Aged out dependents and Recovery Rebate Credit Worksheet

[Jennifer McCracken]

I have a client that claimed 2 dependents on their 2020 tax return and received $5600 in recovery rebate stimulus for those 2 dependents.  1 of the dependents aged off of the parents return for 2021, and the worksheet does not allow me to clarify this.  It is therefore showing that the client should have only gotten $4200 in stimulus and has thus resulted in a balance due on the client tax liability. Is there a way to fix this?  Do I have to include the aged-out child on their tax return?  Even though he really doesn't qualify as a dependent anymore due to age? When the IRS was issuing stimulus, did they take into account that the dependency status could change from 2020 to 2021 due to age? I don't want to impact the aged out child negatively on his tax return, but at the same time, he was a qualifying dependent when the stimulus was issued.

[qbteachmt]

"and received $5600 in recovery rebate stimulus for those 2 dependents"

It's $1,400 each. Do the math. That's 4 people. Who is the missing 4th?

Are you confusing the Child Tax Credit advance with the Stimulus/Recovery/EIP advance payments?

"should have only gotten $4200 in stimulus"

$1,400 X 3 = $4,200

"did they take into account that the dependency status could change from 2020 to 2021 due to age?"

You do this. You remove a dependent, you add a dependent, and if you do a return for someone, you also make sure to checkmark if they can be claimed as a dependent by another. That question is not "are you being claimed?"

[Jennifer McCracken]

OMG, I'm not sure why you think its ok to be so abrubt, but I think my question is clear.

In 2020 MFJ, 2 dependent children

In 2021 MFJ, 1 dependent child, the other no longer qualifies for 2021.

When the stimulus was issued there were 4 qualifying dependents, but the 2021 worksheet does not show for that because the 4th aged off the parents' return during 2021.

I'm looking for the best solution to not negatively impact the parents or the aged-off child. 

The worksheet does not take into account that a dependent may have aged-out during 2021.

So I am looking for a way to report this so that both the child and the parents aren't penalized for this.

[qbteachmt]

It's not "abrupt." It's precise to what you stated. It's to address this via a text-based forum, because we are not face-to-face.

I pointed out what you stated in perspective to what is provided for. You need to do that math to see there are Errors to consider.

"When the stimulus was issued there were 4 qualifying dependents"

I don't know what this means. You told us "a client" and "2 dependents." Now there were 4? And your client = 5 people? See how this gets confusing, fast?

The payout was in advance of Reality. The 2021 tax form(s) are the Actuals, and the reality. Use the payouts in filing: "here's what we are entitled to, and here is what we got."

It really is not Harder than this.

"I'm looking for the best solution to not negatively impact the parents or the aged-off child."

No. You are going to use the Right Filing status for what applies, for each person whose tax return you are preparing.

"So I am looking for a way to report this so that both the child and the parents aren't penalized for this."

What makes you think anyone will be penalized at all? Are you confusing the Child Tax Credit advance with the Stimulus/Recovery/EIP advance payments? Because CTC has a repayment provision. There is no repayment provision for EIP, so far.

Until you do the tax forms, you won't know what is going to happen. You don't get to pick from options. You file what applies.

[Just-Lisa-Now-]

Unless you think they are owed more RRC that what you see (sounds more like they got more than they were entitled to), just enter what they already got and move on, they is no payback of EIP. I dont see the problem here.

[Jennifer McCracken]

There is a payback. It impacts both the parent and the child tax return.

When the IRS determined the recovery rebate, they apparently did not take into consideration that the child would no longer qualify as a dependent in 2021 due to age.  Even though we are required to report the date of birth for each dependent child on every tax return we prepare.

If I put the child as a dependent on the parent 2021 tax return, he is not a qualifying child. He is not a full-time student.  He does not qualify as a dependent for them anymore, other than the fact that he still lives with his parents. He will just be a line-item.  However, it will reduces the parents tax liability because it changes the amount on the rebate worksheet.  The difference is about $500. I know this because I have run the scenario with him on and off the parent tax return.

On the other side, the child did not get any stimulus at all in April of 2021 because that stimulus was given to his parents.  If I report on his tax return that he did not get it because it did not go directly to him, then his recovery rebate worksheet will generate an extra $1400 back for him.  This is erroneous, since he was a qualifying child on the parents tax return for 2020 and they received the stimulus with him counted. The only way to fix this on HIS tax return is to say that he can be claimed as a dependent on someone else's tax return for 2021.  This will impact him for EIC and for his standard deduction even though he no longer qualifies as a dependent on the 2021 parent tax return.

Again, since he is aged-out as of 2021, he really is not a dependent on the parent return. There is no way to report this properly to the IRS without it creating a rebate reconciliation issue on both tax returns

The advance child tax credit is a non-issue since we are talking about a young adult 18-24 who has formally aged-off his parent's return.  This is 100% about correctly reporting the RECOVERY REBATE for both the parents and the child.

What I'm talking about here is a situation in which it seems impossible to correctly report the reconciliation on either the parent or child tax return without listing an aged-out child as a dependent on 2021 and therefore negatively impacting either the child or the parents.

I want to make sure I report this correctly for everyone. So I wanted to ask if anyone else has encountered this, and what solution did they take? Do I list the adult child on the 2021 so that the rebates reconcile on both the parent and child tax returns?  If I do this, how do I make it so the child doesn't get penalized for 2021 standard deduction and possible EIC qualification?

So far, I'm guessing no one else has encountered this situation. I don't think it is unreasonable, or worthy of snarky remarks.  I'm just asking the community if anyone else has encountered this situation.  

I'm not looking to get ridiculed or snarked at, I am looking to report all of this correctly so that everything flows properly through both the parent and child tax returns for 2021.

[sjrcpa]

There is no payback of EIP.

There is potential payback of advanced child credit.

Your reconciliation is not the problem. It is what it is.

Total tax less allowable credits less withholding and estimated tax payments = balance due.

If child is properly not able to be claimed as a dependent on his parents' return, he files his own return and can get the RRC since he did not receive the EIP.

[dkh]

$500 is not Recovery Rebate Credit  - it is Other Dependent Credit   not the same thing and                yes - the parent's lose that credit if the child is no longer a dependent - such is life.

Yes, the child, now on his/her own will receive $1400 Recovery Rebate Credit even though the parent's received $1400 for this same child -   The EIP payments were done is based on 2020 returns with the possibility there would be overpayments and underpayments.  Those lucky enough to be overpaid do not have to pay it back. 

I've encountered this situation many times.... doesn't seem right but that is how it was designed to work,

[Jennifer McCracken]

THANK YOU!!

[dkh]

You are welcome....    I started tracking the amount of overpayment my clients received  - for child no longer a dependent, for taxpayer who's income was over the limit for 2021 but wasn't on 2020...

for 12 returns it was over $18000.......... I quit tracking - too exasperating.

[sjrcpa]

Our tax dollars at work. 😚

[Jennifer McCracken]

For sure.

I was so focused on the recovery rebate credit reconciliation that I completely blanked out on the loss of the additional "other" dependent. Which would explain the $500 difference when I put him on the parent return to make the recovery rebate reconciliation form reconcile.

I like things to reconcile. It's an accountant thing. 

The past 2 years have been hellatious and I'm regretting choosing not to retire 3 years ago.

[dkh]

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@Jennifer McCracken wrote:

I like things to reconcile. It's an accountant thing. 

The past 2 years have been hellatious and I'm regretting choosing not to retire 3 years ago.

---

Yep accountant OCD... 😂  

The past 2 years kicked my butt.... I downsized this year.  Maybe not enough.

[Jennifer McCracken]

I been doing this stuff since 1989.  I think this is my last year.  It's sucking my soul dry.

[2021whyagain]

Cut back last year, and again this year!  It is all too much for my old brain of 55 years!!  I feel like I need to end doing business returns and only do individual returns as those can be billed like business returns of old!!  

[qbteachmt]

"I'm not looking to get ridiculed or snarked at, I am looking to report all of this correctly so that everything flows properly through both the parent and child tax returns for 2021."

No one is ridiculing you or providing snark. Think about how long it took each of us to read and respond, and many of us responded more than once. It's obvious you were struggling, and perhaps "too close" to the issue to understand which details applied.

Everyone is working on the same details.