The COVID-19 pandemic is historic not only in and of itself, but also in the responses to it that it has elicited. Most salient among these is the American Rescue Plan Act (ARPA), one of the largest economic stimuli plans in American history. While the direct stimulus payments are the touchstone of the bill for most people, there is another portion of the plan that will impact families for years to come, namely, the expansion of the Child Tax Credit (CTC). In short, the ARPA allows families with children to claim a much larger tax credit when filing. Parents can claim a $3,600 credit for each child under 6 years of age and a $3,000 credit for each child between 6 and 17. Unlike the previous CTC, this new credit is available to far more families; the ARPA raises the income threshold for phasing out the credit. The new credit is fully refundable, which means that, unlike the previous CTC, families may still claim the full credit even if their total tax credits are greater than their taxes owed.
While all of these expansions of the CTC can be life-changing for some families and could greatly reduce child poverty in the United States, there is one more provision of the expanded CTC turning heads in family law: advance payments.
Under the ARPA, families can start receiving advance payments of the expanded CTC as early as July 2021. The Treasury Department plans on sending families $300 monthly payments for children under 6 and $250 monthly payments for children 6 to 17. In 2022, when families file their 2021 taxes, they may claim the remainder of the credit that was not already paid to them.
When parents of children eligible for the CTC are divorced, the newly expanded credit works in the same way as the old one, namely, other than special circumstances, the custodial parent (the parent who physically has the child for more than 50% of the year) is the parent who is entitled to the credit. Since that parent is entitled to the credit, that is the parent who is entitled to the advance payments. Eligibility for payments in 2021 is based on who the custodial parent was in 2020. However, whether the parent can keep the advance payments and claim the remainder of the credit is dependent on if the recipient of the payments was still the custodial parent in 2021. This means that a custodial parent in 2020 who is not the custodial parent in 2021 will still receive payments they are not eligible for, and a parent who is the custodial parent in 2021 but was not in 2020 will have to wait until they file in 2022 to receive the credit and retroactive stimulus payments for their children.
Because these advance payments are based on eligibility for the credit itself, if, when filing their 2021 taxes, a parent is ineligible for the credit, then that parent will have to pay back the advance payments. This payback mechanism is not entirely worked out, but one thing is clear in the ARPA: only families who receive advance payments but are above the certain income thresholds will have to repay the payments, and the amount that must be repaid phases out as the family’s income decreases.
So, when it comes to deciding what to do about the advance payments, take this one thing into consideration: if you are not the custodial parent and you claim advance payments that you are not eligible for, you will have to pay that money back and it may inevitably increase the likelihood of litigation in your case.
For more information about how the American Rescue Plan may affect you child support case, call Kiswani Law today at 708-210-9247.