Advanced CTC - Divorced Parents

[Yardley CPA]

My client shares custody of her child with her ex.  Each year they alternate taking head of household as the child lives with each parent almost equally.  In the year that the child is claimed, they live with that parent for more than half the year.  

My client claimed the child in 2020 and received the ACTC of $1,500 in 2021.  Since she is not claiming the child this year, the return looks to have the $1,500 paid back.  I want to make sure this is correct...I believe it is. 

In researching this, the information suggests the parent who claimed the child in 2020, claim the child again in 2021 and obtain form 8332 from the ex.   

Can anyone confirm my understanding that the $1,500 should be paid back under this scenario?

 

Here is some information I came across:

1. I am receiving the Child Tax Credit advanced payments, but my child does not live with me in 2021. What do I do?

If you claimed your child on a 2019 or 2020 tax return, the IRS may have automatically issued you advance CTC payments.

Use the Child Tax Credit Update Portal (CTC UP) to opt-out of advance payments. Your future advance payments will be stopped. If you are receiving payments for multiple children, later this year, you will be able to remove a child from your Child Tax Credit information and continue to get payments for other children in your household.

If you haven’t filed a 2020 tax return, you can do so to provide the IRS with more current information about your family situation. Your future advance payments will be stopped after your 2020 return is processed. Note that the IRS still has a backlog of tax returns to process, so you may experience delays. If you choose this option, your advance payments will not be stopped until the IRS has processed your 2020 tax return. Using CTC UP to opt-out may be a better option to stop your advance payments sooner. You can use CTC UP and still file your 2020 tax return, which may be worth the potential wait if you’re eligible for other tax credits (federal or state).

Continue receiving CTC advance payments if your child’s other parent agrees to allow you to claim your child on your 2021 tax return (which you file in 2022). They will need to sign and give you Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. You will attach Form 8332 to your 2021 tax return to claim the other half of the CTC.

 

[kathyc2]

It depends on her income.  If it's less than 40K, no payback.  If between 40 and 80K, partial payback.  Over 80K all needs to be paid back.

[gfizer]

It would have to be repaid unless your client qualifies for repayment protection.

From IRS FAQ: 

"A5. You qualify for full repayment protection and won’t need to repay any excess amount of your advance Child Tax Credit payments if your main home was in the United States for more than half of 2021 and your modified adjusted gross income (AGI) for 2021 is at or below the following amount based on the filing status on your 2021 tax return:

$60,000 if you are married and filing a joint return or if filing as a qualifying widow or widower;

$50,000 if you are filing as head of household; and

$40,000 if you are a single filer or are married and filing a separate return.

Your repayment protection may be limited if your modified AGI exceeds these amounts or your main home was not in the United States for more than half of 2021."

[Yardley CPA]

8 minutes ago, kathyc2 said:

It depends on her income.  If it's less than 40K, no payback.  If between 40 and 80K, partial payback.  Over 80K all needs to be paid back.

Thank you...over $80K