Divorce and the American Rescue Plan Act of 2021: Changes to the 2021 Child Tax Credit and Their Effect on Colorado Divorce Taxes
Congress recently enacted H.R. 1319 – the American Rescue Plan Act of 2021. Among many things, the Act changes the way the Child Tax Credit is calculated (and paid) for the 2021 tax year. This can affect Colorado families facing divorce or separation as well as those who have already divorced or separated, and who have minor children. In short, the Act increased the amount of the Child Tax Credit for qualifying tax payers, and additionally allows those tax payers to take an advance on the payment for 2021 by receiving a portion of the 2021 payout in monthly installments, starting in July 2021.
What was the amount of the increase? For qualifying children under the age of 6, the credit went from $2,000 to $3,600, and for children ages 6 to 17 it went from $2,000 to $3,000.
Who qualifies? It depends on your income (as well as dependent status and filing status). The income brackets are >$75,000 for individual tax payers, >$112,000 for Head of Household taxpayers, and $150,000 for married (filing jointly) tax payers.
How long does it last? For now, the Act only applies to 2021, but that could be extended or made permanent with future legislative action.
I’m divorcing/separating or already divorced/separated; what do I need to do about the change? While we cannot give specific advice for your matter, as a general rule, if you are divorcing/separating, you may want to just keep these changes in mind when determining a fair division of tax claiming status, potentially agreeing to equally split any 2021 refunds.
If you are already divorced, it is probably a good idea to check your court orders to see who has the right to claim your child(ren) for the 2021 tax year. If it’s you, you may want to speak with your ex (or your attorney) to make sure your ex does not take the advance on the child tax credit, which will require them to opt out using the IRS website. If they have timely filed their 2020 taxes, they may get the advance payments direct deposited, even though those advances are assigned to your tax year by the courts. It will be more difficult to reverse this or get yourself paid back than it will be to prevent it. If you’re not the one claiming for 2021, you might be in contempt of court if you take the 2021 advance payments. And, of course, if you’re both claiming (different children) for 2021, then you’ll want to ensure that each of you only receives the advance payments for the child(ren) you’re claiming. We suggest you speak with a family-law attorney regarding any questions for your specific matter.
