For one year only so far, 2021, Congress has modified the Child Independent Care Tax Credit. This is a credit against taxes that are actually owed for up to $4,000.00 for one qualifying individual and $8,000.00 for two or more individuals. A credit is much better than an exemption because a credit reduces the taxes owed dollar for dollar. For example, if your Federal income taxes are $10,000.00 and you get a $4,000.00 credit, you need only pay $6,000.00.
For the first time this year, this credit is refundable. This means that once your tax obligation with credit goes below zero, any additional credit will be refunded to you. For example, if your taxes are $6,000.00 and you have an $8,000.00 credit, not only will your taxes be paid in full but the government will send you $2,000.00.
This credit is available for children under the age of 18 and the end of 2021.
This credit is available to tax payers with a modified adjusted gross income of $75,000.00 or less for single filers or married persons filing separately; $112,500.00 or less for heads of household; and $150,000.00 or less for married couples filing a joint return and qualifying widows and widowers.
From July 15 through December 2021, the Treasury and the Internal Revenue Service will advance one-half of the estimated 2021 Child Tax Credit in monthly payments to eligible tax payers. An eligible tax payer is one that has a main residence in the United States for more than half of the year.
The monthly advance payments will be estimated from the tax payers 2020 tax return or, if not available, for the 2019 tax return.
For couples who filed jointly for those years who are now separated, typically the husband’s name is the first one on the return and therefore the credit will be sent to him. This poses a real issue for families recently separated or who got divorced after the filing of the 2019 and 2020 tax returns. Frequently, the wife wishes to receive the credit because she is the one who has the children the majority of the time. Either the parties work this out by agreement or this is going to result in filing petitions asking the divorce court to resolve this. However, it is possible that the attorney’s fees incurred will be greater than the amount of credit that people are arguing about. Further, it is unlikely that a judge will order the person who received the credit to be ordered to pay the attorney’s fees. Therefore, the best thing is for the parties to attempt to work this out by themselves.
Since this is a new area of the law, there is no Illinois statute that governs this. There are no Appellate Court opinions covering this. Because of the dollar amounts involved versus the attorney’s fees, it seldom makes sense to litigate. We have already heard from mothers objecting to this situation and claiming that it is not fair. While it may not be fair, it is unfortunately, legal.
Gary L. Schlesinger, 7/15/21