For Single Parents, the Stimulus Payment May Cause Confusion—Here's What You Need to Know
In many shared custody arrangements, co-parents agree to claim children as dependents in alternating tax years. Stimulus payments have thrown a wrench into this practice. Here's what experts say single parents should pay attention to.
I woke up early on March 17, the day the IRS "Get My Payment" tool showed my third stimulus check would hit my bank, to check my account. As I worried might happen, $1,400 arrived rather than $2,800. My ex-husband received the money intended for our daughter although she has not set foot in his home for a year—and even he understands that's not fair. In more contentious custody situations, this could lead to serious conflict.
I know we aren't the only co-parents dealing with this stimulus issue.
My ex-husband and I have always done what many other divorced parents with shared custody do at tax time: We alternate years to claim our daughter as a dependent. He gets to claim her in odd years and I claim her in even years. It's in our custody agreement, and we've handled it without complaint. Until 2020—the strangest year of our lives.
The stakes have changed. For the first stimulus payment, the IRS looked at both 2018 and 2019 tax returns and sent $500 per child age 16 or younger if you claimed dependents either year, which meant that both parents received payments in many cases. The second stimulus payment took into account only the 2019 return, and provided for $600 per dependent.
Since 2019 wasn't my year to claim my daughter, my ex-husband received the stimulus money meant for her. This, despite that she has been 100 percent in my physical custody from the start of the pandemic—and I don't say that as a dig or to insinuate he's disappeared. Instead, it's an agreement we came to early on to keep our daughter safe. She has asthma, which puts her at higher risk for getting very sick with COVID-19, and since we've both watched her struggle to breathe before, we made very conservative choices during this time. I work from home and was able to stay more locked down than he was, so she stays with me and frequently visits with him outdoors.
For the third stimulus payment, the IRS got rid of the age requirement (now all dependents are eligible) and is considering the latest filed tax return: 2019 or 2020. They added income caps, so that not everyone would be entitled to take the payment (in full or in part). I quickly filed my taxes myself on the day the new stimulus was announced to ensure that my daughter's payment would be included, but unfortunately, it wasn't that simple for me because the IRS didn't process my return in time.
Recovery Rebate Credit for Single Parents
I did get a nice surprise while working on my taxes when I ran into the Recovery Rebate Credit (it allows you to fill in the amounts of any stimulus payments you've received and then calculates corrections based on your 2020 return). As a result, I was able to claim a $600 rebate for the second stimulus payment, considering my daughter was now listed as my dependent.
But was I right in doing so or was I taking advantage of a loophole?
Mark Steber, chief tax information officer for Jackson Hewitt, a tax preparation service, says the act was designed to work this way. "I wouldn't call it a loophole," he says. "In the spirit and charge of the IRS and Treasury to get the stimulus payments out as fast as possible, the price of speed is sometimes accuracy. The IRS was fully aware that there might be double payments in limited situations, and that was done intentionally."
The intent of the first two payments was to give the benefit to the parent or guardian whose home the child lived in for most of 2020, but since the IRS didn't have that information yet, they went with previous years. Steber says the IRS intended to catch up on those first two payments when taxes were filed, and not to take back any "extra" payments sent to non-custodial parents. The third payment, coming right in the middle of tax season, has been more of a question mark.
What's the Solution for Single Parents?
Like other single parents, I wondered if I had any recourse to correct the third stimulus payment.
Originally, the only option the IRS offered was to wait a full year and receive a credit on next year's taxes for the latest stimulus payment; newer guidance suggests that the IRS will issue extra stimulus payments in cases like this one and for new dependents (such as new births or adoptions in 2020) when they process 2020 tax returns.
Steber says the process has been automated and when information comes in to show that someone did not receive all the stimulus money they were entitled to, the IRS will send payments for the difference.
Under normal circumstances, most tax refunds are sent within three weeks if you e-file, and about six to eight weeks if you file by paper unless errors are caught. Whether that timeline will stay on track this year is questionable; 24 million returns from 2019 still have not been processed, and this year's filing deadline has just been extended until May 17.
Keep in mind, any credits through the Recovery Rebate Credit would be included with your refund or taken off of what you owe (including back taxes). Corrected third stimulus payments are not considered rebate credits and will be issued separately.
So although there's an extended tax deadline, it's to your benefit to file as quickly as you can if you're missing any stimulus money. Even if you don't have to file taxes for other reasons, you do have to file to trigger these stimulus payments.
The Bottom Line
The stimulus payments may have been confusing for those co-parenting. But the good news for single parents is that the situation should right itself—if you're the primary custodian, you should receive the full credit for each child. Now it's just a matter of when.