Tax Tips For Parents Who Shared Custody In 2020
We often receive tax-related questions from parents who share custody of their children, like who can claim that child as a dependent and who is entitled to the child tax credit. These questions have become even more pressing over the last couple of years, with many parents unsure about how the Economic Impact Payments and the Recovery Rebate Credit affect their tax obligations. The answers to these queries can be complicated, so we’ve included a breakdown of what co-parents can expect when filing this year’s federal tax return. For an assessment of your own specific tax situation, consider contacting a Florida tax attorney today.
Alternating Tax Benefits
Many parents who share custody of their children, alternate claiming that child on their taxes. The parent claiming the child for that year, can then take advantage of child-related tax benefits. While alternating the exemption is often the best choice for parents who share only one child, parents with more children may instead opt to each claim half of them. Those with two children, for instance, could each claim one, while those with four could claim two each. Couples with an odd number of children would need to alternate claiming their last child.
The Child Tax Credit
The IRS determined who qualified for a 2021 advance child tax credit payment based on the information submitted on 2020 tax returns. Basically, a parent who claimed the credit for a qualifying child in 2020 received advance payments in 2021. Families who knew that they wouldn’t be claiming a child in 2021 were given the option to unenroll from receiving payments. Those who failed to do so and who received monthly payments in 2021 for a child that they didn’t claim last year could be required to repay those amounts. Furthermore, an eligible parent who didn’t receive payments can claim the full amount of the child tax credit on their 2021 return. This is true even if the other parent received the payments.
Economic Impact Payments
The third Economic Impact Payment sent to qualifying taxpayers last year was an advance payment of the 2021 recovery rebate credit. Again, the IRS used information from taxpayers’ 2020 information to determine not only eligibility, but the amount that a family qualified for. For parents who share custody of a qualifying child, this means that:
- An eligible taxpayer who didn’t receive the third payment for a child they intend to claim on their 2021 return, can claim the 2021 recovery rebate credit, regardless of what payments the other parent received; and
- Taxpayers who received a third payment for a dependent that they won’t claim this year are not required to pay back that payment, but only if they should have received less than they did.
For help determining whether you need to pay back an economic impact payment, reach out to our office today.
An Experienced Florida Tax Lawyer
If you have questions about your tax obligations as co-parents, please call 386-490-9949 and set up a free consultation with dedicated tax lawyer, CPA, and former FBI Special Agent Ronald Cutler, P.A. today.