The American rescue act affected three credits in dramatic way, especially for lower income households.
These credits dramatically increase after-tax income, especially for lower-income households, but they are effective only for the year 2021.
How does this affect child support?
The impact on child support occurs through the impact on taxes.
In many states, federal income taxes are a deduction for calculation of child support.
Therefore, anything that changes federal income tax will also change child support.
Because these changes are dramatic in 2021, they may have a significant impact on child support itself.
We examined the impact of the 2021 tax changes plus the stimulus checks on child support in 13 states.
To do this, we created a simple scenario, with the following elements:
- There are two children, ages 1 and 3.
- The lower income spouse earns $3,000 per month.
- The higher income spouse earns $6,000 per month.
- The children spend all of their overnights with the lower-income spouse.
- The cost of childcare is $1,300 per month.
Given this scenario, how much does the American Rescue Plan affect child support in 2021?
The chart below shows the answer.
In some states, as you see in the chart below, the difference in child support was $300 and more — and 18% or more of total support.
The states in our sample with the biggest impact were Michigan, Minnesota, New Jersey, Ohio, and Pennsylvania.
Here is the chart:
|State||Child support without ARP||Child support with ARP||Difference ($)||Difference (%)|
|Illinois (including add-ons)||$1,783||$1,382||$401||23%|
In some states, there was no difference. Why? Because those states do not use federal income taxes as a deduction for child support purposes.
So whether or not you include the American Rescue Plan’s tax provisions can make a big difference!
Please note that in this calculation, we also included the Recovery Rebate Credit (also known as the $1,400 stimulus payments) as tax credits in this calculation.
Our thinking is that if you are looking at 2021-only tax provisions, then:
- You want to use actual 2021 income, and that includes the stimulus payment; and
- The the Recovery Rebate Credit is, formally speaking, a tax credit.
If you were to exclude the Recovery Rebate Credit but include the other tax credits, the change would still be dramatic, but perhaps slightly less so.
So what should you do?
One approach would be to calculate both ways. Then specify that child support for 2021 is based on all the American Recovery Act provisions, but that starting in 2022, child support increases to the pre-Act levels.