A guide to stimulus checks and child tax credits
What divorced parents need to know
I. Stimulus Checks
A stimulus check, also called an economic impact payment or recovery rebate credit, is a non-taxable financial payment made to taxpayers by the U.S. Government.
Since the COVID-19 pandemic began, the U.S. Government has provided eligible taxpayers with three stimulus checks.
These checks were each part of larger COVID-19 relief measures included in the CARES Act passed in March 2020, the Covid-Related Tax Relief Act passed in December 2020, and the American Rescue Plan Act passed in March 2021.
Generally, adults who made less than a specified income based on 2019 tax returns were eligible. Dependent children were also eligible to receive stimulus payments.
The chart below details eligibility requirements and the maximum amounts provided in stimulus payments for adults and dependents.
For divorced parents, the parent who claimed a child on their tax return received the child’s stimulus payment. The first two checks relied on taxpayer’s 2019 returns, while the third check relied on 2019 or 2020 returns depending on when the parent filed.
This stimulus money is intended to benefit the child. As a baseline recommendation, we advise that parents divide the funds in proportion to their child support obligation.
II. Child Tax Credits
Child Tax Credits are benefits to taxpayers for each qualifying dependent child claimed on a parent’s tax return. Before 2021, the maximum annual credit was $2,000 and all children under 17 were eligible.
The American Rescue Plan Act, passed in March 2021, significantly expanded the child tax credit program for tax year 2021 only. The annual maximum credit for qualifying dependents increased to $3,000 per child under 18 and $3,600 per child under 6. This credit is fully refundable, which means that taxpayers can benefit even if they don’t have earned income or don’t owe any income taxes in 2021.
Unless the taxpayer opts-out of advance payments, half of the credit amount will be paid in advance installments on the 15th of each month from July through December 2021. These payments will be up to $250 per month for dependents under 18 and $300 per month for dependents under 6. If the parent opts-out of advance payments, they will receive the full amount with their 2021 tax refund.
The chart below details the breakdown of the child tax credits for 2021.
Eligibility for the child tax credit program is based on modified adjusted gross income and applicable thresholds. The 2021 income thresholds are $150,000 for joint filers, $112,500 for head of households, and $75,000 for all other filers. Advance payments will be estimated from taxpayers’ 2020 returns. The parent who receives advanced payments must claim the child as a dependent in 2021 or that parent will be obligated to pay back the advanced money to the IRS when they file their taxes in 2021.
For divorced parents, only one taxpayer can claim a child tax credit per qualifying dependent child, even if that child divides time between two households. Often, the parent with more overnights claims the child as a dependent and will receive the credit.
There is a foreseeable issue for divorced parents who alternate which parent claims the child as a dependent each year. Unless the parent opts-out, whoever claimed the child as a dependent in 2020 will automatically receive the child tax credit advance payments starting in July. However, if that same parent does not claim the child as a dependent in 2021, he or she will have to pay back the advanced payments received and the parent who claims the child as a dependent in 2021 will receive the full amount.
Parents are free to reach an agreement as to how to divide the child tax credit but should do so in a way that will provide the most benefit to the child. We encourage all parents to consider their options and come to an agreement regarding the use of funds to avoid conflict.
As a baseline recommendation, we advise that parents divide the funds in proportion to their child support obligation. If the parents cannot agree, we advise speaking with an attorney about petitioning the court to determine allocation and appropriate use of these extra funds.
Katie Caudill is an Associate Attorney at Griffiths Law PC. Katie practices in both family law and civil litigation. Her unconventional and varied legal background brings a unique perspective and diverse skillset to her work, and provides her with the tools to address some of the more challenging legal issues.
Leslie Hansen is a Shareholder at Griffiths Law PC. Leslie has experience in all aspects of family law. She has a background as a prosecutor with extensive litigation experience and now uses those skills in Family Law.
(This sponsored content is provided by Griffiths Law PC)