Parents could get a smaller federal tax refund this year or even owe the IRS if they received the expanded Child Tax Credit in 2021. For divorced parents, this will affect the parent who received the credit last year–that is, the one claiming the child as a dependent on the tax return.
The Advance Child Tax Credit (CTC), was part of the American Rescue Plan Act (ARPA). Beginning in July 2021, eligible parents began receiving monthly advance CTC payments rather than a lump sum at the end of the year. The total amount increased significantly, too: instead of $2,000 per qualifying child, parents received up to $3,600 for each child under age 6, and $3,000 per child between the ages of 6 and 17.
The word “Advance” before CTC is the key to understanding how the tax credit could impact refunds this year. Essentially, the tax filer who claimed the CTC already received half of their 2021 tax credit last year. The result of the credit advance is a reduced tax refund.
Tax filing for divorced parents who alternate claiming their children could be extra complicated if the parent who received CTC funds in 2021 was not entitled to claim the child or children in 2021. Take a close look at your Parenting Plan or other divorce documents filed with the Court for language about claiming the children and consult with your tax professional about filing your returns.
Congress did not extend the Advance CTC for 2022. Instead of monthly payments, parents will once again receive a lump sum $2,000 CTC at the end of this year.
For instructions on how to file your 2021 federal taxes if you received the CTC, go to the IRS.gov Advance Child Tax Credit information page.
This is information only and not to be construed as tax or legal advice. Consult your accountant or tax professional for detailed advice on filing, the CTC and other related tax issues.
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