And the latest stimulus package dumped even more on the negotiating table in the form of improved tax credits.
The $ 1.9 trillion US bailout has provided relief from Covid-19 to millions of Americans, including increases to three depreciation in 2021: the child tax credit, the tax credit on earned income and the tax credit for children and dependents.
These improved tax breaks can be worth thousands of dollars to qualifying families and add complexity to divorce cases, financial experts say.
More personal finance
Before buying bitcoin, consider these 3 things
How a universal basic income experiment helps the homeless
Some parents still don’t know how the monthly child tax credit payments work
“These credits are now becoming the negotiating points for spousal support,” said Sallie Mullins Thompson, chartered financial planner and certified public accountant at the firm of his name in New York.
Ex-spouses can deduct alimony payments for divorces finalized before 2019. However, the Tax Cut and Jobs Act of 2017 reduced this benefit for newly divorced, thereby reducing opportunities for tax savings, a- she declared.
While the earned income tax credit and the child and dependent tax credit require salary or employment payments, the child tax credit does not have the same requirement, a said Davon Barrett, CFP and senior advisor at Francis Financial in New York.
“It’s a good amount of money, regardless of employment status,” he explained.
This flexibility has made the child tax credit – worth up to $ 3,600 for children under 6 and $ 3,000 for children 6 to 17 – more important for parents in the process of filing. divorce, Barrett said.
However, ex-spouses can allow the other parent to claim deregistration by completing Form 8332 and attaching it to their 2021 return.
In some cases, it may make sense for the spouse with the higher income to collect the child tax credit, assuming it does not exceed income phase-outs, Mullins Thompson said.
A parent filing as head of household begins to phase out the enhanced amount with a modified adjusted gross income greater than $ 112,500, and a single filer will not receive the full amount once they earn more than 75,000 $.
“Unless you’re in a financial bind, I wouldn’t recommend taking it up front,” Barrett said.
However, those who have already received payments can always opt out of future payments or put money aside for potential liability at tax time, he said.
Working with a tax professional can be the best way to stay out of trouble, especially someone who already knows each spouse’s finances, Barrett said.
Yet those who are finalizing a divorce need to be proactive. Divorced people can discuss possible extensions and go to who can claim which credits with the language in their deal, Mullins Thompson said.
However, regardless of what happens in Congress, experts agree that it is best for divorcees to discuss the consequences early on.
“The sooner you put it on the table, the sooner you can come up with solutions,” adds Barrett.