The American Rescue Plan Act of 2021 (“Rescue Plan”) was signed into law on March 12, 2021. The Rescue Plan extends much of the emergency assistance for individuals, families and businesses affected by the coronavirus pandemic that was previously put into place with the CARES Act.
The Rescue Plan will affect individuals in a variety of ways, depending on their unique circumstances. This post is intended to address questions related to how the rebate or stimulus payments may generally affect individuals who are divorcing, divorced, or separated. As always, we recommend that you seek advice from a tax professional, financial advisor, or a licensed family law attorney if you have specific questions.
In the coming weeks, many people will be receiving a “recovery rebate” from the U.S. Government. The rebate is better known as a “stimulus payment” or “stimulus check.” According to the Rescue Plan, the payment is based upon your adjusted gross income or “AGI” as claimed in your 2020 tax return; however, if you have not filed your 2020 return, the IRS can also look to your 2019 tax return. If you did not file a tax return in 2019 or 2020 because you did not earn any income or were receiving federal benefits, you may still be eligible for the stimulus payment. For instance, the IRS may also look to information provided on your “Social Security Benefit Statement”, or “Social Security Equivalent Benefit Statement”.
Your AGI is readily ascertainable by reviewing your federal tax return. Here is a general overview of the stimulus payments:
The Rescue Plan includes stimulus payments of $1,400 per person (including children and other dependents claimed on tax returns) with the following income restrictions:
The amount of the stimulus payment is reduced if your income exceeds the above limits and you will not receive any stimulus payment at the below income levels:
In the case of separated or divorced parents, which parent will receive the $1,400 payment per qualifying child?
According to the Rescue Plan, payments will automatically be made electronically to an account in which the tax payer provided to the IRS for purposes of receiving his or her tax refund. Alternatively, the payment will be mailed to the taxpayer’s last reported address on his or her most recent tax return. As such, we anticipate that the parent who claimed the child or children on the 2020 return will receive the $1,400 payment(s). If neither party has filed their 2020 return, we anticipate that the parent who claimed the child or children on the 2019 return will receive the $1,400 payment(s).
Who should get to keep the $1,400 payment per qualifying child?
Because stimulus payments are technically an advance or prepayment of a 2021 tax credit, it is reasonable to suggest that a parent who is entitled to claim the child or children on his or her 2021 tax return receive the rebate. Again, this is because the amount received will be factored into the parent’s 2021 tax return.
However, so long as a parent has parenting time with the child or children, it may be reasonable for the parent who has lost his or her job, or who has received a reduction in pay, to receive all or a portion of the payment. Courts will likely be slow to resolve disputes or motions regarding the modification of support due to a loss or reduction of income because of the coronavirus. As such, we encourage parties to work together so that the child will benefit from the money paid on their behalf.
I previously filed a joint return with my spouse, but we are now separated—who should receive the stimulus payment?
As explained above, the IRS will attempt to disburse stimulus payments electronically to the bank account on file with the IRS. If no bank account is on file with the IRS, the IRS will mail the stimulus payment to the address reported on the most recent return. As such, it is possible that the return will be made to a bank account that you no longer have access to or mailed to an address where you no longer live but your spouse does.
If you are currently divorcing, the stimulus payment is a form of marital property. If your spouse is unwilling to utilize the funds in a manner that you agree to, or, will not share the payment with you, you should speak to an attorney about how this money could be recovered later in the divorce or addressed in your Separation Agreement.
If you are already divorced, consider contacting your ex-spouse about equally sharing the payment. Technically, the Act provides that in cases where a payment is made with respect to a joint return, half of the credit “shall be treated as having been made or allowed to each individual filing such return.” Our interpretation of this is that the payment should be split or shared between the joint filing parties.
How will past due tax debts affect my stimulus payment?
We understand that most people will receive the full stimulus amount, even if they owe back taxes or money to a federal or state agency, i.e. student loan payments. Additionally, if you are behind on your child support payments, your stimulus payment will not be reduced by the amount you owe in child support. However, private debt collectors will be able to garnish some or all of the stimulus payments to satisfy outstanding debts. Notably, the rules regarding whether stimulus payments can be garnished differ across the three stimulus payments that have been made since March 2020.
If you have other questions related to the Rescue Plan, please contact one of our qualified attorneys or check back soon for future blog posts on the Rescue Plan.