Should an 18-23 be a dependent? Stimulus Unemployment Dependents Credits

[cpazott]

The stimulus payments and unemployment are causing a lot of confusion with a number of my clients returns.

I have several young adults with income between $15,000 and $25,000 due to the massive unemployment received under the Covid bill.  This added to their other income is generating the question.  Should they be claimed as a dependent? 

Taking them off their parents returns immediatly qualifies them for the first two stimulus payments.  In addition, their is the opportunity of the education credits.

Another tax planning opportunity ~ married filing seperate.  I just did a return where the taxpayers have been filing seperate over the pass few years for personal reasons, but now it has come to light, one of them is eligible for the stimulus.  If they filed jointly, stimulus would be zero.

In these long days of tax preparation, I would love to hear your thoughts on the above.

Kindly,

Jean 😉

[rbynaker]

There's nothing new in this area of the law.  You just have to go through the various tests to see if they qualify as a dependent.  Pub 501, Dependent rules start on page 10 and go through page 22.

https://www.irs.gov/pub/irs-pdf/p501.pdf

[qbteachmt]

Perhaps it would help to review what is really happening:

The funds were paid out as Advanced payment against a projection. The projection used 2018 or 2019 tax returns. But 2020 is the 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 entitled to the payment/credit as individual filers. That doesn't mean "not being claimed." It means "no longer qualifies as a dependent."

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

Interactive wizards portal 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

One for each EIP.

[BobKamman]

Who is being confused?

And today is an odd time to be asking that, when there is a good chance that the first $10,200 of unemployment will be excluded from income. 

There have been several discussions here about whether MFS makes enough difference in recovery rebate credits, to make it worthwhile.  Stop by more often.  

[qbteachmt]

Right, we should be more specific:

"Should they be claimed as a dependent? 

Taking them off their parents returns immediatly qualifies them for the first two stimulus payments."

Nope. That doesn't "immediately" qualify them. You need to learn who is eligible.