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Yes, your custody situation will likely affect your advance child tax credit payments

Posted on November 24, 2021

Parents who share custody of their children should be aware of how their advance child tax credit payments are distributed.

First and foremost, it is important to understand that these are advance payments of a tax credit that taxpayers expect to claim on their 2021 tax return.

Here are some of the most common questions about shared custody and the advance child tax credit payments, according to the CPAs at Teipen CPA Group:

FAQ #1: If two parents share custody, how will the IRS decide which one receives the advance child tax credit payments?
The parent who claimed the child tax credit on their 2020 return will receive the 2021 advance child tax credit payments.

FAQ #2: If a parent is receiving 2021 advance child tax credit payments and they shouldn’t be, what should they do?
If you are a parent who will not be eligible to claim the child tax credit when they file their 2021 tax return, you should go to IRS.gov and unenroll to stop receiving monthly payments. You can do this by using the Child Tax Credit Update Portal.

Receiving monthly payments now could mean you have to return those payments when you file your tax return next year. The opposite works as well. If your custody situation changes and you find you are entitled to the child tax credit for 2021, you can claim the full amount when you file your tax return next year.

FAQ #3: What if you are a parent that alternates custody?

Whichever taxpayer claimed their child on their 2020 tax return will automatically get IRS-issued advance payments sent to them.

When co-parents file their 2021 tax return, they may have to pay back the payments over the amount of the credit they’re entitled to claim. Some taxpayers may be excused from repaying some or all of the excess amount if they qualify for repayment protection. If a taxpayer won’t be claiming the child tax credit on their 2021 return, they should unenroll from receiving monthly payments using the Child Tax Credit Update Portal.

FAQ #4: Complications

If one parent is receiving the advance child tax credit payments even though the other parent will be claiming the child tax credit on their 2021 tax return, will the parent claiming the qualifying child still be able to claim the full credit amount?

Yes. Taxpayers will be able to claim the full amount of the child tax credit on their 2021 tax return even if the other parent is receiving the advance child tax credit payments. The parent receiving the payments should unenroll, but their decision will not affect the other parent’s ability to claim the child tax credit.

If you think this sounds complicated, it is. Be sure your CPA knows your particular child care credit situation, especially if it has changed in the past year. The good news is, there is still time to do this before tax payments are due. Ask your Teipen CPA for help with understanding any unclear details.