RECOVERY REBATE CREDIT

[gk]

Hi,

Need some help on below case.

One my client (21 yrs old) was a dependent of her parent's last year because her income was only $2000.00. Because of that she was not eligible for Stimulus 1 and 2. This year she wants to do tax totally separate. When i am  completing the recovery rebate worksheet what amount i have to put on line 16 and 19. If i put 0 that will give me a full credit of $1800. If i put 1200 and 600 on line 16 and 19. i think that is NOT correct also. Pls help 

[Just-Lisa-Now-]

Sounds correct to me.

This is a 2020 credit.  Whomever claims the person (or they claim themselves) for 2020 is entitled to it.   

Doesnt matter who got the advance during 2020. 

If your client didnt get any advance (Doesn't matter what the parents got), then they're entitled to it on the 2020 return.

[gk]

Lisa,

I agree but this client or her parent's did not receive any EIP 1 and 2 because the client was a dependent on 2018 and 2019 return and he/she was older the 16 years. So what amount i should enter on recovery work sheet line 16 and 19. I cannot put zero or 1200/600.  

[Just-Lisa-Now-]

 She didn't receive any advances, you enter zero on  both those lines.  Why cant you enter zeroes?

[gk]

i was little confused. sorry 

[gk]

I thought he/she was not entitled to get stimulus 1 and 2.If i put zero they will get it. I dont want to do any mistake. That's it... Thanks a lot

[BobKamman]

Was she a full-time student for at least part of 5 months in 2020?  In other words, does she qualify to be claimed as a dependent by her parents?  If she "wants to do tax totally separate," you should want to do an accurate return.  

[gk]

Hi Bob,

I want to do an accurate return. She is not a student . She made only $3000.00 in 2020. But she wants to do a separate tax to get EIP 3. She said she lost other two EIP's because she was a dependent. I said ok, but i have problem with recovery work sheet. What to do?

[sjrcpa]

How did she live on $3,000?

Parents supported her? Sounds like she is their dependent.

[gk]

You are correct. Many people (who is older than 16 yrs) want to do separate tax this year even though they have very little income.  They all complaining that they missed EIP 1 and 2 and dont know what will happen to EIP 3. They dont want to take Chance.

[IRonMaN]

Many people also can go to jail for cheating on their taxes.  If they didn’t have enough income to cover at least half of their support they don’t qualify for the credit ———- period.  It doesn’t matter what they want, they aren’t legally entitled to it.

[rbynaker]

They can file a return, no problem.  But the issue is not whether or not they ARE claimed as a dependent, this issue is whether or not they CAN be claimed as a dependent.  Before filing fraudulent returns you should make sure the appropriate box is checked on the 1040.

[gk]

Dear all,

I respect all of your thoughts. My question is about recovery rebate credit. How can i reconcile recovery work sheet for someone who was a dependent of someone in 2019 and independent ( guess he made 50k) in 2020. What amount i have to enter in line 16 and 19 of recovery work sheet. Should i enter 0 or 1200/600. 

[BobKamman]

How many returns do you think IRS will allow, from dependents claiming their own exemption so they qualify for EIP's, before IRS starts a Preparer Project?

Maybe we'll find out in a few months.  

[gk]

Please see below from AICPA

• A taxpayer may be able to increase the overall amount of recovery rebate credits received between the taxpayer and an individual claimed as a dependent in 2018 or 2019 by not claiming the individual as a dependent in 2020.

https://www.thetaxadviser.com/issues/2020/jul/coronavirus-recovery-rebates-pitfalls-opportunities.ht...

[Just-Lisa-Now- · Accepted solution]

They received 0, so you enter 0 and they get it added to their refund.

[BobKamman]

That's not from the AICPA and it was written by an "inactive" CPA who teaches at a backwater university.  The same article expresses doubt about whether someone who got an EIP would have to pay it back if 2020 income was too high to qualify for the credit.  

[gk]

Thank u. Be honest with you i dont know what to do? I am going to put 0 on line 16 and 19 and will see. If i put 1200/600 IRS might  take back the amount later.

[rbynaker]

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@gk wrote:

Please see below from AICPA

• A taxpayer may be able to increase the overall amount of recovery rebate credits received between the taxpayer and an individual claimed as a dependent in 2018 or 2019 by not claiming the individual as a dependent in 2020.

https://www.thetaxadviser.com/issues/2020/jul/coronavirus-recovery-rebates-pitfalls-opportunities.ht...

---

Your quote is from the Executive Summary which is incorrect and does not reflect what's actually written in the article.  When the article refers to this situation it uses this language:

"If children over 17 cannot be claimed as dependents in 2020, they are eligible for the $1,200 credit."

and

"it will overall be more beneficial for a family if children over age 17 cannot be claimed as a dependent in 2020."

and

"A child who is a student that cannot be claimed as a dependent"

Whether someone can be claimed as a dependent is not a matter of choice, it is a matter of fact.  You have to go through all of the criteria to find out.  Often this comes down to the support test.

[TaxGuyBill]

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@gk wrote:

She made only $3000.00 in 2020. 

---

As the others have pointed out, a person does not qualify for the credit if they are ELIGIBLE to be claimed as a dependent.

You first said the person made $3000 in 2020, then you later said you guess they made $50,000 in 2020.  You can't just invent things because it is convenient or to get your client a larger refund.

Again, you need to determine if a person is ELIGIBLE to be claimed as a dependent.  That come before you even consider the credit or the worksheet for the credit.

[gk]

I am just giving you different scenarios....

[qbteachmt]

"I am just giving you different scenarios"

Your clients didn't "miss" EIP 1 or EIP 2. They missed the Advanced Payments of the EIPs. These payments were computed using the tax return info for 2018 or 2019, as a Best Guess by the Feds for projecting what your clients will qualify for in 2020. The payments are part of a recovery plan for 2020. Actual Tax Return data will be used in 2020 as a reconciliation function. We were impacted in 2020. Everything applies to 2020 actual events.

So, your clients need to file a factual 2020 return. They got $0 for any payments, so you will put $0. And the 1040 will show if they are now qualified for $.

I hope this helps you think it through.

[gk]

Excellent. That is the answer i want.

Respectfully

GK

[IL-Tax-Pro]

The practitioner should refer to IRS Pub 501 Dependents, Standard Deduction, and Filing Information for 2020 return to determine if the young taxpayer is a dependent of the parent, or not.

Always remember, a dependent is never a choice.  It is determined by the facts and circumstances applied to the IRS definition of a dependent.

[gk]

Thank u so much