Many parents and families have started to receive monthly checks from the federal government, called Advance Child Tax Credits. These checks are advance payments of dependent care credits for children who will be claimed by parents on their 2021 tax return, filed in 2022. This means it is a refund for next year being paid in advance during this year.
While this money is a welcome sight, these advance payments don’t come without potential complications. This is particularly true for parents who have a court order dividing the right to claim children on taxes depending on the calendar year. It may also apply to parents who are high-income earners, as credits are expected to decrease if a parent’s income is above qualifying income thresholds.
Here are some things to keep in mind to help you decide how to handle these payments now, to avoid surprise issues come time to file your 2021 taxes:
- Payments are being made to you by the government as an advance on your 2021 tax filings. Any payments will need to be paid back or accounted for at the time of your next year’s tax filing.
- The IRS intends to introduce form 6419, which will need to be filled out with every return indicating the amount of any of these payments a parent received.
- Parents should talk to their tax professional about how receiving these payments now will impact them later.
- Regardless, the IRS has given people the ability to opt out of receiving these payments, which means they will then be dealt with as normal on next year’s filings.
Currently, these “anticipatory” refunds are being paid to the parent who claimed each specific child on year 2020 tax filings. As a result, the parent who is supposed to claim a child on 2021 tax returns may not be the same parent receiving these payments. In the case of divorced or unmarried parents ordered to divide the right to claim children on their taxes, this could create significant issues when it comes time to file 2021 tax returns next year.
Any issues between parents about 2021 tax filings will need to be addressed before you file your taxes. The IRS does not intervene to enforce district court orders, instead following its own criteria to resolve disputes.
These situations can lead to court proceedings arguing over whether court orders have been properly followed to claim the child. Additionally, there can then be an argument over whether a parent lost money by not being able to claim the child. In such a case, the court will likely order the parent who incorrectly claimed the child to reimburse the other parent for the amount they would have otherwise received on tax filings.
If you have concerns over the impact of receiving these payments, you should consult a tax professional and your family law attorney. If you already have an existing court order dividing which parent claims a child in a given tax year, Haugen Law Group can help you address these advance child tax credit issues. If you’re contemplating a divorce or a separation from your co-parent, Haugen Law Group can help ensure these complex tax issues are addressed in your case.