Tens of millions of families will start receiving advance payments of the enhanced child tax credit (CTC) automatically on Thursday, July 15. The credits are worth up to $300 per child under 6 each month through the end of the year, and $250 per child aged 6 through 17.
But divorced parents may want to opt out.
Only one parent can claim the credit for each child each year; it cannot be split up. Typically, the parent who has custody of the child for more time receives it. But in other cases, parents may alternate who gets the credit each year or have agreements in which one parent always claims the credit.
The advance credits will be based on 2020 tax returns, or the most recent year the IRS has on file. Technically, though, the parent claiming the dependents for 2021 should get the payments, which can complicate things if the parents alternate years.
If Parent A claimed the child in 2020 but Parent B will claim him or her in 2021, Parent A will still get the advance payments, which means they may want to go ahead and waive them now, says Janet Holtzblatt, senior fellow at the Urban-Brookings Tax Policy Center.
Otherwise, "there's a risk that if you'll have to repay it" next tax season, Holtzblatt says. That depends on income: Individuals making less than $40,000 ($60,000 for couples filing jointly) who receive an overpayment of the credit will not need to repay it.
Parents can opt out of the payments using the IRS's online portal. Later this year, the parent who was not the custodian last year but is this year will be able to use the portal to update information on their qualifying children to get the advanced monthly payments, according to the IRS.
Next tax season, that parent can also claim the full amount of the enhanced CTC when they files their 2021 return.