In this continuing series, we cover how the Recovery Act may affect child support. In our last post [link to previous post], we covered the impact of stimulus checks. In this post, we’ll address the Child Tax Credit.

Under the Rescue Act, the Child Tax Credit has been expanded to tax year 2021. The Rescue Act’s expansion allows more families to benefit, increases the size of the benefit, and distributes payments monthly. The Rescue Act’s notable changes for 2021 include:

The increase of the credit amount in 2021:
1. For a child under six, the credit increases to from $2,000 to $3,600.
2. For a child between the ages of six and 17, the credit increases from $2,000 to $3,000.
3. A 17-year-old child is now eligible for the credit. Previously, a child had to be under 17 at the end of the year. If the child turned 17 on the last day of the year, the child was ineligible for the $2,000 Child Tax Credit, but would qualify for the $500 Credit for Other Dependents.
The Child Tax Credit is fully refundable.
Beginning July 2021, half of the tax credits may be paid out in checks/direct payments. The checks will be based on 2020 income (although seems unlikely with the IRS extending the tax filing deadline to May 17, 2021). The second half of the credit is applied to income taxes at the end of the year, and the full remainder refunded to families.
The previous $2,500 earned income requirement has been removed so unemployed parents can still qualify for the credit.

Similar to the stimulus payment, the Child Tax Credit begins phasing out at a rate of $50 for every $1,000 earned over $75,000 for single filers, $112,500 for heads of household, and $150,000 for married couples filing jointly. The credit remains at $2,000 for joint filers earning over $400,000 per year, and all other filers earning over $200,000.

How Does the Child Tax Credit Affect My Child Support Order?

When calculating a support order, Rule 1910.16-2(f) states that the Child Tax Credit should be taken into consideration. The rule states that in order to maximize the total income available to the parties and children, the court may award, as appropriate, the federal Child Tax Credit to the non-custodial parent, or to either parent in cases of equally shared custody. The party not receiving the tax credit will be ordered to execute an IRS waiver. The rule posits that the tax consequences associated with the federal Child Tax Credit must be considered in calculating the party's monthly net income available for support. Unless the difference is negligible, the Child Tax Credit should be given to the parent in the situation that allows more money to be available for the child(ren).

Since the Child Tax Credit is fully refundable for tax year 2021, will that also be considered income? It should not be considered income if the Child Tax Credit is woven into the child support calculation as the Rule above requires. Otherwise, it constitutes a double dip.

In our next post, we will cover the effects of the Recovery Act on the Child Care Credit and Dependent Care Exclusion.

Financial issues surrounding divorce and custody can be confusing. If you have questions about your particular situation, please contact Williams Family Law at 215-340-2207, or email info@bucksfamilylawyers.com.