Why would the IRS remove both of my daughters as dependents from my taxes and reduce my refund and economic payment?

Did you receive a Letter 6470 from the IRS reducing your tax refund due to the Recovery Rebate Credit that was entered on your 2020 federal tax return?

 

If so -

 

The letter from the IRS probably is stating that you indicated on our 2020 federal tax return that you did NOT receive a stimulus payment and therefor the amount that you did not receive was entered on the Form 1040 Line 30 as a Recovery Rebate Credit.

However, the IRS removed the credit from your tax return because the IRS shows that the stimulus payment was sent to you.  By removing the credit this reduces your federal tax refund or increases the taxes owed.

 

Go to the IRS website for your tax account to see what the IRS has sent to you for stimulus payments - https://www.irs.gov/payments/view-your-tax-account

 

If you never received the stimulus payment shown on your account then have the IRS put a trace on the payment.  Go to this IRS website for how to start a trace - https://www.irs.gov/newsroom/questions-and-answers-about-the-first-economic-impact-payment-topic-f-p...

how old are your daughters?

Generally this change by the IRS would indicate your daughters are too old for those benefits on 2020 tax forms.