Advanced Child Credit received - no filing requirement in 2021

[plrraz]

Client is filed single, no dependents in 2020. His fiance, mother of their child filed a return last year (head of household, claimed their child) - They both used TurboTax.

(I believe they did that incorrectly, as under the tie breaker rules, he should've been the one filing HOH and claiming the child, but I don't think they want to amend, and will likely not understand, in fact, I may just tell them to go elsewhere, lol)

This year, the girlfriend did not work, and boyfriend provided all support. Great - he can file HOH, claim the child, and also claim her as an Other Dependent.

She received advance of child credit.  At first I was thinking - well, I'll just input that amount as having been received by the tax payer, and shazaam, everything will be just fine. Then my brain engaged - I don't think that will work (nor is it the correct thing to do).  

Is the correct thing to do, have the BF file HOH, claim the child, and the GF as Other Dependent and then list 0 as being advanced to HIM? Then he gets the full credit on his return - and SHE needs to return the advance of her credit, as she was not entitled to it?

How do I get that advance sent back to the IRS on her behalf (I will also look this up, but I was just wondering if anyone else has dealt with this). Do I file a return on her behalf, with no income (well a couple dollars of interest income so that can be efiled) with her not claiming the child, so that it shows she needs to send the advance back?  

Have I mentioned that I HATE these advances? Had a client call me on Sunday RANTING that she received received the advance and used it for "household expenses", and now that money was gone, as somehow I was responsible for that.

[jeffmcpa2010]

Rule#1 -  I may just tell them to go elsewhere, lol

May be the best idea yet!

Question, Does correcting / amending the 2020 returns have any financial impact? If yes and they are unwilling to make the correction, they are not the kind of client I want to be working with, consequently - Rule #1.

You would file his return irrespective to any ACTC she received, but I would only prepare that so long as she agrees to file a return for her (paper if the efile won't work due to no income) showing that she has to repay the advances.  If that doesn't work - Back to rule #1

With all the time you are spending researching this and thinking about it your not making any money off of them anyway, why take on clients that as soon as they sit down they start pulling red flag's out of every pocket and their ears? Life is too short.

[plrraz]

Yeah, the more I think about it, the more I may tell them to go elsewhere - she only made 12k and got a huge Earned Income Credit - the BF made 70k, so yeah - they did their respective 2020 returns incorrectly.

They are not going to understand they did things wrong - I may ask if they lived apart in 2020....she with the child and he somewhere else, but there is a reason we fill out those due diligence checklists...

btw, I saw someone on one of these forums talk about "choosing" who could claim HOH without mentioning the tie breaker rules - I thought to myself "wut? Did something change" and went down that rabbit hole looking to see what I missed.

[taxiowa]

The only thing incorrect about 2020 tax return is that the mother probably should not have claimed head of household.  Two unmarried parents can agree to let the lower income parent claim EIC and dependency which they did in 2020.  But I doubt her making 12K and him 70K allows her to claim she paid for the household.

As far as 2021 is concerned, she does not have to pay any back because she made less than 40K.  He is entitled to the full CTC amount as he did not receive anything early.

[sjrcpa]

If she was low income in 2020 the difference between HOH and Single tax might be zero, too.

[plrraz]

I have always considered that the parent that is earning 70k has paid more than half of the child's support, which then disqualifies the other parent under the tiebreaker rules  - I know that's super conservative approach, but my experience has borne this out. 

I've told clients to go to another preparer and have them do their return in such a case. Not worth the hassle. I just don't see how they can make the case the lower income taxpayer who makes 15 percent of what the higher taxpayer makes is paying over half of the child's support.

[taxiowa]

Does your experience include reading Publication 501, pages 16 & 17.  If it did you would clearly see that unwed parents can choose which parent claims the child.  Now the lucky parent has to claim all the tax benefits available, but this means the mom in your case has every right to claim the child and EIC for the child.  She probably did not qualify for the Head of House, but as Susan pointed out, she probably did not need that status.  And legally, parents can switch back and forth each year as long as the lucky parent claims all benefits.

So read the examples on those pages and enlighten your experience. 😀

[plrraz]

I'm sorry, I was very unclear - I was referencing HOH status NOT  who could claim the kids, or the credits that they are eligible for.  I understand that. Thanks for the enlightenment.