EIP & Adult Dependent

[CPAMomma]

Client claims her 40ish old sister as a dependent. Sister doesn’t work & is on LA Cares health program. Last April when we went to file my client’s tax return, we found out her sister filed a tax return for 2019 so she could receive her “free” money from the Govt. Sister did receive EIP 1 & 2. When I questioned my client if sister received her EIP3, she said no. I think the sister isn’t being truthful with my client. My client wants to claim sister as a dependent & HH for 2020, and probably 2021. BTW, my client made too much money for any EIPs. Is this going to be a problem? And if the sister received the EIP3, she would have to pay that $$ back, right?

[qbteachmt]

"Is this going to be a problem?"

Which part?

🙂

The issue for 2019 would be whether the sister would be claimed as a dependent by the other sister or not. Did you amend 2019 for that non-filer/non-working sister, or let it stand? Because that was a Prepayment. The reconciliation is 2020 tax year filing.

"BTW, my client made too much money for any EIPs"

There has not been anyone sending out their goons to come door-knocking to collect, though.

"My client wants to claim sister as a dependent & HH for 2020"

Whoever files 2020 for/with the non-filer/non-worker is going to enter that they got the money and how much. Because "they" got the money. They can fight between them who should have had possession of it; the IRS doesn't control this part.

"And if the sister received the EIP3, she would have to pay that $$ back, right?"

EIP3 is part of 2021 reconciliation.

All of this shows if they get their Tax Account transcript.

[CPAMomma]

Just input all the client's info, client's income dropped in 2020;  if she claims her sister & HH, she would qualify for a partial Rebate Recovery Credit.  So can she really claim her sister & HH and the Rebate Recovery Credit for 2020, even though her sister received EIP 1 & 2 payments because sister filed a 2019 Tax Return?  Sister had Zero income in 2020 & 2019.

[BobKamman]

You are not working for the sister. 

You are not working for the government. 

You are working for your client. 

Does that help?

[qbteachmt]

"So can she really claim her sister" <== use the IRS interactive wizard

"& HH" <== use the IRS interactive wizard

"and the Rebate Recovery Credit for 2020"

As I stated, you will fill in how much was already issued. The IRS doesn't care if the sisters need to fight over who Got the money.

"even though her sister received EIP 1 & 2 payments because sister filed a 2019 Tax Return?"

Perhaps it would help to review what is really happening for EIP “stimulus” funds: The funds were paid out as Advanced payment against a projection. The first two payouts were projected based on 2018 or 2019 tax returns, but the eligibility is part of tax year 2020 as Actuals. You use the 2020 return to reconcile what a person is entitled to, against what they got.

If the person is not a dependent in 2020, then they would be eligible for consideration as individual filers. That doesn't mean "not being claimed." It means "no longer qualifies as a dependent." You must correctly address whether they Can be Claimed as a dependent on someone else’s tax return.

The third payout which started in Jan 2021, has different eligibility rules as to dependents and this payout is a projection, using 2019 or 2020 tax returns, then reconciled against Actuals on the 2021 tax return.

You might want to bookmark these links and read the IRS guidance.

Interactive wizards portal includes one for determining dependency:

https://www.irs.gov/help/ita

And:

https://www.irs.gov/newsroom/economic-impact-payment-information-center-topic-a-eip-eligibility

https://www.irs.gov/coronavirus/second-eip-faqs#Eligibility

https://www.irs.gov/newsroom/irs-is-issuing-third-round-of-economic-impact-payments

One for each of the three EIP “stimulus” payments.