Back in March, the federal government signed the American Rescue Plan into law. This law expanded the Child Tax Credit for 2021 with the goal of helping more parents who struggling financially as a result of the pandemic.
What has changed since 2020?
The law has increased the amount the government will give each family per child from $2,000 in 2020 to $3,600 in 2021 for those under the age of 6 and from $2,000 to $3,000 for those ages 6 to 16. Eligibility also expanded to include older children, allowing parents a $3,000 credit for 17-year-olds.
The Internal Revenue Service (IRS) began sending payments in July. The agency will send monthly payments to qualifying families of up to $300 for each child under the age of 6 and up to $250 for each child between the ages of 6 and 17.
What if I co-parent? Who gets the payment?
The IRS will most likely send the advance credit payment to the parent who claimed the child as a dependent on their 2020 tax return. Which parent claims the child is not always a clear-cut situation. Issues can arise in different situations, like for parents that alternate the years they claim the child on their tax returns.
Is this different than the first round of payments?
This is the third wave of payments under this plan. For the first two waves of payment, parents who alternated years to claim their children as dependents could each get a payment. This is no longer the case. The government has essentially closed this loophole. Parents should only receive the payment if they plan on claiming the child as a dependent during that tax year. The IRS has stated it will require parents who inadvertently receive the payment to repay the agency.
The agency encourages parents who should receive the payment but did not to claim the child tax credit on their tax return at the end of the year. This is just one of the changes to take into consideration when reviewing your family’s financial situation for the rest of 2021.
What if this changes our financial situation?
Courts are generally open to consideration of a modification of a child support order when there is a significant change in income. Legal counsel can help you decide if these payments lead to such a change in your situation.