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Advance Child Tax Credit Payments & Custody Arrangements

Earlier this week, the IRS issued guidance on how the advance Child Tax Credit payments may be affected by certain custody arrangements. For divorced parents who share custody of their children, it is important to understand how the payments work and how to unenroll, if necessary, to avoid potential tax bills when filing next year.

How Does the IRS Determine Which Parent Gets the Credit Payments?

The 2021 advance Child Tax Credit payments are based on information received from 2020 federal tax returns, or 2019 returns if the 2020 tax return has not been processed. The IRS will send the payments to whichever parent claimed the Child Tax Credit on their return.

What If Parents Alternate Years Taking The Credit?

Many parents in a shared custody arrangement often alternate years taking the Child Tax Credit. Unfortunately, the IRS will still send the advance Child Tax Credit payments to the parent who claimed them on their 2020 tax return. If the parent receiving the payments will not claim the tax credit on their 2021 tax return, they may have to pay back the money they received unless they qualify for repayment protection. Parents who will not claim the credit on the 2021 taxes should unenroll from the advance payments as soon as possible.

Can The Eligible Parent Still Claim The 2021 Child Tax Credit If The Other Parent Received The Payments?

Yes! Even if the other parent refuses to unenroll from the advance Child Tax Credit payments, the other parent may still claim the credit on their 2021 tax return.

What Happens If The Ineligible Parent Continues to Receive The Payments?

Parents who are ineligible to claim the Child Tax Credit on their 2021 tax returns and do not unenroll from the advance payments, may be required to pay back some or all of the amount received.

If they qualify for repayment protection, the amount of their tax liability from excess advance payments is reduced by up to the full repayment protection amount. The full repayment protection amount equals $2,000, multiplied by the following:

  • The number of qualifying children that the IRS took into account in determining its’ initial estimate of advance Child Tax Credit payments, minus
  • The number of qualifying children properly taken into account in determining the allowed Child Tax Credit amount on their 2021 tax return.

For example, if a parent properly claimed three qualifying children on their 2020 tax return, but only claim on one their 2021 return, they can receive up to $4,000 in repayment protection (that is, $2,000 for each excess qualifying child), if qualified.

Repayment Protection Eligibility

A parent is eligible for the full repayment protection amount of $2,000 for each excess qualifying child if their modified adjusted gross income (AGI) is at or below the following amounts based on the filing status on their 2021 tax return:

  • $60,000 (married and filing a joint return or qualifying widow or widower)
  • $50,000 (head of household); or
  • $40,000 (single or married filing separately)

If the parent’s adjusted gross income (AGI) is above these thresholds, the repayment protection amount will decrease. It will phaseout completely once their AGI is at or above the following amounts:

  • $120,000 (married and filing a joint return or qualifying widow or widower)
  • $100,000 (head of household); or
  • $80,000 (single or married filing separately)

In the event there is an amount due, the IRS will satisfy the balance by reducing the taxpayer’s tax refund or adding it to any taxes due.

How Do I Unenroll From the Advance Child Tax Credit Payments?

Any parent who is not eligible to claim the child tax credit when they file their 2021 tax return should go online and  unenroll as soon as possible. This can be done through the Child Tax Credit Update Portal by clicking “Manage Advance Payments” to stop any future payments. Those using the portal will need to log in with their IRS username or ID.me account. They can also create an account, if necessary.

If you have additional questions on how to reconcile the advance Child tax Credit payments on your 2021 tax return, be sure to visit IRS.gov or speak with a tax professional.