FAQ: Can I Mediate Issues Related to the Child Tax Credit?
Disclaimer: This article does not constitute legal advice. If you have any questions about your individual situation it is best to seek the advice of an experienced legal professional.
Why Do I Need to Mediate Issues About My Child Tax Credit?
The Child Tax Credit was an important payment made to many parents after the 2020 Pandemic. It meant that parents received more money for claiming a dependent child. Unfortunately it caused some confusion. Because it was determined based on the 2020 or 2019 tax return, parents may have received the child tax credit in the following year who actually weren’t claiming the child as a dependent that year.
Co-parenting after a divorce can be fraught at the best of times. If there has been any confusion regarding tax or the child tax credit, parents can mediate to make a new agreement about these issues. Mediation is an important way to keep such discussions amicable.
How Do We Decide Who Gets the Child Tax Credit?
Parents who are divorced and qualify for dependent benefits have to agree on who claims dependent benefits for their children. There are a number of benefits and tax credits that parents can claim, depending on their income. Sometimes one parent qualifies for the benefits and tax credits related to the child and the other doesn’t, or qualifies for less. In these cases it might be better to assign the benefits to the parent with the lower income.
Parents who have similar incomes often agree to alternate years. One parent claims the child tax credit one, year, the other the following year, and so on. When the advance child tax credit was awarded as an emergency advance payment, it was rushed to parents based on 2020 or 2019 tax returns. This might have messed up parents’ alternate year arrangement. The IRS has said that 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 on the 2021 return. Parents who are at the beginning of their divorce negotiations may not know this however. Working out these issues in divorce mediation can avoid conflict in your co-parenting arrangement.
Why Should I Mediate Tax Issues in My Divorce?
When people are getting a divorce, an important part of the process is deciding how to divide assets in such a way that both spouses are financially stable after the divorce. A big part of that is deciding how to file taxes in a way that’s advantageous to both parties. When you get a California divorce, you have to divide the community property (the total marital estate) equally. In divorce litigation a judge could arbitrarily split your property down the middle. In a California divorce mediation, you can split your property more mindfully in a way that suits you both. Tax planning is an important part of your divorce mediation, as it gives you more leverage to make sure the total community property is optimized. The decisions you make about who will get tax credits for your children are an integral part of that process. During the Pandemic, the child tax credit was increased to $3000 per child and $3600 per child under 6. It was also extended to children 17 years of age.
What Are Some of the Issues Involving Tax Credits and Deductions Related to Children?
There are several tax credits and tax deductions that you can claim if you have children. These become much more relevant when you get a divorce, as one or both of you could earn less than when you were married. These include the Child Tax Credit, which was temporarily increased during the Pandemic, the Child and Dependent Care tax credit, the Earned Income Tax Credit and deductions you can claim on your child’s student loans, to name but a few. Tax credits may be worth more to a parent who earns less, especially if they are refundable like the Child Tax Credit. Tax deductions could be worth more to the parent who earns more. In divorce mediation, the goal is to optimize the total benefit for parents rather than fighting over who gets what. For example, reducing a parent’s tax obligation through a deduction could make it easier for them to pay spousal support. Some of the issues related to child tax deductions or credits could involve:
With children who are different ages and have different tax benefits, if you alternate years for claiming the children as dependents, this will cause a discrepancy.
Parents claiming alternate years who had a Child Tax Credit bonus during the pandemic will need to agree how to claim for 2021.
Claiming a dependent is based on who has primary custody. If custody arrangements have changed this could require a new plan.
The Child and Dependent Care tax credit becomes especially relevant for divorced parents as it helps to pay for child care, and can even pay for child transportation. When parents get divorced it’s more likely that both are working to sustain two households and childcare becomes much more important.
Divorced parents have to decide who gets the tax credit and who gets the tax deductions. Usually it makes more financial sense for the parent who earns more to get the deductions.
The Child Tax Credit and other credits and tax deductions don’t have to be used on the children specifically. If a parent is spending a lot of money on vacations with a new partner for example, this could cause conflict. Divorce mediation is an opportunity to address these issues and set boundaries. If you do need to renegotiate your co-parenting arrangement and adjust your tax burden, it’s possible to come back and do that during mediation.
Can I Go Back to Mediation to Work Out Other Unresolved Coparenting Issues?
Yes. Divorce mediation is a process that can help you manage your ongoing coparenting relationship. Fortunately California law recognizes that as children grow and lives change, custody issues should be flexible. You can’t modify property division in divorce, but you can modify issues relating to your co-parenting arrangements, child custody agreements, spousal support and any related tax issues. When you mediate these issues you can work together for your children’s benefit and avoid conflict that could affect your co-parenting relationship.
Our Services and How We Can Help
At Divorce Options San Diego, we are caring, educated West Coast mediators and certified financial planners. We work with couples getting a California divorce to negotiate win-win solutions that will optimize the community property and allow both of you to thrive after your divorce. Tax planning is a key part of that process. If you have children, careful negotiation of tax issues can help you start saving for college and make the best of your resources in a way that will support your kids’ future. Even if you are no longer married, there are smart ways to share the financial burden of co-parenting and make the process go more smoothly.
Many people believe they are facing into a battle when they get divorced. We never do adversarial divorces and instead frame divorce in terms of win-win solutions that always prioritize the best interests of the child. Getting a San Diego divorce can be an arduous, form-driven process that involves a heavy burden of paperwork, all while one or both parents work full time. At Divorce Options San Diego, we support parents to make the divorce transition by providing a bundle of essential services that manage the paperwork involved in the process. If you need to go back and renegotiate your parenting plan, child custody agreement, or any aspect of how you manage the finances of parenting, you can do so any time in mediation. We will notify the court of any changes and help you to ensure the agreement is smart and fully compliant with California Law. We have offices in Solana Beach and San Diego and can mediate in person or remotely depending on your location and COVID Safety requirements. We mediate with couples getting a divorce in California, North America and internationally. Please contact us to see how we can help
