Child Tax Credit: Money Now, Pay Later?

On July 15, 2021, families across the country began receiving an advance from the federal government in the form of the child tax credit.

• The credit is $3,600 per year for a child age 5 or younger as of December 31, 2021. This equals $300 per month per child.
• The credit is $3,000 per year for a child that will be ages 6 through 17 as of December 31, 2021. This equals $250 per month per child.

The credit is for families with a qualifying child who have their main home in the United States. Temporary absences from your main home due to illness or business may not disqualify you from receiving the credit.

A child who is born in 2021 is eligible for the credit. A child who is adopted in 2021 is eligible for the credit, provided they are a US citizen.

The Child Tax Credit begins to be reduced to $2,000 per child if your modified Adjusted Gross Income in 2021 exceeds:

• $150,000 if married and filing a joint return or if filing as a qualifying widow or widower; or
• $112,500 if filing as head of household; or
• $75,000 if you are a single filer or are married and filing a separate return.

If you filed a 2019 or 2020 tax return or receive government benefits, such as social security, and provided direct deposit information for a refund, the government will use this information to deposit the credit. The challenge for families comes if the parties are separated and only one parent has control over this account.

Child Tax Credit & Shared Custody

If you have a shared custody arrangement, the parents will need to agree on (or have a court order stating) who will claim the child on their 2021 tax return. The parent that claims the child and receives the child tax credit payments will need to fill out Form 8332 and include it with the tax return.

If your income changed between 2019 and 2020, the IRS will adjust your credit up or down depending on your 2020 reported income. If you have not filed a 2020 tax return, the government will base your credit on your 2019 tax return.

The IRS has created the Child Tax Credit portal to update information changes on your address, number of dependents, marital status, and change in income. You can access the portal at https://www.irs.gov/credits-deductions/child-tax-credit-update-portal. If you wish to opt-out of future monthly payments for the remainder of 2021, you must unenroll three days before the first Thursday of the following month. The next deadline is October 4th at 9 PM.

The IRS will be sending out a letter to all recipients to help them calculate their remaining credit for the 2021 tax returns. If you made more money in 2021 than in 2020 or 2019, you may owe a repayment to the IRS if they overpaid your credit.

Child Tax Credit Do’s & Don’ts

We know this is a lot of detailed information; but if you need help navigating through this child tax credit do’s and don’ts, feel free to set up a consult with one of our family law attorneys at Pyfer Reese Straub Gray & Farhat P.C., at any one of our locations: Ephrata, Lancaster, Willow Street, York. The local Family Law Attorneys are many: John F. Pyfer, Jr., Robert H. Reese, Jr., Christopher C. Straub, Sandra Edwards Gray, Albert J. Meier, Jeffrey C. Murse, Anthony Knabb diDonato, and Megan H. Herr