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The Advanced Child Tax Credit: Are You Eligible Under Your Custody Agreement?

The pandemic has made raising kids harder than ever. Between online school requirements and the loss of jobs, parents have found that keeping their children happy and healthy has put significant stress on their finances. The Biden administration has taken significant steps to ease this burden, one of the most important being the Advanced Child Tax Credit (ACTC).

The problem is that despite the best efforts of the bill, not every parent is eligible for the money. Keep reading to learn what the credit is, who’s eligible for it, and how to determine if you’re qualified under your current custody agreement.

What Is the Advanced Child Tax Credit?

The Advanced Child Tax Credit has been in place for years. It was first implemented in 1997 specifically to offer tax relief to middle and upper-middle-income families. The credit has become even more valuable under the Biden administration, though. Under the American Rescue Plan, households with children can receive $250-$300 per kid each month. In fact, many households already collect these payments on the 15th of every month.

But how is the credit leading to monthly payments? Instead of waiting for families to file their taxes to determine if they’re eligible, the IRS is granting them the money in advance. It can do this because the credit has been revised to be refundable instead of non-refundable.

A non-refundable credit can only apply to your actual tax burden. For example, if you owe $3000 in taxes for the year and receive a $4000 non-refundable tax credit, it will only wipe out your taxes. You won’t receive the extra $1000.

Refundable credits don’t have that barrier. If you’d owe $3000 and you’re eligible for a $4000 refundable credit, not only are your taxes wiped out, but you’ll also receive $1000.

For obvious reasons, making the ACTC refundable has had an enormous impact on many families. Any family with children can receive these funds, even if their income is below the taxable threshold. Families below the poverty line are therefore not only receiving tax relief. They are actively receiving monthly payments that have already been shown to decrease child poverty and hunger.

Who’s Eligible for the Child Tax Credit

The ACTC is intended to be broadly applicable. To accomplish that, the credit is available to a wide variety of families. Essentially, as long as you are the legal guardian for a child and that kid lives with you for more than half the year, you’re eligible to receive the money. Other eligibility requirements include:

  • You must have filed taxes in 2019 or 2020 and claimed the prior Child Tax Credit (If you haven’t been required to file taxes, you can use the Economic Impact Payment Non-Filers or Advance Child Tax Credit 2021 Non-Filer tools)
  • You must live in the US as your primary residence for more than half the year
  • The child must have a Social Security Number and be under the age of 18 at the end of 2021
  • You must fall under the income threshold limits of $75,000 for single filers, $112,500 for Heads of Households, or $150,000 for married filers.

As long as you meet these requirements, you’re qualified to receive the monthly payments. That’s where problems occur.

Custody and the ACTC

The ACTC runs into the same problem as many types of financial support intended for minors. If the kid’s parents are separated and don’t file taxes together, only one of the two parents can file for the ACTC. If the kid is under legal guardianship, this is still true. Here’s how the ACTC funds are allocated for different non-traditional parenting arrangements.

Parents Filing Separately with No Custody Agreement

In some cases, you may no longer live with your co-parent but not have a custody order in place. Unless one parent has filed for a custody order, Oregon allows parents to determine where the child lives on their own. This kind of amicable arrangement is excellent, but it does leave questions regarding the credit.

If you’re filing taxes separately, you can’t both claim the ACTC. The parent with whom the kids stay most often is the eligible one. If your kids sleep under your roof more than half the nights of the year, you most likely have primary custody and qualify for the ACTC.

Separated Parents with a Custody Order

The question becomes more straightforward if you’re separated and have a custody order. The credit is specifically designated for the parent with primary physical custody of the child. If you have a court order, you likely have that on paper. Most parenting plans state who has primary physical custody for situations like this.

If your order doesn’t state it outright, you can still figure it out. Read through your agreement and do the math to determine whether your child has lived with you more than half the year. Again, if the child sleeps at your home more often than not, you’re eligible.

Legal Guardianship

Last, if a child is under legal guardianship, neither parent is eligible for the ACTC. Only the legal guardian can apply for it. This may be the child’s grandparent, aunt or uncle, or anyone else that the court has named as the child’s official guardian. However, if a kid usually lives with a non-parent but there’s no legal guardianship order in place, the parent they spend more time with is still eligible for the ACTC money.

Give Your Kids the Best Life Possible

Your children deserve a happy, healthy life. The ACTC is a government initiative to help you care for your kids in this challenging time. Still, you can only apply for the credit if you have primary physical custody.

If you don’t have primary custody yet, you can work for it. A qualified family law attorney will help you put a custody order in place, change existing orders, or help you achieve legal guardianship. Get in touch today to discuss your situation and determine how to accomplish the best custody arrangement for your children.