07/20/2021
Beginning 7-15-2021, the IRS has begun sending out advances on your child tax credit that you normally receive at the end of each year. For some families, this will be a blessing and a huge help. For others, however, especially those who have split families and blended families, the advance payments may create a financial headache. A link to the IRS page regarding these credits is included in this post. Here are some potential issues that may arise from these advance payments:
1. Split and blended families often have court orders that determine which parent can claim a particular child for a tax year. The IRS is basing their payment of credits on your last year tax return and they are using that information to determine eligibility. But if your divorce or support agreements alternate tax credits, you need to be careful as you may receive payments that you are not entitled to receive. Alternatively, if your co-parent receives payments incorrectly, those payments will decrease the amount of the credit you can claim at the end of the year, meaning you will have a higher tax burden than you anticipated. You should discuss the ramifications of this carefully with your tax advisor and your family law attorney. In some cases, it may be necessary to modify your support orders in order to address this change in tax policy.
2. Self-employed individuals will need to carefully work with their tax advisors to determine their options if they are receiving advance payments, as these payments will impact your tax liabilities at the end of the year.
3. Parents of older adolescents and college students will need to pay attention to whether their children are still eligible to be claimed in the current tax year. If you were able to claim them as dependents last year, but they will be independent this year, then you need to take steps to opt out of these advance payments from the IRS.
Please note that you are able to opt out of receiving these advance payments and you should talk with your tax advisor or your lawyer if you think that the payments will create problems for you. If the IRS finds you to be eligible, they will automatically start sending you the payments. It will be your responsibility to "opt out" if you don't want to receive them.
https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021
