When a couple divorces or separates, one of the biggest challenges they face is figuring out how to split up their finances.
This can be especially difficult when it comes to things like child tax credits.
With the ever changing tax laws, the rules around child tax credits can be complicated. The last thing you want to do is miss out on anything you may be entitled to.
Here are some things divorced or separated parents need to know about child tax credits.
WHAT YOU NEED TO KNOW ABOUT CHILD TAX CREDITS
When you are going through a divorce or separation, it is important to make sure that the settlement agreement addresses how each of you will divide any future tax benefits for your children.
Because only one parent can claim the child(ren) as a dependent(s) and receive the child tax credit.
In most cases, it’s usually the custodial parent where the child lives most of the time.
But this is not set in stone.
There can be other arrangements depending on a parent’s financial circumstances, parenting time and how many children the couple has.
For example, if you have two children, each parent can claim one child or you can alternate each year.
This happens more commonly than not.
WHAT ABOUT ADVANCED CHILD TAX CREDITS?
This creates a bit of a complication.
In March of 2021, the American Rescue Plan Act was signed into effect which allows parents to receive advance payments during the course of the year for the child tax credits of the children they will be claiming on their tax returns…That’s a mouthful!
The tax credit for 2021 is $3,000 for children under 18 and $3,600 for children under 6. If your divorce was finalized before the passing of this act and you alternate claiming your children, adjustments will have to be made on the agreement such as opting out on receiving the advanced child tax credits.
There are other things to consider with child tax credits such as daycare expenses, after school activities, medical insurance, etc. Having a detailed settlement agreement in place is key as time goes on and circumstances change.
A divorce or separation is a challenging and stressful situation. There’s a lot that you have to take into consideration.
It’s important for parents to understand the impact of changes in tax laws on them, especially when it comes to children. This might require some extra planning on your part if you’re going through a separation or ending your marriage without filing joint taxes together.
Talking to an experienced family law attorney will help you navigate through this and other tricky situations. Last thing anyone wants is additional stress or any type of surprises, especially around tax time!
Have questions or need some guidance, I am here to help!