Even in the divorce mediation world, everyone is talking about the new law just passed by Congress – the American Rescue Plan Act of 2021 (ARP). It promises new and increased cash payments to many Americans. One part of the law includes more generous tax credits for children; and this new payment structure may have an impact on child support for divorced and divorcing parents.
Previously, depending on their income, parents received a tax credit of up to $2,000 per child. Under the ARP, this potential tax credit increases to $3,000 per child and $3,600 for children under 6 starting in 2021. In addition, the IRS plans to estimate the amount of the child tax credits for the year for families and pay them out in monthly portions in advance beginning in July 2021. These increased tax credits may impact child support calculations going forward.
Calculating child support is part of the divorce mediation process at Westfield Mediation, LLC. We calculate child support based on income and the number of nights each parent spends with the children, while also taking into account the payments parents make for health insurance premiums and/or child care. As part of the child support calculation, we determine which parent will be claiming the children as dependents for tax purposes. Sometimes, parents share these tax credits or alternate them over time. For our clients, we often run these numbers a few different ways to help them decide what is the best plan for them.
Divorced and divorcing parents may need to consult with their accountants to understand the impact of the new ARP laws on their taxes. In divorce mediation, we advise our clients to seek out the most up to date information available to help them make the best financial decisions for their family.