Parents who share custody of their children have many questions about the monthly child tax credits sent by the IRS from July to December this year. Which parent should receive the payments? Should the parent receiving it refuse to pay the child tax credit? Does the parent who does not receive any payments lose the child allowance? The confusion around these types of issues can be needlessly frustrating for parents trying to figure out how the monthly payments work.

Fortunately, the IRS has provided much-needed guidance to parents with joint custody arrangements. For example, the tax office describes how to determine which parent should receive the monthly payments. It also advises some parents who are currently receiving payments to opt out or risk having to repay the money. And the IRS explains how eligible parents who don’t receive monthly payments can eventually claim their funds. This information should remove some of the uncertainty divorced, separated, or unmarried parents have about the 2021 Child Tax Credit.

Changes to Child Tax Credit 2021

Before delving into these specific topics, it may be helpful to review the changes to the child tax credit for the 2021 tax year. For 2020, eligible parents can apply for $ 2,000 in credit for any child aged 16 or under. It has gradually been phased out for married couples filing a joint statement with incomes over $ 400,000 and for single or householders with incomes over $ 200,000. For some lower-income taxpayers, up to $ 1,400 per eligible child of the credit was refunded if they earned an income of $ 2,500 or more. That means the IRS issued you a refund check for the refundable amount if the credit was worth more than your income tax liability.

The American Rescue Plan, passed in March 2021, has significantly expanded the credit for the 2021 tax year (and only for the 2021 tax year). For example, the loan amount was increased to $ 3,000 for each child aged six to 17 and to $ 3,600 for each child aged 5 or younger (also note that the age limit has been increased from 16 to 17 for 2021) . However, for higher income families, the additional amount ($ 1,000 or $ 1,600) will be reduced – possibly to zero. For single parents, the additional amount begins to expire when their Adjusted Gross Income exceeds $ 75,000. The exit is triggered at $ 112,500 for head of households and $ 150,000 for joint applicants. The loan amount can also be reduced from USD 200,000 / USD 400,000 within the scope of the already existing expiry regulations. The credit has also been made fully refundable for the 2021 tax year, so tax refunds from this year’s child tax credit can exceed $ 1,400 and eliminate the required $ 2,500 of earned income.

Then of course there is the new requirement that half of the 2021 child tax credit is paid in advance through monthly payments between July and December of this year. For parents receiving all six payments, the maximum monthly amount is $ 250 for each child ages 6-17 and $ 300 for each child ages 5 and under. If you do not want monthly payments, you can unsubscribe from prepayment. If you do not opt ​​out and accept all six monthly payments, the remaining 50% of the total balance can be claimed on your 2021 tax return. If you opt out of some but not all of the monthly payments, every dollar you receive from July through December will be deducted from the child tax credit that you will claim on your 2021 tax return. (Kiplinger’s Child Tax Credit Calculator 2021 estimates what your monthly payments should be and how much you can claim when you return in 2021.)

Which Parent Receives Monthly Child Tax Credits?

If a child’s parents share custody, the IRS determines which parent receives monthly child tax credits based on who requested the child tax credit on their 2020 tax return. If you used the credit for your child on your return in 2020, you will receive the monthly payments. When your child’s other parent has claimed the 2020 credit, they will receive the payments. If you have not filed a 2020 tax return or if it has not yet been processed by the IRS, the determination will be based on your 2019 tax return.

Who takes advantage of the child tax credit for the tax year 2021 does not play a role in determining who receives monthly payments in that year. So even though the monthly payments are actually prepayments for the 2021 credit, you won’t get any monthly payments this year just because you are claiming the credit for your child when you file your tax return next year. Again, it’s based on your return in 2020 (or 2019).

Should you opt out if you are receiving monthly child tax credits?

Now we’re turning the tables. What if you receive monthly child tax credit, but your child’s other parent claims the child tax credit in their 2021 tax return next year? In fact, you are receiving prepayments of a tax credit that you are not entitled to. Should you only get the monthly payments or should you opt out? This depends on your registration status and your income.

If your Modified Adjusted Gross Income (AGI) is projected to be at least $ 80,000 for single filers, $ 100,000 for head of household filers, or $ 120,000 for joint filers in 2021, you should be on each one Unsubscribe from future payments. That’s because when you file your 2021 tax return next year, you’ll have to repay any monies received between July and December anyway. (For information on how to opt out, see How and when to opt out of the Monthly Child Tax Credit.)

On the other hand, if you feel that your amended AGI will not exceed $ 40,000 (single sign-on), $ 50,000 (head of household sign-on), or $ 60,000 (joint sign-up) for 2021, you will continue to receive payments if you don’t out of taking money from Uncle Sam for credit that you cannot use on your return. That’s because the law includes a “safe haven” that completely shields lower-income Americans from paying repayments.

If your modified AGI for 2021 is in the middle – that is, between $ 40,000 and $ 80,000 (single filers), $ 50,000 and $ 100,000 (household stores), or $ 60,000 and $ 120,000 (joint filers) – then there’s a complicated formula to determine how much of the money you received this year, if any, needs to be paid back when you file your 2021 tax return. (For more information about the formula and an example of how it works, see You May Need to Pay Back Your Monthly Child Tax Credits.) If you think you need to repay some or all of your monthly payments, then it’s probably better to report them Now just opt ​​out and minimize the repayment amount. Otherwise, you might be surprised by a higher tax bill or a lower refund when you file your tax return next year.

Loss of Child Tax Credit?

As already mentioned, it does not affect who receives the monthly payments this year, who will use the child tax credit on their 2021 tax return. The opposite is also the case: Anyone who receives monthly payments this year has no influence on who can claim the child tax credit when they return in 2021.

If you are otherwise entitled to claim the child discount in your 2021 declaration, you can claim the full amount of the 2021 credit for your child even if the other parent receives monthly payments that year. The decision of the other parent to opt out or not to opt out does not affect your ability to claim the child tax credit on your 2021 return. As a result, even if you may not receive monthly payments this year, you will get your money – all you have to do is wait until you file your tax return next year.