependent under the new child tax credit rules. However, a divorce or custody agreement may allow for parents to claim a child on alternate years or, if there is more than one child, allow for each parent to claim one of the children. For example, if there are four children, one parent may claim two of the children while the other parent claims the other two children. If there is no agreement and custody is split 50/50, the parent with the higher adjusted gross income is authorized to claim all children.
Child tax credits
Prior child tax credits simply allowed parents to deduct the amount from their taxes when they filed, which made it easier for parents with complicated filing arrangements. However, the new advance payments may make that more difficult. The Internal Revenue Service will likely send the tax credit to the parent who claimed the child in 2020. For parents who alternate claiming, this could mean that one parent would receive the credit two years in a row while the other parent receives nothing.
There may be cases where a non-custodial parent is allowed by the custodial parent to claim one or more children each year. In those cases, even though one parent has the children with them for the majority of the time, it is likely that the non-custodial parent will be sent the advanced benefits, not the custodial parent. Under the new child tax credit rules, the IRS is creating an online portal that will allow parents to update the IRS on custody so that the custodial parent receives the advanced payment.
If you need help understanding the new child tax credit rules, it is important that you discuss your situation with an attorney. They may help ensure that you receive the correct benefits and that your rights are protected.