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.