The 2021 Child Tax Credit is part of the American Rescue Plan and includes an advance payment of $250-300 per child 17 and younger from July – December 2021. This is a big benefit for families with children and is only for 2021. The COVID-19 Stimulus Package, also called the American Rescue Plan, is to help all families and is projected to lift more than 5 million children out of poverty this year.
Before 2001, lower-income families received a smaller Child Tax Credit than those with better earnings because the credit was only partially refundable. As of 2021, the additional advanced payment system has brought even further relief but raised concerns for divorced or separated parents in New Jersey that we’ll address below.
Why did they change the 2021 Child Tax Credit?
Initially part of the Taxpayer Relief Act of 1997, the Child Tax Credit was introduced to provide additional financial relief for families so they could provide adequate care for their children. The $400 per child under 17-years-old was originally non-refundable.
This changed to a fully refundable tax credit in 2001, meaning that it generates a tax refund even when a person does not owe taxes, or it reduces the percentage of tax owed. This year, they have included additional benefits to relieve households from the Covid-19 economic crises.
What changes were made to the 2021 Child Tax Credit?
The American Rescue Plan Act of 2021 (APRA) made 4 key changes to the 2021 Child Tax Credit:
- It is fully refundable
- 17-year-olds qualify as children.
- The maximum credit amount increased from $2,000 to $3,000 per child and $3,600 for children younger than 6 years old.
- The ARPA authorized monthly advanced payments for the second half of 2021 for families with qualifying children. These payments are capped at $300 per month for children under 6-years-old and up to $250 per month for children aged 6 to 17-years-old.
Who is eligible for the 2021 Child Tax Credit in New Jersey?
Families must meet the following criteria to qualify for the Child Tax Credit:
- The child/children must be under the age of 17 at the end of the given tax year.
- The child must be a direct descendant of the adult applicant, i.e., daughter, son, stepchild, foster child, adopted child, brother, sister, stepbrother, stepsister, half-sister, half-brother, grandchild, niece or nephew.
- The child has not provided for more than half of their own “support” (money used for their living expenses).
- The child must be claimed as the dependent on the federal tax return of the adult who is applying.
- The child must be a U.S. citizen, a U.S. national or a U.S. resident alien. The child is also required to have had a Social Security number since the beginning of the 2018 tax year.
- The child must have lived with the adult applicant for more than half of the tax year.
How do I know if I am eligible for fully expanded Child Tax Credit in New Jersey?
Fully expanded 2021 Child Tax Credit benefits go to:
- Single filers with an adjusted gross income below $75,000
- Heads of households with income below $112,000
- Married couple filing jointly with income below $150,000
While nearly all families with children qualify, there are limitations for those who have a higher income. In addition, credits are reduced $50 for every $1,000 in income above thresholds of $75,000 for single parents, and $150,000 for joint fillers. Single filers who make up to $200,000 or joint filers who make up to $400,00 are eligible for a minimum credit of $2,000 per child.
How does the 2021 Child Tax Credit in New Jersey work for separated or divorced parents?
The IRS does not allow both parents to claim their child. Usually, the parent with the larger percentage of custody claims the Child Tax Credit. If parents have joint custody, the parent with the higher adjusted gross income claims the child. Some parents have custom arrangements that alternate claim statuses based on odd and even years or rotating children.
Which parent will receive the advanced payments in New Jersey?
Parents will receive advanced payments based on their prior year’s tax return, as the IRS currently uses information it has on file from the previous year’s return. This may result in one parent receiving Child Tax Credit two years in a row. One way to mitigate potential friction is to opt out of advanced payments, so parents can wait to claim credit when they file taxes next year.
How is the Child Tax Credit distributed if I am currently in divorce proceedings?
If you are currently going through a divorce, you need to discuss tax issues with your spouse and resolve issues with your lawyers. Co-parents who have finalized their divorce may be unable to negotiate Child Tax Credit agreements into their divorce settlement of a custody agreement. In this case, it is best to seek legal advice.
The 2021 Child Tax Credit financially assists most families living in New Jersey, regardless of if parents are divorced or separated. If you are unsure how to file for 2021 Child Tax Credit or need to re-negotiate child tax credit terms, you may want to consult an experienced attorney for legal help to assist you through the process and avoid unnecessary delays caused by incorrect filing.
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Stolfe Zeigler is a divorce and family law firm serving all of New Jersey. Founding partners Abigale M. Stolfe and Sonya K. Zeigler are skilled attorneys and are well-equipped to help individuals navigate the complex family legal system of divorce, child custody, and property distribution. The legal team at Stolfe Zeigler is committed to securing a bright future for the clients and families they serve, through guided insight and zealous advocacy, and fighting to protect what they have worked so hard to earn.
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