Partner Support is sharing guidance released by the IRS today, February 23, that will assist tax professionals preparing returns for clients who share custody and/or alternate tax benefits for dependents. This latest release addresses many of the questions the Partner Support Team is receiving on this topic. We continue to encourage you to review this helpful information and to follow the instructions and guidance provided by the IRS that may be applicable to your client(s).
Tips for Parents Who Share Custody or Alternate Tax Benefits
Some parents who have a legal agreement with their child’s other parent about who claims the child on their taxes may have some questions this tax season about the child tax credit and the 2021 recovery rebate credit. Here’s what people in this situation need to know before filing their 2021 federal tax return.
Economic Impact Payments and the Recovery Rebate Credit
The third Economic Impact Payment was an advance payment of the 2021 recovery rebate credit. The IRS used taxpayers’ 2020 or 2019 tax information to determine eligibility and amounts. Here’s what this means for people who share a qualifying dependent:
If an eligible taxpayer did not receive a third-round Economic Impact Payment for a qualifying dependent they will claim on their 2021 tax return, they can claim the 2021 recovery rebate credit, regardless of any Economic Impact Payment the other parent received.
If a taxpayer received a third-round Economic Impact Payment for a dependent they won’t claim on their 2021 tax return, they are not required to pay back all or part of the Economic Impact Payment if, based on the information reported on their 2021 tax returns, they should have received less.
Child Tax Credit
The IRS determined who received 2021 advance child tax credit payments based on the information on taxpayers’ 2020 tax returns, or their 2019 return if the IRS hadn’t processed the 2020 return. In other words, the parent who claimed the Child Tax Credit for a qualifying child on their 2020 return would have received the advance child tax credit payments in 2021. Here’s what that means for these parents:
Families who knew they would not claim a child on their 2021 return had the option to unenroll from receiving monthly payments by using the Child Tax Credit Update Portal at IRS.gov. People who did not unenroll and received monthly payments during 2021 for a child they won’t claim on their 2021 tax return could have to repay those payments when they file. They may be excused from repaying some or all of the excess amount if they qualify for repayment protection.
An eligible parent who did not receive advance payments for a qualifying child will be able to claim the full amount of the child tax credit for that child on a 2021 tax return even if the other parent received advance child tax credit payments.
Get the correct information to file an accurate return
Taxpayers who received these advance credits in 2021 need to compare the total amount they received with the amount they’re eligible to claim. Individuals can view the total amount of their payments through their individual Online Account. If spouses received joint payments, each of them will need to sign into their own account to retrieve their separate amounts.
New for 2022, these IRS Fact Sheets are an excellent one-stop document containing the most frequently asked questions (FAQs) organized by topic, plus additional information and links to related resources. The IRS keeps them updated often so that you have the latest information as you prepare returns for your clients.